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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
NEWPOWER HOLDINGS, INC.
(NAME OF SUBJECT COMPANY)
NEWPOWER HOLDINGS, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
652463101
(CUSIP NUMBER OF CLASS OF SECURITIES)
MARC E. MANLY
MANAGING DIRECTOR, LAW AND GOVERNMENT AFFAIRS
NEWPOWER HOLDINGS, INC.
ONE MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(914) 697-2100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
SCOTT M. FREEMAN
SIDLEY AUSTIN BROWN & WOOD LLP
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 906-2000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is NewPower Holdings, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is One Manhattanville Road, Purchase, New York 10577. The telephone
number of the Company at its principal executive offices is (914) 697-2100. The
Company may make information relating to the transaction described below
available on its Website address, www.newpower.com. The information on the
Company's Website is not a part of this Statement.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement")
relates is the Company's common stock, par value $0.01 per share ("Company
Common Stock"). As of February 1, 2002, there were 62,866,568 shares of Company
Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The filing person is the subject company. The Company's name, business
address and business telephone number are set forth in Item 1 of this Statement.
This Statement relates to the tender offer by Windsor Acquisition
Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary
of Centrica plc, a public limited company organized under the laws of England
and Wales ("Parent"), to purchase all the issued and outstanding shares of
Company Common Stock, at a purchase price of $1.05 per share, net to the seller
in cash (the "Per Share Amount"), subject to possible adjustment as described
in, and otherwise upon the terms and subject to the conditions set forth in,
Purchaser's Offer to Purchase dated March 1, 2002 (the "Offer to Purchase"), and
in the related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"). The Offer is
described in a Tender Offer Statement on Schedule TO dated March 1, 2002 (the
"Schedule TO"), filed by Purchaser with the Securities and Exchange Commission
on March 1, 2002.
The Offer is being made in accordance with the Agreement and Plan of Merger
dated as of February 22, 2002, among Parent, Purchaser and the Company (the
"Merger Agreement"), which is filed as Exhibit (e)(1) hereto and is incorporated
herein by reference in its entirety. The respective obligations of Parent,
Purchaser and the Company to consummate the transactions contemplated by the
Merger Agreement are subject to the satisfaction of certain conditions set forth
in the Merger Agreement. The Merger Agreement provides, among other things, that
following the consummation of the purchase of Company Common Stock tendered in
the Offer and the satisfaction or waiver of other conditions set forth in the
Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger"), with the Company to continue as the surviving corporation (the
"Surviving Corporation"). At the effective time of the Merger (the "Effective
Time"), each issued and outstanding share of Company Common Stock (other than
shares owned by Parent or any subsidiary of Parent or held in treasury by the
Company or any subsidiary of the Company and held by stockholders who properly
exercise their appraisal rights in accordance with the Delaware General
Corporation Law, as amended (the "DGCL")) will be converted into the right to
receive the Per Share Amount, or any higher price per share paid pursuant to the
Offer (the "Merger Consideration").
The Schedule TO states that the principal executive offices of Parent and
the Purchaser are located at Millstream, Maidenhead Road, Windsor, Berkshire SL4
5GD, United Kingdom.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are described in the Company's Information Statement, pursuant to Rule 14f-1
under the Securities Exchange Act of 1934, as amended (the "Information
Statement"), that is attached as Annex I to this Statement and is incorporated
herein by reference. Except as set out in this Statement (including in the
Exhibits hereto) or incorporated herein by reference, to the knowledge of the
Company, as of the date of this Statement there exists no material agreement,
arrangement or understanding or any material actual or potential conflict of
interest between the Company or its affiliates and (1) the
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Company's executive officers, directors or affiliates or (2) Parent, Purchaser
or their respective executive officers, directors or affiliates.
The Merger Agreement. The summary of the Merger Agreement and the
statement of the conditions of the Offer contained in Sections 11 and 13,
respectively, of the Offer to Purchase are incorporated herein by reference. The
summary and description of the Merger Agreement is qualified in its entirety by
reference to the Merger Agreement.
The Tender Agreements. The summary of the Tender Agreements (the "Tender
Agreements") contained in Section 11 of the Offer to Purchase is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Tender Agreements. The Tender Agreement with Enron Corp. and certain of its
affiliates, the Tender Agreement with certain affiliates of Credit Suisse First
Boston Corporation ("Credit Suisse First Boston") and the form of Tender
Agreement with certain other stockholders of the Company have been filed as
Exhibits (e)(4), (e)(5) and (e)(6), respectively, hereto and are incorporated by
reference.
Interests of Management and the Board. Certain members of the Company's
management and the Board of Directors of the Company (the "Board") may be deemed
to have interests in the transactions contemplated by the Merger Agreement that
are in addition to or in actual or potential conflict with their interests as
Company stockholders generally. The Board was aware of these actual and
potential conflicts of interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. See
Item 4 of this Statement.
The Merger Agreement provides that the purchase of shares of Company Common
Stock pursuant to the Offer will constitute a "Change of Control" within the
meaning of the Company's 2000 Stock Plan and each of the Company's employee
benefit plans, including the Company's Executive Deferred Compensation Plan,
Management Incentive Plan and employment agreements with its officers.
Accordingly, following the consummation of the Offer, the Company's executive
officers will have one year to determine whether to terminate employment on
account of the Change of Control. If any executive officer elects to terminate,
unless he or she enters into a new employment agreement with the Company, such
executive officer would be entitled to receive his or her then-current base
salary plus annual target bonus as if employed for the remainder of the term of
the agreement. See the Information Statement attached as Annex I to this
Statement for a description of the effect of a Change of Control on the
executive officers' entitlements under the Company's plans. The executive
officers and the Company's vice presidents have an aggregate amount of unvested
deferred compensation and severance payments of approximately $32 million.
The Merger Agreement also provides that upon consummation of the Merger,
all outstanding options to purchase Company Common Stock shall become vested and
each holder of an option will receive an amount in cash equal to (i) the excess,
if any, of the Merger Consideration over the per share exercise price of such
option times (ii) the number of shares subject to the option.
In addition, the Merger Agreement provides that the Surviving Corporation
shall indemnify and hold harmless all current or former officers and directors
of the Company and its subsidiaries, to the same extent and subject to the same
terms as such persons are currently indemnified by the respective charters and
by-laws of the Company and of its subsidiaries and under any indemnification
agreement with the Company, for acts or omissions occurring at or prior to the
Effective Time. The Merger Agreement also provides that the by-laws of the
Surviving Corporation shall contain provisions no less favorable with respect to
indemnification than are set out in the Company's Second Amended and Restated
Certificate of Incorporation. Furthermore, under the Merger Agreement Parent has
agreed to cause to be maintained by the Surviving Corporation for a period of
not less than six years from the Effective Time the Company's current directors'
and officers' insurance and indemnification policy to the extent it provides
coverage for events occurring prior to the Effective Time for all directors and
officers as of February 22, 2002; provided that (i) the Surviving Corporation or
Parent may substitute policies of at least the same coverage (with carriers at
least equal to in claims paying rating to the Company's existing carriers)
containing terms and conditions which are no less advantageous to the officers,
directors and employees of the Company and (ii) neither the Surviving
Corporation nor Parent shall be
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required to pay an annual premium for such insurance in excess of two times the
last annual premium paid prior to February 22, 2002, but in such case shall
purchase as much coverage as possible for such amount.
Enron Agreements. Concurrently with the execution of the Merger Agreement,
the Company also executed a Settlement Agreement and related promissory note
(together, the "Settlement Agreement") and a Master Termination Agreement (the
"Master Termination Agreement" and, together with the Settlement Agreement, the
"Enron Agreements") with Enron Corp. and certain of its affiliates (together,
the "Enron Entities"). Pursuant to these agreements, upon the closing of the
Offer, (i) all previous contractual arrangements between the Company and its
subsidiaries and the Enron Entities will be terminated, unless specifically
preserved in the Enron Agreements; (ii) each of the parties will be fully
released by the other parties from any claims or actions arising under any
contractual arrangements between the parties upon the closing of the Offer and
(iii) the Company will pay the Enron Entities $28 million, plus interest from
and after the first business day following the date of approval by the U.S.
Bankruptcy Court for the Southern District of New York overseeing the Enron
Entities' bankruptcy proceedings (the "Bankruptcy Court") in complete settlement
of any amounts due under certain commodities contracts between the Company and
its subsidiaries and the Enron Entities. Both the Settlement Agreement and the
Master Termination Agreement were approved by the Company's Business Review
Committee as more fully described in Item 4 of this Statement.
If the Merger Agreement had not been signed or is terminated, and the
Company were to liquidate, there is substantial uncertainty, both financial and
legal, as to whether the various respective payments to be received by the Enron
Entities and the executive officers of the Company upon consummation of the
Offer, as described above, would be paid in full or at all. See Item 4 of this
Statement for a discussion of the Board's consideration of the Merger Agreement
and its consideration of alternatives, including liquidation.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION OF THE BOARD
At a meeting held on February 19, 2002, the Board (i) approved and
determined advisable the Offer, the Merger and the Merger Agreement, (ii)
determined that it is in the best interests of the Company's stockholders that
the Company enter into the Merger Agreement and consummate the Offer and the
Merger on the terms and subject to the conditions set forth in the Merger
Agreement, (iii) recommended that the Company's stockholders accept the Offer,
tender their shares pursuant to the Offer and adopt the Merger Agreement (if
required by applicable law), and (iv) approved the acquisition of the shares of
Company Common Stock by Purchaser pursuant to the Offer and the other
transactions contemplated by the Merger Agreement.
BACKGROUND TO THE TRANSACTION
In May 2001, Enron Corp. (together with its subsidiaries, "Enron") advised
the Company that it was exploring opportunities to sell or otherwise dispose of
its interest in the Company. In June, Enron advised the Company that it had
ceased exploring such opportunities.
During the third quarter of 2001, several factors were adversely affecting
the Company's liquidity and cash resources. The Company built substantial
inventories of natural gas for supply during the 2001-2002 winter heating
season, which reduced available unrestricted cash. In addition, a significant
decline in gas and electric prices, coupled with the substantial increase in the
Company's customers since the fall of 2000, resulted in a large increase in the
cash collateral required to be provided by the Company to certain Enron
subsidiaries under the Company's master netting agreement with them (the "Master
Netting Agreement"). In view of the Company's limited unrestricted cash
resources, the Board authorized management to reduce expenses, to prioritize the
Company's market entry and customer acquisition strategies, and to secure
ongoing asset-backed or other financing.
Following an August 2001 telephone call from William I Jacobs, Chief
Financial Officer of the Company and a member of the Board, to Phillip Bentley,
the Group Finance Director of Parent, in September 2001, H. Eugene Lockhart,
Chairman of the Board, President and Chief Executive Officer of the Company, and
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Mr. Jacobs had discussions with Deryk King, Chief Executive Officer of Centrica
North America, a division of Parent, regarding a possible strategic business
relationship between the two companies.
On September 28, 2001, at a meeting, the Board assessed the Company's
financial condition and long-term prospects, particularly in view of the
significant changes in the external environment and the Company's liquidity
issues. The Board reviewed a list of potential parties with which the Company
was discussing asset-backed or other financing transactions. In addition, the
Board authorized senior management to engage Credit Suisse First Boston as the
Company's financial advisor to assist the Company in its exploration of a
possible investment in, or sale of, the Company and in contacting potential
strategic investors or acquirors on behalf of the Company.
On October 4, 2001, the Board created a committee of the Board (the
"Committee") to review strategic alternatives available to the Company and to
make recommendations to the Board. The Board appointed Eugene B. Shanks, Jr.,
Richard A. Causey and Mr. Lockhart to the Committee, with Mr. Shanks as Chairman
of the Committee. The Board also engaged its legal advisor, Sidley Austin Brown
& Wood LLP, as special counsel to advise it with respect to potential
transactions. Beginning in October 2001, the Committee, in consultation with
management and Credit Suisse First Boston, determined that a number of companies
that might be interested in engaging in a strategic transaction with the Company
should be approached. One of the parties so approached was Parent and, in
October 2001, Parent communicated to the Company its possible interest in
pursuing a strategic transaction with the Company.
At the same time, the Company continued to develop plans with respect to
additional cost-containment efforts and to pursue possible asset-backed and
other financing alternatives that it could undertake in the event of an
unsatisfactory result from the Company's possible strategic alternatives. In
addition, the Company negotiated with Enron an amendment to the existing
commodity supply arrangement that would permit the Company, until January 4,
2002, to substitute up to $40 million of accounts receivable and inventory as
replacement collateral for the cash collateral otherwise required, secured by a
lien on substantially all inventory, receivables and other intangible assets of
the Company.
Throughout the remainder of October and November 2001, in accordance with
the Board's instructions Credit Suisse First Boston and representatives of the
Company continued to approach a number of parties regarding a potential
transaction with the Company and, as a result of those efforts, the Company
entered into confidentiality and standstill agreements and engaged in
exploratory discussions with a number of such parties, including Parent. A copy
of such confidentiality and standstill agreement between the Company and Parent
is filed herewith as Exhibit (e)(7) and incorporated herein by reference.
On November 2, 2001, Messrs. Bentley and King, along with representatives
of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), financial advisor to
Parent, met with Messrs. Lockhart and Jacobs and representatives of Credit
Suisse First Boston in New York to discuss the process.
On or about November 16, 2001, Parent and certain other parties were
informed that, although the Company had made no determination with respect to a
sale of the Company or with respect to any other potential strategic
alternative, the Company was interested in receiving a nonbinding proposal with
respect to a possible acquisition of all the outstanding Company Common Stock in
order to continue evaluating which alternative would best serve the interests of
the Company's stockholders.
During this period, and at the request of the Board, senior management, in
consultation with the Company's financial advisor, considered a preliminary
valuation of the Company under a variety of scenarios, including one in which
the Company would remain a going concern, as well as one in which the Company
would undertake a liquidation.
Following its review of certain financial and other information regarding
the Company, on November 26, 2001, Parent submitted a written, preliminary,
nonbinding indication of interest with respect to a proposed acquisition of the
Company on a going concern basis for a cash purchase price of up to $2.00 per
share of Company Common Stock on a fully diluted basis, subject to further due
diligence and certain other conditions and financial assumptions including: (i)
the termination of certain arrangements between the Company and
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third parties on specified terms, and (ii) the maintenance of the Company's net
cash balances at projected levels.
On December 2, 2001, Enron filed for protection under Chapter 11 of the
United States Bankruptcy Code. As a result, there was an event of termination or
acceleration with respect to several of the commodity purchase agreements
between the Company and Enron, and the Company exercised its rights under the
Master Netting Agreement to terminate all commodity supply and swap transactions
between the companies effective December 3, 2001. Thereafter, the Company
prepared a settlement statement as required under the Master Netting Agreement
and began to negotiate with Enron to enter into a settlement with respect to
amounts payable under the terminated commodity supply and swap transactions.
On December 18, 2001, Messrs. King and Lockhart met to discuss certain
strategic alternatives and possible synergies that might result from an
acquisition of the Company by Parent.
Throughout December 2001, representatives of Parent, including Parent's
financial and legal advisors, conducted due diligence and participated in
various meetings and discussions with representatives of the Company and its
financial and legal advisors.
On December 21, 2001, at the direction of the Company, Credit Suisse First
Boston requested all interested parties, including Parent, to submit a final
proposal for a strategic transaction with the Company, including, in Parent's
case, a markup of a draft merger agreement prepared by the Company's counsel,
along with a proposed interim trading/credit arrangement, in the form thereafter
provided. Final proposals were to be submitted by January 10, 2002. Only Parent
submitted a final proposal.
As of January 2002, the Company's liquidity situation had further
deteriorated. As a result of Enron's bankruptcy filing, many of the Company's
counterparties for the purchase of commodity supply were requiring credit
assurance for commodity purchases in the form of prepayment or cash deposits,
rather than permitting the Company to pay in arrears, as had been customary for
such purchases. Certain utilities were requiring the Company to provide
additional security, in excess of industry standards, for providing service to
the Company's customers. Furthermore, several of the Company's surety providers
advised the Company that they would not renew their outstanding surety bonds and
would not provide new bonds to the Company. In addition, as a result of the
Company's efforts to conserve cash only approximately one-third of the Company's
retail supply obligations were hedged, as compared to the prior year, when all
of the Company's retail supply obligations were substantially fully hedged.
Throughout January 2002, the Company continued discussions with
representatives of Enron regarding the terms of (i) a settlement agreement with
respect to amounts payable under the Master Netting Agreement for all commodity
supply and swap transactions between the Company and Enron and their affiliates,
together with the termination of all liens covering collateral pledged by the
Company to Enron, and (ii) an agreement to terminate, upon payment of the
settlement amount, transactions and agreements between the Company and its
affiliates and Enron and its affiliates, and to mutually release rights and
obligations under such intercompany agreements and all other transactions,
including the noncompetition agreement, the master services agreement and
certain other agreements between such parties. By their terms, any such
settlement agreement and the termination agreement would be subject to approval
by the Bankruptcy Court.
On January 10, 2002, Parent submitted a written proposal to acquire all
outstanding shares of Company Common Stock on a fully diluted basis for $2.00
per share in a cash tender offer, together with a markup of the proposed merger
agreement. The proposal included certain conditions for Parent to enter into a
definitive merger agreement, including (i) Bankruptcy Court approval of a
settlement agreement with Enron with respect to all commodity supply and swap
transactions between the Company and Enron, (ii) the termination of certain
customer arrangements for a fixed amount to be paid out of related current
escrows and surety bonds, (iii) no movement in the forward curve of commodity
prices which would adversely affect the Company's net mark-to-market position
and (iv) the maintenance of the Company's cash balances at previously projected
levels (collectively, the "Signing Conditions"). Parent also indicated that
consummation of the proposed transaction would be conditioned on, among other
things, (i) the Company's continued realization of customer acquisitions at
levels previously projected by the Company, (ii) the maintenance of the
5
Company's cash balances at previously projected levels, (iii) the Company
neither being, nor being reasonably likely to become, insolvent, and (iv) no
material adverse change occurring with respect to certain of the Company's
projected financial metrics (collectively, the "January 10 Closing Conditions").
On January 14, 2002, the Board held a meeting and reviewed Parent's
proposal, including the then-proposed $2.00 per share offer price and the
conditions to entering into a definitive agreement and consummating the
transaction. The Board also considered management's preliminary liquidation
analysis of the Company. After reviewing the terms of Parent's proposal and the
preliminary liquidation analysis together with the Company's financial and legal
advisors, the Board instructed management to continue negotiations with Parent
in an effort to remove or limit the non-customary conditions in Parent's
proposal. Later that week, representatives of the Company and Parent conducted
negotiations regarding Parent's proposal. At the same time, during the month of
January and continuing into February 2002, representatives of Parent, including
its financial and legal advisors, continued to conduct due diligence and receive
additional information with respect to the Company.
On or about January 17, 2002, the Company was informed by Arthur Andersen
LLP, its independent financial accountants, that they would have to qualify
their opinion on the Company's 2001 financial statements with respect to the
Company's ability to continue as a "going concern."
On January 27, 2002, Parent communicated to the Company a revised proposal
and proposed markup of the merger agreement and withdrew its prior proposal. The
revised proposal included an offer to acquire all outstanding shares of Company
Common Stock on a fully diluted basis for $1.30 per share in a cash tender
offer, with a mechanism to adjust the purchase price as of the date (the
"determination date") on which all conditions to closing the tender offer were
satisfied or waived. The purchase price adjustment mechanism would adjust the
purchase price upward or downward, on a dollar-for-dollar per share basis, based
on changes in commodity forward prices between signing and the determination
date. If the purchase price adjustment would result in a purchase price greater
than $1.50, Parent could terminate the agreement unless the Company agreed to
close the offer at $1.50 per share. If the purchase price adjustment would
result in a purchase price less than $1.00, the Company could terminate the
agreement unless Parent agreed to close the offer at $1.00 per share. The
revised proposal eliminated the Signing Conditions and the January 10 Closing
Conditions, but included certain other conditions to the consummation of the
tender offer, some of which were carried forward from Parent's January 10
proposal, including (i) Bankruptcy Court approval of a settlement agreement with
Enron, (ii) obtaining binding tender agreements from stockholders of the Company
holding a majority of the Company's shares on a fully diluted basis, and (iii)
that there exist no reasonable possibility that the Company would become subject
to criminal liability or material civil liability as a result of the Company's
dealings with Enron.
On January 29, 2002, the Company received telephonic notice, and on
February 7, 2002, the Company received formal written notice, from the New York
Stock Exchange, Inc. (the "NYSE") that the Company was not in compliance with
the continued listing standards of the NYSE because the Company's average
closing share price had been less than $1.00 over a consecutive 30-day trading
period. Such notice provided that, in the event the Company's share price and
30-day average closing price did not rise over $1.00 in the following six-month
period, the Company would be subject to NYSE trading suspension and delisting.
Throughout this period, representatives of Parent and Parent's financial
and legal advisors continued to conduct due diligence and participated in
various meetings and discussions with representatives of the Company and its
financial and legal advisors with respect thereto.
On February 5, 2002, at a meeting, the Board reviewed the terms of Parent's
proposed transaction, including the then-proposed $1.30 per share offer price
and the proposed conditions to the consummation of the transaction. The Board
also reviewed the status of the termination and settlement negotiations with
Enron. Management advised the Board that an additional $50 to $75 million of
financing would be required in the third quarter of 2002 to maintain the Company
as a going concern and, given the negative response of numerous potential
financing sources the Company had approached, it was unlikely to obtain such
financing. In addition, management presented its revised liquidation analysis of
the Company, with reduced estimates of realizable asset values, that took into
account the effect on the saleability of certain of the Company's assets of
6
the increasingly negative publicity surrounding Enron. The Board discussed both
the difficulties of conducting an orderly liquidation of the Company and the
chances of realizing the amounts set forth in such analysis. The Board also was
advised of and considered the fact that there is a question as to whether a
liquidation of the Company would have an adverse effect on senior management's
deferred compensation and severance arrangements, as compared with a sale of the
Company. After reviewing the terms of Parent's proposal and related issues and
the Company's alternatives, including liquidation either in or out of bankruptcy
proceedings, together with the Company's management and its financial and legal
advisors, the Board instructed the Company's representatives and advisors to
continue discussions with Parent in an effort, among other things, to limit the
remaining material conditions and to reach a final understanding of the
financial terms of Parent's proposal. Thereafter, the Company and its advisors
continued discussions with Parent about these issues.
On February 10 and February 11, 2002, meetings were held at Parent's
headquarters in Windsor, England, among Messrs. Lockhart and Jacobs and certain
other representatives of the Company and representatives of Parent in an effort
to provide Parent with further information about the Company's relationship with
Enron and to attempt to reach a final agreement on the financial and other terms
and conditions of Parent's proposal. At these meetings, the Company's management
made clear its belief that the Company has no undisclosed liabilities as a
result of its dealings with Enron. Parent proposed a further reduction in the
offer price to $1.05 per share, advising the Company that the reduction was to
address Parent's continued concern about risks inherent in the proposed
transaction and disclosed obligations of the Company. The purchase price
adjustment mechanism was retained. If the purchase price adjustment would result
in a purchase price greater than $1.30, Parent could terminate the agreement
unless the Company agreed to close the offer at $1.30 per share. If the purchase
price adjustment would result in a purchase price less than $0.80, the Company
could terminate the agreement unless Parent agreed to close the offer at $0.80
per share. Parent also proposed certain changes to the tender offer conditions,
including a condition that the Bankruptcy Court approve an injunction against
potential Enron consolidated liabilities that the Company might face.
On February 13, 2002, at a meeting the Board considered the most recent
terms of Parent's proposal. The Board discussed with its legal advisors the
legal and other risks underlying the condition requiring approval by the
Bankruptcy Court of the motion by the Enron parties for approval of the Enron
Tender Agreement, the Settlement Agreement and the Master Termination Agreement,
including the provision requiring an injunction against third parties, including
the Internal Revenue Service, bringing claims against the Company in respect of
Enron liabilities, including tax liabilities. The Board also considered the lack
of availability to the Company of capital from other sources, as well as
alternatives to Parent's proposal, including liquidating the Company either in
or out of bankruptcy. Credit Suisse First Boston reviewed with the Board the
financial terms of Parent's revised proposal and its financial analysis of the
proposed offer price and indicated that, assuming no material changes in the
proposed merger as then contemplated, it would be prepared to deliver an opinion
as to the fairness, from a financial point of view, to the holders of Company
Common Stock (other than Parent and its affiliates) of the $1.05 Per Share
Amount (subject to possible adjustment as provided in the Merger Agreement).
After discussion, the Board, with director Lou L. Pai recusing himself from
voting, approved and authorized management to proceed to complete all necessary
agreements to achieve a transaction with the $1.05 Per Share Amount and purchase
price adjustment mechanism, subject to the resolutions, and final Board approval
of the remaining material issues, including the terms of a settlement with
Enron.
From December 2001 through February 2002, several members of the Board of
Directors of the Company resigned. Effective December 31, 2001, Linda Alvarado
and Ray Groves resigned from the Board for personal reasons and Richard L. Weill
was appointed to the Board. In February 2002, certain members of the Board who
were also officers of Enron resigned, including Mr. Causey, James V. Derrick and
Kenneth L. Lay. At a meeting of the Board on February 13, 2002, the Board
approved reducing the size of the Board to seven members.
During the following week, representatives of the Company, Parent and Enron
worked to negotiate the financial and other terms and conditions of the Enron
arrangements and the related conditions. On February 19, 2002, the Business
Review Committee of the Board, then comprised of Peter T. Grauer and
7
Messrs. Shanks and Weill, met to consider the resulting proposed arrangements
with Enron. After consultation with the Company's legal advisors and members of
management, the Business Review Committee approved, and determined to recommend
to the Board for approval, the form of the Tender Agreement with the various
Enron parties that beneficially owned stock or warrants of the Company, the
Master Termination Agreement with various Enron parties and the Settlement
Agreement with various Enron parties providing for the principal payment of $28
million by the Company to Enron to resolve amounts owed as a result of the
Company's December 3, 2001 termination of commodity and swap transactions under
the Master Netting Agreement.
Thereafter, on February 19, 2002, the Board met to discuss the final terms
of Parent's proposal to acquire the Company and the various agreements to be
entered into with Enron. In addition, at the meeting Credit Suisse First Boston
delivered to the Board its opinion to the effect that, as of that date and based
upon and subject to certain matters stated in such opinion, the $1.05 Per Share
Amount, subject to possible adjustment as provided in the Merger Agreement, to
be received in the Offer and Merger by the holders of Company Common Stock was
fair, from a financial point of view, to such holders (other than Parent and its
affiliates). After reviewing matters with the Company's legal advisors,
including further consideration of the legal and other issues involved in the
condition relating to approval by the Bankruptcy Court of the terms of the Enron
arrangements, including the injunction discussed above, as required by the terms
of Parent's final proposal, the Board, with Mr. Pai recusing himself from
voting, (i) approved and declared advisable the Offer, the Merger and the Merger
Agreement, (ii) declared that it is in the best interest of the Company's
stockholders that the Company enter into the Merger Agreement and consummate the
Offer and the Merger on the terms and subject to the conditions set forth in the
Merger Agreement, (iii) resolved to recommend that the Company's stockholders
accept the Offer, tender their shares pursuant to the Offer and adopt the Merger
Agreement (if required by applicable law) and (iv) approved the acquisition of
the shares of Company Common Stock by Purchaser pursuant to the Offer and the
other transactions contemplated by the Merger Agreement. In addition, the Board
approved, with Mr. Pai recusing himself, the form and terms of the Tender
Agreement, the Master Termination Agreement and the Settlement Agreement with
the various Enron parties thereto.
On February 20, 2002, in response to an inquiry from officials of the NYSE,
the Company announced that it was in merger discussions with Parent. Over the
next four days representatives of the Company and Parent engaged in further
negotiations with representatives of Enron and of its Creditors Committee in
connection with the terms of the Settlement Agreement and obtaining internal and
external approvals to enable Enron to execute the Tender Agreement.
The Merger Agreement, the Tender Agreement with Enron and certain related
parties, a Tender Agreement with affiliates of Credit Suisse First Boston, the
Master Termination Agreement and the Settlement Agreement were signed by the
parties on February 23, 2002. The Tender Agreements between Parent and certain
other stockholders of the Company were entered into as of February 20, 2002. On
February 23, 2002, Parent and the Company issued a joint press release
announcing the execution of the Merger Agreement.
REASONS FOR THE RECOMMENDATION OF THE BOARD
In making the determinations and recommendations set forth under
"Recommendation of the Board" above, the Board considered a number of factors,
including the following:
1. The amount of consideration to be received by the Company's
stockholders in the Offer and that the Per Share Amount, assuming no
adjustment thereto, represents a premium of 239% and 98%, respectively,
over the closing price of the Company Common Stock of
- $0.31 on February 12, 2002 (the trading day prior to the meeting of
the Board at which the Per Share Amount and the Merger Agreement was
approved); and
- $0.53 on February 15, 2002 (the trading day immediately prior to the
meeting of the Board at which the Merger Agreement was approved);
8
2. The Company's liquidity needs and lack of available financing, and
the risks of continuing to operate the Company as an independent entity, as
described above, including:
- the effect of the Enron bankruptcy on the perception of the Company in
the credit and commodity markets and by regulators;
- the termination of all commodity supply and swap transactions between
the Company and Enron;
- Enron's continued lien on assets of the Company pending the settlement
of amounts payable under such terminated transactions; and
- the fact that, as a result of the Company's efforts to conserve cash,
only approximately one-third of the Company's retail supply
obligations were hedged, as compared to the prior year, when all the
Company's retail supply obligations were substantially fully hedged;
3. The process leading to the Offer and the Merger and the possible
alternatives thereto, the range of possible benefits to the Company and its
stockholders of such alternatives and the expected timing and likelihood of
accomplishing any of such alternatives, as described above;
4. Information with regard to the financial condition, results of
operations, business and prospects of the Company, as well as current
economic and market conditions (including current conditions in the
industry in which the Company competes);
5. The financial presentation of Credit Suisse First Boston,
including its opinion dated February 19, 2002 to the effect that, as of
such date and based upon and subject to certain matters stated in such
opinion, the Per Share Amount, subject to possible adjustment as provided
in the Merger Agreement, to be received in the Offer and the Merger by the
holders of Company Common Stock was fair, from a financial point of view,
to such holders (other than Parent and its affiliates). The full text of
such opinion, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by Credit Suisse First Boston, is
attached hereto as Annex II and is incorporated herein by reference. CREDIT
SUISSE FIRST BOSTON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE PER SHARE AMOUNT, SUBJECT TO POSSIBLE
ADJUSTMENT AS PROVIDED IN THE MERGER AGREEMENT, TO BE RECEIVED IN THE OFFER
AND THE MERGER BY THE HOLDERS OF COMPANY COMMON STOCK (OTHER THAN PARENT
AND ITS AFFILIATES) AND IS NOT INTENDED TO CONSTITUTE, AND DOES NOT
CONSTITUTE, A RECOMMENDATION AS TO WHETHER ANY STOCKHOLDER SHOULD TENDER
SHARES OF COMPANY COMMON STOCK PURSUANT TO THE OFFER OR AS TO ANY OTHER
MATTERS RELATING TO THE OFFER OR THE MERGER. Holders of Company Common
Stock are urged to read such opinion carefully in its entirety;
6. The terms of the Merger Agreement, including (i) the parties'
representations, warranties and covenants and the conditions to their
respective obligations, (ii) the condition to the Offer that the Bankruptcy
Court issue an injunction against third parties, including the Internal
Revenue Service, bringing claims against the Company in respect of certain
Enron liabilities, including tax liabilities, and (iii) the possibility
that the terms of the Merger Agreement, including the non-solicitation and
termination fee provisions, might potentially discourage other parties that
might be interested in acquiring the Company from proposing such a
transaction;
7. The fact that Enron and certain related parties, affiliates of
Credit Suisse First Boston and certain other stockholders of the Company
listed in Section 11 of the Offer to Purchase, which together hold over 70%
of the outstanding shares of Company Common Stock on an adjusted fully
diluted basis, agreed to tender in the Offer such shares and warrants to
purchase Company Common Stock held by them;
8. The notice from the NYSE that the Company was not in compliance
with the continued listing standards of the NYSE because the Company's
average closing share price had been less than $1.00 over a consecutive
30-day trading period; and
9. The likelihood that Arthur Andersen LLP will have to qualify its
opinion on the Company's 2001 financial statements with respect to the
Company's ability to continue as a "going concern".
9
The Board did not assign relative weights to the above factors or determine
that any factor was of special importance. Rather, the Board viewed its position
and recommendations as being based on the totality of the information presented
to and considered by it. In addition, it is possible that different members of
the Board assigned different weights to the various factors described above.
INTENT TO TENDER
To the knowledge of the Company, as of the date of this Statement, each
executive officer, director, affiliate or subsidiary of the Company currently
intends to tender in the Offer all Company Common Stock that it owns of record
or beneficially.
ITEM 5. PERSON/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
The Company has retained Credit Suisse First Boston as its exclusive
financial advisor in connection with the Offer and the Merger. Pursuant to the
terms of Credit Suisse First Boston's engagement, the Company has agreed to pay
Credit Suisse First Boston an aggregate financial advisory fee of $6 million.
The Company has also agreed to reimburse Credit Suisse First Boston for
reasonable out-of-pocket expenses, including the fees and disbursements of legal
counsel and any other advisor retained by Credit Suisse First Boston, and to
indemnify Credit Suisse First Boston and certain related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Credit Suisse First Boston's engagement.
Except for the recommendation of the Company's Board as set forth above,
neither the Company nor any person acting on its behalf has or currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to the stockholders of the Company on its behalf with respect to
the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
After a reasonable inquiry, to the knowledge of the Company, no
transactions in Company Common Stock have been effected during the past 60 days
by the Company or by any executive officer, director, affiliate or subsidiary of
the Company, except as set forth in the Information Statement attached as Annex
I to this Statement.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (i) a tender offer or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person, (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company, (iii) a purchase, sale
or transfer of a material amount of assets of the Company or any subsidiary of
the Company, or (iv) any material change in the present dividend rate or policy,
or indebtedness or capitalization, of the Company.
Except as set forth in this Statement, there are no transactions,
resolutions of the Company's Board, agreements in principle, or signed contracts
in response to the Offer that relate to one or more of the matters referred to
in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
Short-form Merger. Under Section 253 of the DGCL, if Purchaser acquires,
pursuant to the Offer or otherwise, at least 90% of the outstanding Company
Common Stock, Purchaser will be able to effect the Merger after consummation of
the Offer without a vote of the Company's stockholders. However, if Purchaser
does not acquire at least 90% of the Company Common Stock pursuant to the Offer
or otherwise, under Section 251 of the DGCL, a vote of the Company's
stockholders will be required to adopt and approve the Merger Agreement.
Appraisal Rights. Holders of Company Common Stock do not have appraisal
rights in connection with the Offer. However, if the Merger is consummated
(regardless of whether a stockholder vote is required for
10
such consummation), persons who are holders of Company Common Stock at the
effective time of the Merger will have certain rights under Section 262 of the
DGCL to demand appraisal of their shares. Such rights, if the statutory
procedures are complied with, could entitle the holder to a judicial
determination of the "fair value" of the Company Common Stock at the effective
time, to be paid in cash, in lieu of the Per Share Amount.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(1) Joint Press Release issued by the Company and Parent on
February 23, 2002 (filed by the Company on February 25,
2002)
(a)(2) Letter to Stockholders of the Company, dated March 1, 2002
(a)(3) Offer to Purchase, dated March 1, 2002 (incorporated by
reference to Exhibit (a)(1)(i) to the Schedule TO of
Purchaser filed on March 1, 2002)
(a)(4) Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(1)(ii) to the Schedule TO of Purchaser filed on
March 1, 2002)
(a)(5) Opinion of Credit Suisse First Boston Corporation dated
February 19, 2002 (included as Annex II to this Statement)
(e)(1) Agreement and Plan of Merger, dated as of February 22, 2002,
among Parent, Purchaser and the Company (incorporated by
reference to Exhibit (d)(1) to the Schedule TO of Purchaser
filed on March 1, 2002)
(e)(2) Settlement Agreement, dated as of February 22, 2002, among
the Company, The New Power Company, Enron Corp., Enron North
America Corp., Enron Power Marketing, Inc. and Enron Energy
Services, Inc.
(e)(3) Master Termination Agreement, dated February 22, 2002, among
Enron North America Corp., Enron Power Marketing, Inc.,
Enron Energy Services, Inc. Enron Energy Services, LLC,
NewPower Holdings, Inc. and The New Power Company
(e)(4) Tender Agreement, dated as of February 22, 2002, among
Parent, the Company, Enron Energy Services, LLC, Cortez
Energy Services, LLC, McGarret I, L.L.C., McGarret II,
L.L.C., McGarret III, L.L.C. and EES Warrant Trust
(incorporated by reference to Exhibit (d)(3) to the Schedule
TO of Purchaser filed on March 1, 2002)
(e)(5) Tender Agreement dated as of February 22, 2002, among Parent
and DLJ Merchant Banking Partners II, L.P. and certain other
stockholders of the Company named therein, (incorporated by
reference to Exhibit (d)(2) to the Schedule TO of Purchaser
filed on March 1, 2002)
(e)(6) Form of Tender Agreement among Parent and certain
stockholders of the Company (incorporated by reference to
Exhibit (d)(4) to the Schedule TO of Purchaser filed on
March 1, 2002)
(e)(7) Confidentiality and Standstill Agreements, dated November 1,
2002, between Parent and the Company
(e)(8) Information Statement of the Company pursuant to Rule 14f-1
under the Securities Exchange Act of 1934, as amended, dated
March 1, 2002 (included as Annex I to this Statement)
</Table>
11
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
NEWPOWER HOLDINGS, INC.
By: /s/ H. EUGENE LOCKHART
------------------------------------
Name: H. Eugene Lockhart
Title: Chairman, President and
Chief Executive Officer
Dated: March 1, 2002
12
ANNEX I
NEWPOWER HOLDINGS, INC.
ONE MANHATTANVILLE ROAD
PURCHASE, NY 10577
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
------------------------
This Information Statement is being mailed on or about March 1, 2002 as a
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") that NewPower Holdings, Inc. (the "Company" or
"NewPower") has filed with the Securities and Exchange Commission (the "SEC") on
March 1, 2002. You are receiving this Information Statement in connection with
the possible election of persons designated by Centrica plc ("Parent") to a
majority of the seats on the Board of Directors of the Company. The Agreement
and Plan of Merger dated as of February 22, 2002, among the Company, Parent and
Windsor Acquisition Corporation ("Purchaser") requires the Company, at the
request of Parent, to take all actions necessary to cause Parent's designees to
become directors under the circumstances described therein. This Information
Statement is required by Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Rule 14f-1 thereunder. See "Right to
Designate Directors; The Parent Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meanings specified in the Schedule
14D-9.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on March 1,
2002. The Offer is scheduled to expire at 12:00 midnight, New York City time, on
March 28, 2002 unless the Offer is extended.
The information contained in this Information Statement concerning Parent,
Purchaser and Parent's designees has been furnished to the Company by Parent and
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
Pursuant to the Merger Agreement, promptly following the purchase by the
Purchaser of a majority of the outstanding shares of common stock of the Company
("Common Stock") on a fully diluted basis (including the shares of Common Stock
purchased pursuant to the Offer), the Parent will be entitled to designate such
number of directors (the "Parent Designees"), rounded up to the next whole
number, on the Company's Board of Directors that equals the product of (i) the
total number of directors on the Company's Board of Directors (giving effect to
the election of any additional directors in accordance with this mechanism) and
(ii) the percentage that the number of shares of Common Stock owned by Parent
and Purchaser and their affiliates (including shares of Common Stock so
purchased) bears to the total number of shares of Common Stock outstanding. In
furtherance thereof, the Company will increase the size of the Board of
Directors, or secure the resignation of directors, or both, as is necessary to
permit the Parent Designees to be elected to the Board of Directors, provided,
however, that prior to the effective time, the Board of Directors shall always
have at least three members (the "Independent Directors") who are neither
officers of Parent or Purchaser nor designees, shareholders or affiliates of
Parent or Purchaser. The Company has also agreed, if requested, to cause the
Parent Designees to constitute the same percentage of each committee of the
Board of Directors, and each board of directors of each subsidiary of the
Company and each committee of such board.
Parent has informed the Company that it will choose the Parent Designees
from the directors and executive officers listed in Schedule A to the Offer to
Purchase, a copy of which is being mailed to the
I-1
Company's stockholders together with the Schedule 14D-9. The Parent has informed
the Company that each of the directors and executive officers listed in Schedule
A to the Offer to Purchase has consented to act as a director, if so designated.
The information on such Schedule A is incorporated herein by reference.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of a specified minimum number of shares
of Common Stock pursuant to the Offer, which purchase cannot be earlier than
March 29, 2002, and that, upon assuming office, the Parent Designees will
thereafter constitute at least a majority of the Board of Directors.
CERTAIN INFORMATION CONCERNING THE COMPANY
GENERAL
The shares of Common Stock are the only class of voting securities of the
Company outstanding. Each share of Common Stock has one vote. As of February 1,
2002, there were 62,866,568 shares of Common Stock outstanding. The Board of
Directors currently consists of six members, and there is currently one vacancy
on the Board of Directors. Each director holds office until such director's
successor is elected and qualified or until such director's earlier resignation
or removal.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The name, principal occupation, business experience and age of each
director and named executive officer and his term of office and period of
previous service as a director (where applicable) of the Company are set forth
below. There are no family relationships among any of the named individuals, and
no individual was selected as a director pursuant to any arrangement or
understanding with any other person:
<Table>
<Caption>
DIRECTOR'S OR EXECUTIVE OFFICER'S NAME AND YEAR
FIRST BECAME DIRECTOR (WHERE APPLICABLE) AGE POSITION(S) HELD
- ----------------------------------------------- --- ----------------
H. Eugene Lockhart (2000).................... 54 Chairman of the Board of Directors, President &
Chief Executive Officer
William J. Cronin............................ 39 Managing Director, Risk Management Strategy
Peter T. Grauer (2000)....................... 56 Director
William I Jacobs (2000)...................... 60 Director, Managing Director, Chief Financial
Officer
Marc E. Manly................................ 49 Managing Director, Law & Government Affairs
Lou L. Pai (1999)............................ 54 Director
Eugene B. Shanks, Jr. (2000)................. 54 Director
Nicholas A. Utton............................ 44... Managing Director, Chief Marketing Officer
Richard L. Weill (2001)...................... 59 Director
</Table>
The following is a summary of the experience of the directors and executive
officers listed in the table above:
H. EUGENE LOCKHART, 52, is Chairman of the Board of Directors and has been
a director since April 2000. He serves as President and Chief Executive Officer
of NewPower, a position he has held since he joined the Company in February
2000. Prior to joining NewPower, from February 1999 to February 2000, Mr.
Lockhart was the President of AT&T Consumer Services at AT&T Corp. From May 1997
to October 1998, Mr. Lockhart served as President of BankAmerica Corporation's
Global Retail Bank. From January 1994 to May 1997, Mr. Lockhart was President
and Chief Executive Officer of MasterCard International. Mr. Lockhart serves on
the boards of directors of IMS Health Inc., Manguistics Group, Inc. and Synavant
Inc. Mr. Lockhart is also a trustee of the Alumni Board of the University of
Virginia and the Darden Graduate School of Business at the University of
Virginia.
WILLIAM J. CRONIN, 39, serves as Managing Director, Risk Management
Strategy of NewPower, a position he has held since September 2001. From the time
he joined the Company in March 2001 until September 2001, Mr. Cronin served as
Managing Director, Risk Control. From 1999 to March 2001, Mr. Cronin was
I-2
Chief Financial Officer and head of business development for Phibro, a
subsidiary of Citigroup Inc. Prior to that he was treasurer and Chief Credit
Officer for Phibro.
PETER T. GRAUER, 56, has been a director since June 2000. He has been a
Managing Director of DLJ Merchant Banking, Inc. since September 1992. From April
1989 to September 1992, he was a Co-Chairman of Grauer & Wheat, Inc., an
investment firm specializing in leveraged buyouts. Mr. Grauer is the Chairman of
the Board and President of Bloomberg Inc. and also serves on the boards of
directors of Davida Inc. and Thermadyne Holdings, Inc.
WILLIAM I JACOBS, 60, has been a director since July 2000. He serves as
Managing Director, Chief Financial Officer of NewPower, a position he has held
since joining the Company in June 2000. Prior to joining NewPower, from January
1999 to June 2000, Mr. Jacobs served as Senior Executive Vice President,
Strategic Ventures for MasterCard International, Inc. From January 1995 to
December 1999, Mr. Jacobs was Executive Vice President, Global Resources for
MasterCard International. Prior to Mr. Jacobs' employment at MasterCard
International, he was the Executive Vice President, Chief Operating Officer of
Financial Security Assurance, Inc., which he co-founded in 1984. Mr. Jacobs
serves on the boards of directors of Investment Technology Group, Inc., Global
Payments, Inc., Exide Technologies, Inc. and Blackboard, Inc. and is the former
Chairman of the Board of Trustees of American University.
MARC E. MANLY, 49, serves as Managing Director, Law and Government Affairs
of NewPower, a position he has held since joining the Company in April 2000.
From October 1996 to April 2000, Mr. Manly was Vice President and Chief Counsel
to AT&T Consumer Services. From December 1994 to October 1996, Mr. Manly served
as the Solicitor General of AT&T Corp. Prior to that time, he was a partner with
the law firm Sidley & Austin.
LOU L. PAI, 54, a private investor, has been a director since November
1999. From February 2001 to July 2001, Mr. Pai served as Chairman and Chief
Executive Officer of Enron Xcelerator. From March 1997 to February 2001, Mr. Pai
served as Chairman and Chief Executive Officer of Enron Energy Services. From
August 1995 to February 1997, Mr. Pai served as President and Chief Operating
Officer of Enron Capital & Trade Resources Corp., a subsidiary of Enron Corp.
now known as Enron North America Corp., and from September 1994 to July 1995,
Mr. Pai served as a Managing Director of Enron Capital & Trade.
EUGENE B. SHANKS, JR., 54, has been a director since November 2000. He is
President and Chief Executive Officer of NetRisk, Inc., a risk management
software and advisory services company that he founded in 1997. From 1980 to
1995, Mr. Shanks was employed at Bankers Trust and had a series of management
roles leading up to his appointment as President in 1992. Mr. Shanks is a
Trustee of Vanderbilt University and a member of its Executive Committee, and
also serves on the board of directors of The Posse Foundation.
NICHOLAS A. UTTON, 44, serves as Managing Director, Chief Marketing Officer
of NewPower, a position he has held since joining the Company in October 2000.
From 1996 to October 2000, Mr. Utton served as Chief Marketing Officer of
MasterCard International. Prior to his employment at MasterCard, Mr. Utton was
Senior Vice President, International Marketing at Revlon International. Mr.
Utton has also held various marketing and product management positions at
Cadbury Schweppes, Bristol-Meyers Squibb Company, Richardson Vicks and Unilever.
RICHARD L. WEILL, 59, has been a director since December 2001. He is Vice
Chairman of MBIA Insurance Corporation, a company he has served in various
positions, including President, since 1989. Prior to joining MBIA, Mr. Weill was
a partner in the law firm of Kutak Rock for over 20 years. He is a Trustee of
the University of Nebraska Foundation, and a Director of Acceptance Insurance
Companies Inc.
From December 2001 through February 2002, several members of the Board of
Directors of the Company resigned. Effective December 31, 2001, Linda Alvarado
and Ray Groves resigned from the Board for personal reasons. Effective December
31, 2001, Richard L. Weill was appointed to the Board. In February 2002, certain
members of the Board who were also officers of Enron Corp. resigned, including
Richard A. Causey, James V. Derrick and Kenneth L. Lay. At a meeting of the
Board on February 13, 2002, the Board approved reducing the size of the Board to
seven members. There is currently one vacancy on the Board.
I-3
BOARD AND COMMITTEE MEETINGS
The Board of Directors held four regular meetings and six special meeting
during fiscal 2001. Each director, except James Derrick and Kenneth Lay,
attended over 75% of the total number of meetings of the Board of Directors and
the committees thereof of which he or she was a member during fiscal 2001.
The standing committees of the Board of Directors are the Audit and Risk
Management Committee, the Compensation Committee and the Business Review
Committee.
During fiscal 2001, the Audit and Risk Management Committee, comprising Ray
Groves (Chairman), Linda Alvarado and Eugene Shanks, held eight meetings and is
entirely independent of both NewPower and Enron Corp. (i.e., directors who do
not receive compensation as an officer or employee of NewPower or Enron Corp.,
or of any of their respective subsidiaries), in accordance with New York Stock
Exchange requirements. Ray Groves and Linda Alvarado resigned from the Board of
Directors and the Audit and Risk Management Committee effective December 31,
2001. At this time, the Board elected Richard L. Weill as a member of the Board
of Directors and of the Audit and Risk Management Committee. Mr. Shanks is
currently the acting chairperson for the Audit and Risk Management Committee. In
accordance with its written charter, the Audit and Risk Management Committee
recommends to the Board of Directors the appointment of the independent public
accountants and reviews with representatives of the independent public
accountants the scope of their examination, their fees, the results of their
examination and any problems identified by the independent public accountants
regarding internal controls, together with their recommendations. The Audit and
Risk Management Committee also meets with NewPower's internal auditors to review
the activities of the internal audit staff and compliance with policies and
procedures on internal accounting controls.
The Compensation Committee, comprising Peter Grauer (Chairman) and Eugene
Shanks, held seven meetings during fiscal 2001. The Compensation Committee
administers NewPower's employee stock and other benefits plans and makes
decisions concerning compensation strategy for executives and other employees.
The Compensation Committee also reviews all items of compensation for the Chief
Executive Officer and the other executives.
The Business Review Committee, comprising Peter Grauer, Eugene Shanks,
Linda Alvarado and Ray Groves, held two meetings during fiscal 2001 and is
entirely independent of the Company and of Enron Corp. (i.e., directors who do
not receive compensation as an officer or employee of NewPower or Enron Corp.,
or of any of their respective subsidiaries). As stated above, Ray Groves and
Linda Alvarado resigned from the Board of Directors and the Business Review
Committee, effective December 31, 2001. Richard L. Weill was elected to the
Board effective as of December 31, 2001 and the Business Review Committee
effective as of February 13, 2002. The Business Review Committee was created in
February 2001, and reviews proposed transactions otherwise agreed to between
NewPower and Enron, including their respective subsidiaries, that may be
submitted from time to time by either the Chairman and the Chief Executive
Officer of NewPower, or by the Board of Directors. The Business Review Committee
is authorized to review and authorize, and to recommend to the Board of
Directors whether or not a transaction submitted for its review be approved by
the Board.
COMPENSATION OF DIRECTORS
Employee directors (Directors Lockhart and Jacobs) do not receive any cash
compensation from NewPower for their services as members of the Board of
Directors. Similarly, while employed by Enron Corp. or any of its affiliates,
any such directors do not receive any cash compensation from NewPower for their
services as members of the Board of Directors.
The other directors are paid an annual retainer fee of $20,000 for service
as a director and a fee of $1,000 for each meeting of the Board of Directors
that such director attends, and an annual retainer fee of $5,000 for service as
Chairman of any committee of the Board of Directors and a fee of $500 for any
committee meeting or such other business meetings called by management that such
director attends.
In addition, each of these non-employee directors receives options to
purchase 15,000 shares of Common Stock on such director's initial appointment to
the Board at an exercise price equal to the fair market value of
I-4
the Common Stock at that time. Furthermore, NewPower will issue, on an annual
basis on the day of the annual meeting of stockholders, an option to each of
these non-employee directors to acquire 10,000 shares of Common Stock upon such
non-employee director's re-election to the Board of Directors at the fair market
value of the Common Stock at that time.
The Company reimburses all directors for travel and lodging expenses in
connection with their attendance at board and committee meetings.
Consistent with the emphasis on equity-based plans, the Company's
non-employee directors are required to purchase within two years of their
initial election to the Board of Directors, shares of Common Stock worth at
least $250,000 as of the second anniversary of their election to the Board of
Directors.
In February 2001, the Company adopted a Directors' Fee Deferral Plan,
whereby directors who receive compensation from NewPower may make an irrevocable
election to defer receipt of some or all of their compensation. As such plan was
amended in May 2001, directors who elect to defer compensation may do so in the
form of either cash or equivalent stock units, determined by the fair market
value of the Common Stock as of the first day of each calendar quarter of the
annual retainer period, which currently begins on January 1 of each year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and SEC regulations require the Company's
directors, certain officers and greater than ten percent stockholders to file
reports of ownership on Form 3 and changes in ownership on Form 4 and 5 with the
SEC.
Based solely on its review of copies of such reports received or written
representations from such executive officers, directors and ten percent
stockholders, the Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers and ten percent stockholders
were complied with during fiscal 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for fiscal 2001 were Messrs.
Grauer and Shanks. Neither of them is or has been an officer or employee of the
Company or any of its subsidiaries.
I-5
EXECUTIVE COMPENSATION
The following tables and narratives discuss the compensation paid in fiscal
2001 and 2000 to NewPower's Chief Executive Officer and the four other most
highly compensated executive officers (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION LONG TERM ALL OTHER
--------------------------------- COMPENSATION COMPENSATION
OTHER ------------ ------------
ANNUAL RESTRICTED SECURITIES
COMPEN- STOCK UNDERLYING L/TIP
NAME & PRINCIPAL SALARY(2) BONUS(3) SATION(4) AWARDS(5) OPTIONS(6) PAYOUT
POSITION(1) YEAR ($) ($) ($) ($) (#) ($) (7)
- ---------------- ---- --------- --------- --------- ---------- ------------ ------ ------------
H. Eugene Lockhart..... 2001 700,000 0 895,057 888 0 N/A 574,818
Chairman of the
Board, 2000 600,958 1,480,000 74,850 4,000,000 2,112,000 N/A 583,322
President & Chief
Executive Officer
William I Jacobs....... 2001 600,000 0 228,985 888 0 N/A 0
Managing Director, 2000 377,919 312,500 155,365 1,000,000 864,350 N/A 0
Chief Financial
Officer
William J. Cronin...... 2001 333,333 240,000 0 888 500,000 N/A 0
Managing Director,
Risk Management
Strategy
Nicholas A. Utton...... 2001 440,000 0 32,652 888 100,000 N/A 0
Managing Director, 2000 111,692 557,500 17,311 0 636,650 N/A 0
Chief Marketing
Officer
Marc E. Manly.......... 2001 393,750 0 88,234 888 100,000 N/A 0
Managing Director, 2000 247,911 225,000 122,967 0 546,350 N/A 0
Law & Government
Affairs
</Table>
- ---------------
(1) Includes those who in fiscal 2001 were the Chief Executive Officer and the
other four most highly compensated executive officers as measured by salary
and bonus. The positions shown are the principal positions held during
fiscal 2001.
(2) Amounts shown are actual salaries paid for fiscal year indicated. The annual
salary in effect for Mr. Cronin during fiscal 2001 was $400,000. In
addition, the annual salary for Mr. Manly increased to $400,000 in February
2001.
(3) No annual performance bonuses were awarded for fiscal 2001. Bonus reported
for Mr. Cronin represents bonus and indemnification payments made at the
commencement of his employment. Amounts reported for fiscal 2000 include
bonus payments made at the commencement of employment in the amounts of
$780,000 for Mr. Lockhart and $337,500 for Mr. Utton; the remainder of the
amounts shown reflect the cash amount of annual performance bonuses for
fiscal 2000, which are recommended by the Chief Executive Officer and
reviewed and approved by the Compensation Committee. The cash portion of the
performance bonus earned during fiscal 2000 was paid on February 21, 2001.
Each Named Executive Officer, except Mr. Utton, received approximately 50%
of the 2000 annual bonus in cash. The balance of the 2000 annual reward was
foregone by these executives and comparable value was provided in the form
of stock options, which are reflected on the table as Long-Term
Compensation/Securities Underlying Options and further described in footnote
(6). $220,000 of Mr. Utton's bonus for fiscal 2000 was guaranteed as a
contractual amount to replace certain forgone entitlements from Mr. Utton's
previous employer. $80,000 of Mr. Utton's bonus for fiscal 2000 was foregone
as a cash payment, and comparable value was delivered in stock options as
described in footnote (6).
(4) Amounts shown represent payments of above-market interest on deferred
compensation and, for fiscal 2001, in the case of Mr. Lockhart and Mr.
Jacobs, additional amounts to compensate Mr. Lockhart and Mr. Jacobs for
taxes resulting from the lapse of restrictions on restricted stock. For Mr.
Lockhart and Mr. Jacobs, these additional compensation amounts were $851,031
and $95,679, respectively. NewPower maintains a Non-Qualified Executive
Deferred Compensation Plan under which non-elective deferred
I-6
compensation was awarded to Messrs. Lockhart, Jacobs, Utton and Manly. These
amounts were contractual and intended to replace certain forgone
entitlements from previous employers. Pursuant to Section 402(b)(2)(iii)(C)
of Regulation S-K of the Exchange Act, amounts shown in the table reflect
that portion of the above-market earnings on deferred compensation in excess
of 7.14% (120% of the applicable federal rate in effect at the time that the
plan was adopted). On December 19, 2001, the Compensation Committee approved
the termination of Mr. Lockhart's split dollar life insurance policy. As a
result of such termination, the cash surrender value of the policy was paid
to the Company and deposited in the Company's general unrestricted cash
account. Further, as a result of such termination, the Company's obligation
to make future premium payments for the policy ceased. On December 19, 2001,
the Compensation Committee also approved the restructuring of the Company's
deferred compensation arrangement with Mr. Lockhart in satisfaction of the
Company's obligation under Mr. Lockhart's employment contract by approving a
deferred compensation award. The award is to be governed by the terms of the
TNPC Executive Deferred Compensation Plan and a Nonelective Deferred
Compensation Agreement was executed by Mr. Lockhart and the Company. The
amount of the award shall be equal to the cash surrender value received upon
surrender of Mr. Lockhart's split dollar life insurance policy. See footnote
(7) for a description of Mr. Lockhart's split dollar life insurance policy.
(5) For fiscal 2001, each named Executive Officer received restricted stock on
May 16, 2001 valued at $888 at the time of grant. All of these shares vested
on November 15, 2001 and were converted to shares of Common Stock at that
time. For fiscal 2000, under the terms of the 2000 Stock Plan and in
accordance with contractual obligations in respect of their employment
offers, individual restricted stock agreements were entered into with Mr.
Lockhart and Mr. Jacobs. Restricted stock of 190,477 and 47,620 shares,
respectively, were credited to each officer's account as of October 5, 2000,
the date of the initial public offering. In the case of Mr. Lockhart, the
restricted stock, valued at the time of the initial public offering as
$4,000,000, vests ratably 2 years from February 1, 2000, the date of
commencement of Mr. Lockhart's employment, and has been or will be converted
into shares of Common Stock at those times. In the case of Mr. Jacobs, the
restricted stock, valued at the time of the initial public offering as
$1,000,000, vests ratably over 4 years, on December 31 of 2000, 2001, 2002
and 2003, and has been or will be converted into shares of Common Stock at
those times. The restricted stock also vests upon Mr. Lockhart's or Mr.
Jacobs's death, disability, involuntary termination of employment other than
for cause, upon a breach of contract by NewPower or upon a change of control
of NewPower pursuant to the terms of the 2000 Stock Plan. If dividends are
paid on the Common Stock, an amount in cash equal to the dividends will be
paid to Mr. Lockhart or Mr. Jacobs. At the end of fiscal 2001, the remaining
portion of the restricted stock initially granted to Mr. Lockhart and Mr.
Jacobs had values of $70,476 and $17,619, respectively.
(6) Amounts for fiscal 2001 include stock option awards made by the Company for
retention purposes and, in the case of Mr. Cronin, stock options awards made
at the commencement of his employment. Each Named Executive Officer (except
Mr. Lockhart and Mr. Jacobs) received 100,000 options each at an exercise
price of $1.17. All options granted have a ten year term and vest ratably
over a three year period. Mr. Cronin also received 300,000 options with an
exercise price of $6.20 and 100,000 options with an exercise price of
$21.00.
Amounts for fiscal 2000 include stock option awards made in connection with
the employment of each Named Executive Officer, as well as option awards in
connection with annual bonuses for 2000 performance. With respect to stock
options granted at the commencement of employment, Mr. Lockhart received
678,000 options with an exercise price of $3.88 and 1,290,000 options with
an exercise price of $21.00; Mr. Jacobs received 400,000 options with an
exercise price of $9.69 and 400,000 options with an exercise price of
$21.00; Mr. Utton received 620,000 options with an exercise price of $21.00
and Mr. Manly received 200,000 options with an exercise price of $9.69 and
300,000 options with an exercise price of $21.00. All options granted have
a 10-year term and vest ratably over a 3-year period on either the
anniversary date of the initial public offering (October 5, 2001, 2002 and
2003) or on December 31, 2001, 2002 and 2003, or otherwise as specified in
the 2000 Stock Plan. With respect to stock options received in lieu of a
portion of the annual bonus, as noted in footnote (3), each Named Executive
Officer, except Mr. Utton, received approximately 50% of the 2000 annual
bonus in cash and the remainder of the 2000 annual bonus in stock options.
Mr. Utton received 73.33% of his bonus in cash and 26.67% of his
I-7
bonus in stock options (see footnote (3)). The stock options granted as
part of the bonus have a ten-year term and vest ratably in three equal
installments on February 7, 2002, 2003 and 2004, and were granted as
follows: Mr. Lockhart: 64,000 options at an exercise price of $9.24, 40,000
options at an exercise price of $15.12 and 40,000 options at an exercise
price of $25.20; Mr. Jacobs: 28,600 options at an exercise price of $9.24,
17,875 options at an exercise price of $15.12 and 17,875 options at an
exercise price of $25.20; Mr. Utton: 7,400 options at an exercise price of
$9.24, 4,625 options at an exercise price of $15.12 and 4,625 options at an
exercise price of $25.20; and Mr. Manly: 20,600 options an exercise price
of $9.24, 12,875 options at an exercise price of $15.12 and 12,875 options
at an exercise price of $25.20.
(7) For fiscal 2001, the amounts shown include (i) $560,556, which is the dollar
value of premiums paid for Mr. Lockhart on a split dollar life insurance
policy owned by Mr. Lockhart, less the net present value of future
repayments of those premiums in 14 years and (ii) $14,262 attributable to
term life insurance coverage pursuant to a split dollar life insurance
arrangement. For fiscal 2000, the amounts shown include (i) $574,841, which
is the dollar value of premiums paid for Mr. Lockhart on the split dollar
life insurance policy, less the net present value of future repayments of
those premiums in 15 years and (ii) $8,481 attributable to term life
insurance coverage pursuant to the split dollar life insurance arrangement.
Mr. Lockhart's split dollar life insurance policy was terminated at the
request of the Company and Mr. Lockhart on December 19, 2001, following the
payment of the premium amounts specified above.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE GRANT DATE
NAME GRANTED(1)(#) FISCAL YEAR ($/SHARE) EXPIRATION DATE VALUE(2)($)
- ---- --------------- --------------- ----------- --------------- -----------
H. Eugene Lockhart......... 64,000 0.01 9.24 Feb. 6, 2011 568,320
40,000 0.01 15.12 Feb. 6, 2011 351,200
40,000 0.01 25.20 Feb. 6, 2011 346,000
William I Jacobs........... 28,600 0.00 9.24 Feb. 6, 2011 253,968
17,875 0.00 15.12 Feb. 6, 2011 156,943
17,875 0.00 25.20 Feb. 6, 2011 154,619
William J. Cronin.......... 100,000 0.02 1.17 Nov. 8, 2011 112,000
300,000 0.05 6.20 Feb. 28, 2011 1,785,000
100,000 0.02 21.00 Feb. 28, 2011 576,000
Nicholas A. Utton.......... 100,000 0.02 1.17 Nov. 8, 2011 112,000
7,400 0.00 9.24 Feb. 6, 2011 65,712
4,625 0.00 15.12 Feb. 6, 2011 40,608
4,625 0.00 25.20 Feb. 6, 2011 40,606
Marc E. Manly.............. 100,000 0.02 1.17 Nov. 8, 2011 112,000
20,600 0.00 9.24 Feb. 6, 2011 182,928
12,875 0.00 15.12 Feb. 6, 2011 113,043
12,875 0.00 25.20 Feb. 6, 2011 111,369
</Table>
- ---------------
(1) Options granted were options to acquire shares of Common Stock. All options
have an option term of 10 years and vest ratably over three years on the
anniversary of the grant date. For a discussion of the granting of certain
options as a part of the 2000 annual incentive program, see footnote (3) to
the Summary Compensation Table.
(2) Calculated using the Black Scholes pricing model. Underlying assumptions
used in the calculation include risk-free interest rates of 4.34% to 5.10%;
price volatility of 124%; a dividend yield of 0%; and an expected term in
years of 10. NewPower has elected to illustrate the potential realizable
value using the
I-8
Black Scholes pricing model as permitted by the rules of the SEC. This does
not represent NewPower's estimate or projection of future stock price or of
the assumptions utilized; actual gains, if any, upon future exercise of any
of these options will depend on the actual performance of the Common Stock.
FISCAL YEAR END OPTION VALUES
<Table>
<Caption>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
($) ($)(2)
--------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- ----------- ------------- ----------- -------------
H. Eugene Lockhart............................ 656,000 1,456,000 -- --
William I Jacobs.............................. 266,668 597,682 -- --
William J. Cronin............................. 0 500,000 -- --
Nicholas A. Utton............................. 206,667 529,983 -- --
Marc E. Manly................................. 166,667 479,683 -- --
</Table>
- ---------------
(1) No options were exercised in 2001 by the Named Executive Officers.
(2) The closing sales price of Common Stock as reported on the New York Stock
Exchange on December 31, 2001 was $0.74. Value is calculated by multiplying
(a) the difference between $0.74 and the option exercise price by (b) the
number of shares of Common Stock underlying the option.
EMPLOYMENT AGREEMENTS
NewPower has entered into employment agreements with the Named Executive
Officers as described below:
H. EUGENE LOCKHART. NewPower entered into an employment agreement with Mr.
Lockhart effective February 1, 2000. The agreement has a four year initial term.
The agreement provides that Mr. Lockhart will serve as President and Chief
Executive Officer, and will receive a minimum annual base salary of $700,000,
subject to annual review, and will also receive a target bonus of 150% of his
annual base salary, determined at the discretion of the Board of Directors,
payable in the first quarter of the subsequent year. As of the effective date of
the agreement, Mr. Lockhart was paid a one time additional payment of $780,000
and a combination of a split dollar whole life insurance policy and deferred
compensation with a current cost to the Company of $4 million. In addition,
under the agreement, Mr. Lockhart received stock options to purchase 678,000
shares of Common Stock at an exercise price of $3.88 per share, which vest in
one-third increments on December 31, 2001, 2002 and 2003, and stock options to
purchase 1,290,000 shares of Common Stock at the initial public offering price,
which vest in one-third increments on each of the first three anniversaries of
our initial public offering. All options have a term of ten years. Mr. Lockhart
also received $4,000,000 in restricted stock upon consummation of the initial
public offering, valued at the initial public offering price of our Common
Stock, which vested in one-half increments on each of February 1, 2001 and
February 1, 2002. Mr. Lockhart will be allowed to participate in all benefit
plans offered by NewPower to other similarly situated employees.
NewPower may terminate Mr. Lockhart's employment agreement at any time for
cause, or for his death or disability before the expiration of the term of
employment. Mr. Lockhart may voluntarily terminate his employment at any time.
If NewPower involuntarily terminates Mr. Lockhart's employment agreement, which
includes termination without cause, or if NewPower materially breaches a
material provision of the employment agreement which remains uncorrected for 30
days following Mr. Lockhart's written notice of the breach, then Mr. Lockhart is
entitled to receive his monthly base salary and target bonus as if his
employment agreement had continued for the full term after involuntary
termination, unless he accepts employment with a competitor. The term of the
agreement may be extended for one year periods upon notice to and agreement with
Mr. Lockhart on or before six months prior to the conclusion of the initial term
or any extension thereof. Employment after the agreement expires converts to
employment-at-will, terminable at any time by either NewPower or Mr. Lockhart.
The agreement prohibits Mr. Lockhart from soliciting NewPower employees for a
period of twelve months following termination or from competing with NewPower or
soliciting customers for
I-9
either twelve months after voluntary termination or six months after involuntary
termination. The employment agreement also contains confidentiality provisions.
In the event of a change of control of NewPower as specified in NewPower's
2000 Stock Plan described below, and unless he enters into a new employment
contract with a successor entity, Mr. Lockhart would have a one year period to
elect to terminate his employment agreement on account of consummation of a
change of control. In that event, Mr. Lockhart would be entitled to the salary
and bonus otherwise to be paid over the remaining term of his employment
agreement, although such payments would not exceed one year's salary and bonus
at then-current levels once the final year of the initial term begins.
WILLIAM I JACOBS. NewPower entered into an employment agreement with Mr.
Jacobs effective May 1, 2000. The agreement has a four year initial term. The
agreement provides that Mr. Jacobs will receive a minimum annual base salary of
$600,000, subject to annual review, and will also receive a target bonus of 100%
of his annual base salary payable in the first quarter of the subsequent year.
In addition, under the agreement, Mr. Jacobs received stock options to purchase
400,000 shares of Common Stock at an exercise price of $9.69 per share, which
vest in one-third increments on December 31, 2001, 2002 and 2003, and stock
options to purchase 400,000 shares of Common Stock at the initial public
offering price, which vest in one-third increments on each of the first three
anniversaries of the Company's initial public offering. All options have a term
of ten years. As of the effective date of the agreement, Mr. Jacobs was granted
$6,700,000 as principal amount, subject to the accumulation of interest, under
the Company's Executive Deferred Compensation Plan, with vesting in one-fifth
increments at the effective date of the agreement, and on December 31, 2000,
2001, 2002 and 2003. Mr. Jacobs also received $1,000,000 in restricted stock
upon consummation of the initial public offering valued at the initial public
offering price of our Common Stock, which has vested or will vest in one-fourth
increments on December 31, 2000, 2001, 2002 and 2003. Mr. Jacobs will be allowed
to participate in all benefit plans offered by NewPower to other similarly
situated employees. The other terms of Mr. Jacobs' employment agreement are
substantially similar to the terms of Mr. Lockhart's employment agreement. In
addition, in February 2001, the Company agreed to indemnify Mr. Jacobs, as
provided in its by-laws, for benefits he forfeited in connection with a
potential dispute with his prior employer concerning the Company's hiring of
employees from that company, and for any fees and expenses in connection with
any litigation, should it ever ensue. The indemnification for forfeited benefits
amounts to $1,000,000 and was credited as additional principal amount to Mr.
Jacobs' deferred compensation account.
WILLIAM J. CRONIN. NewPower entered into an employment agreement with Mr.
Cronin effective March 1, 2001. The agreement has a four year initial term. The
agreement provides that Mr. Cronin will receive a minimum annual base salary of
$400,000, subject to annual review, and will also receive a target bonus of 100%
of his annual base salary payable in the first quarter of the subsequent year.
In addition, under the agreement, Mr. Cronin received stock options to purchase
300,000 shares of Common Stock at an exercise price of $6.20 per share, which
vest in one-third increments on March 1, 2002, 2003 and 2004, and stock options
to purchase 100,000 shares of Common Stock at an exercise price of $21.00 per
share, which vest in one-third increments on February 28, 2002, 2003 and 2004.
All options have a term of ten years. As of the effective date of the agreement,
Mr. Cronin was paid a one time additional payment of $170,000. Mr. Cronin will
be allowed to participate in all benefit plans offered by NewPower to other
similarly situated employees. The other terms of Mr. Cronin's employment
agreement are substantially similar to the terms of Mr. Lockhart's employment
agreement. In addition, Mr. Cronin was paid a one time additional payment of
$70,000 to indemnify him for compensation forfeited from his previous employer.
NICHOLAS A. UTTON. NewPower entered into an employment agreement with Mr.
Utton effective September 29, 2000. The agreement has a four year initial term.
The agreement provides that Mr. Utton will receive a minimum annual base salary
of $440,000, subject to annual review, and will also receive a target bonus of
100% of his annual base salary payable in the first quarter of the subsequent
year. In addition, under the agreement, Mr. Utton received stock options to
purchase 620,000 shares of Common Stock at the initial public offering price,
which vest in one-third increments on each of the first three anniversaries of
the Company's initial public offering. All options have a term of ten years. Mr.
Utton became entitled to a one-time payment of $337,500 upon commencement of
employment. Mr. Utton was also granted $2,037,500, as
I-10
principal amount, subject to the accumulation of interest under the Company's
Executive Deferred Compensation Plan, which as amended provides for a payment of
$337,500 one year after the commencement of employment, $400,000 on February 8,
2002, $450,000 on March 20, 2002, $450,000 on April 8, 2002 and $400,000 on
April 22, 2002. Mr. Utton will be allowed to participate in all benefit plans
offered by NewPower to other similarly situated employees. The other terms of
Mr. Utton's employment agreement are substantially similar to the terms of Mr.
Lockhart's employment agreement.
MARC E. MANLY. NewPower entered into an employment agreement with Mr.
Manly effective April 17, 2000. The agreement has a four year initial term. The
agreement provides that Mr. Manly will receive a minimum annual base salary of
$350,000, subject to annual review, and will also receive a target bonus of 100%
of his annual base salary payable in the first quarter of the subsequent year.
In addition, under the agreement, Mr. Manly received stock options to purchase
200,000 shares of Common Stock at an exercise price of $9.69 per share, which
vest in one-third increments on December 31, 2001, 2002 and 2003, and stock
options to purchase 300,000 shares of Common Stock at the initial public
offering price, which vest in one-third increments on each of the first three
anniversaries of our initial public offering. All options have a term of ten
years. As of the effective date of the agreement, Mr. Manly was granted
$5,000,000 as principal amount, subject to the accumulation of interest, under
the Company's Executive Deferred Compensation Plan, with vesting in one-third
increments on December 31, 2000, 2001 and 2002. Mr. Manly will be allowed to
participate in all benefit plans offered by NewPower to other similarly situated
employees. The other terms of Mr. Manly's employment agreement are substantially
similar to the terms of Mr. Lockhart's employment agreement.
STOCK OPTION AND BENEFIT PLANS
All employees of NewPower are eligible to participate in the Company's
benefit plans, which include health coverage, disability and life insurance, and
a 401(k) savings plan. In addition, grants of stock options are governed by the
2000 Stock Plan, and elective or non-elective deferred compensation is subject
to the Company's Executive Deferred Compensation Plan, both of which plans are
summarized below.
2000 STOCK PLAN
General. The 2000 Stock Plan allows the Company to grant options or
restricted stock to employees, board members, officers, consultants and other
service providers. The purpose of the stock plan is to attract and retain
qualified employees, consultants and other service providers by providing them
with additional incentives and opportunities to participate in NewPower's
ownership and to create an interest in the success and increased value of
NewPower. The stock plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has the authority to determine,
and to establish guidelines and to delegate to the Chief Executive Officer the
determination of, the persons to whom awards are to be granted, the time at
which awards will be granted, the number of shares to be represented by each
award, and the consideration to be received, if any. The Compensation Committee
also has the power to interpret the stock plan and to create or amend its rules.
Reservation of Shares. Grants of stock options and restricted stock may be
made pursuant to the stock plan. Currently, the number of shares of Common Stock
issued under the stock plan may not exceed 18,419,400 shares. If any portion of
any option or restricted stock granted under the stock plan can no longer be
exercised or become vested, or if any Common Stock is reacquired by NewPower
pursuant to an option or restricted stock agreement, where in any such case no
alternative consideration has been provided to the participant, the unexercised
portion will be available for grant or reissuance. If the outstanding Common
Stock is adjusted because of a recapitalization, stock split, combination of
shares, reclassification, stock dividend, or other similar change, the
Compensation Committee will make appropriate adjustments to the total number and
kind of shares covered by the stock plan to preserve as nearly as practical the
benefits to the participants. However, in the event of an equity capital
contribution to NewPower, stock plan participants will have no recourse to a
dilution in their shares of Common Stock, options and rights to acquire
restricted stock.
I-11
Stock Options. Stock options granted under the stock plan are not intended
to be incentive stock options within the meaning of Section 422(b) of the
Internal Revenue Code. The maximum number of shares that may be subject to
options granted under the stock plan to an individual optionee during any
calendar year may not exceed, with respect to options granted prior to September
1, 2000, 3,000,000 shares, and, with respect to options granted on or after
September 1, 2000, 1,500,000 shares. The exercise price for an option granted
under the stock plan will be determined by the Compensation Committee but, on or
after September 1, 2000, will be no less than the fair market value of the
Common Stock on the date the option is granted. The term for exercise of any
option granted will generally be ten years from the effective date of the option
agreement. The options granted under the stock plan are not assignable or
transferable, except on the death of a participant or unless the Committee
provides its approval.
Restricted Stock. The stock plan permits the Compensation Committee to
make restricted stock awards, including performance-based restricted stock
awards pursuant to Section 162(m) of the Internal Revenue Code. The maximum
number of shares that may be subject to grants of restricted stock to an
individual grantee during any calendar year may not exceed, with respect to
grants of restricted stock prior to September 1, 2000, 1,000,000 shares, and,
with respect to grants made on or after September 1, 2000, 500,000 shares. The
Committee will establish the performance criteria. The restricted stock granted
under the stock plan is not assignable or transferable, except on the death of a
participant or unless the Committee gives its approval. Upon a change of
control, as defined in the stock plan and as described below, all outstanding
restricted stock shall become immediately vested.
Termination of Employment. If the employment of any employee is terminated
for any reason, other than the termination of employment by NewPower for cause
or the voluntary termination of employment by the employee not as a result of
any breach by NewPower, then the stock plan provides for the accelerated vesting
of options and restricted stock granted to such employee.
Change of Control. The stock plan provides for the accelerated vesting of
options and restricted stock granted to participants in the event of a change of
control of NewPower. Change of control is deemed to occur in one of four
circumstances: (1) excluding exceptions applicable to existing investors and
transactions, where a person or entity acquires more than 25% of the
then-outstanding shares of Common Stock or the combined voting power of the then
outstanding voting securities of NewPower entitled to vote generally in the
election of directors; (2) where a majority of the Board is replaced, other than
where individual board members are replaced by a majority vote of the Board; (3)
in the event of a merger, consolidation or sale or other disposition of all or
substantially all the assets of NewPower where the stockholders immediately
prior to such transaction fail to own, immediately after such transaction, at
least 70% of the then-outstanding shares of Common Stock or the combined voting
power of the then outstanding voting securities of NewPower entitled to vote
generally in the election of directors or fail to meet other specified
conditions; and (4) upon approval by the stockholders of a complete liquidation
or dissolution of NewPower. Notwithstanding the foregoing, a change of control
shall not be deemed to occur if the Board of Directors unanimously approves a
transaction that would otherwise result in a change of control.
Term and Amendment. The stock plan has a term of ten years, subject to
earlier termination or amendment by the Board of Directors. The Board of
Directors may amend the plan at any time, except that participant approval is
required if any amendment, alteration, suspension or termination substantially
affects or impairs the participant's rights under the plan.
EXECUTIVE DEFERRED COMPENSATION PLAN
General. The purpose of the Executive Deferred Compensation Plan is to aid
the Company in attracting and retaining key employees by providing a
non-qualified compensation deferral vehicle. The deferred compensation plan is
administered by the Compensation Committee of the Board of Directors. The
Compensation Committee has the power to interpret the deferred compensation plan
and to create or amend its rules. The deferred compensation plan is currently
considered a "top hat" plan for ERISA purposes and is an unfunded plan
maintained by the Company primarily for the purpose of providing deferred
compensation to
I-12
a select group of management. As of December 31, 2001, there were five
participants in the deferred compensation plan.
Participation. The deferred compensation plan allows for eligible
employees to elect to participate in the deferred compensation plan for a given
calendar year by filing an irrevocable election form with the Compensation
Committee. The Compensation Committee has not yet considered or approved an
election form, and therefore there has not yet been any elective participation
in the deferred compensation plan.
The Company may, in its sole discretion, award to an eligible employee
non-elective deferred compensation. The terms and conditions of such
non-elective deferred compensation may vary from award to award as the Company
deems appropriate.
Investment Return. A participant's deferred compensation account shall be
deemed to be invested in accordance with the participant's election or elections
on his or her investment allocation forms. The Compensation Committee expects to
make investment funds available to participants in the deferred compensation
plan at a future date. In the interim, deferred compensation accounts are
earning an investment return at the prime rate of interest plus one percent,
compounded quarterly. The Compensation Committee in its sole discretion may
change the investment funds from time to time.
Distributions. In addition to distributions in the form of lump sum
payments, or declining balance payouts in accordance with an election form or a
non-elective award, participants are entitled to accelerated distributions upon
death or disability of the participant, upon proof of severe financial hardship,
or as a liquidating distribution subject to a forfeiture penalty of 10% of the
value of the deferred compensation account.
Termination of Employment. In the event of a termination of employment
without cause or a termination of employment for reason of death or disability,
any balance in a participant's account shall become vested. In the event of a
voluntary termination of employment, any unvested portion of the participant's
non-elective deferred compensation and the investment return attributable to
such unvested compensation shall be forfeited as of the date of such
termination. In the event of a termination of employment for cause, the
investment return then credited to the participant's deferred compensation
accounts (to the extent a positive amount) plus any unvested portion of the
participant's non-elective deferred compensation shall be forfeited as of the
date of such termination.
Change of Control. In the event of a change of control, any termination of
employment of a participant in the deferred compensation plan that occurs during
the 24-month period immediately following the consummation of a transaction
constituting a change of control will result in any unvested amounts becoming
vested.
Company Payment Deferral Rights. In the event that any amount payable from
a participant's deferred compensation account, including a liquidating
distribution, would be non-deductible by the Company pursuant to application of
the compensation deduction limitations of Section 162(m) of the Internal Revenue
Code of 1986, as amended, the Compensation Committee shall have the absolute
right, in its sole discretion, to defer payment of such amount until such time
as its payment would no longer present a loss of a deduction for such payment.
RELATED TRANSACTIONS
From the date of incorporation until January 6, 2000, all issued and
outstanding shares of NewPower's Common Stock were held by Enron Energy
Services, an affiliate of Enron Corp. On January 6, 2000, NewPower completed its
initial private placement of Common Stock and two classes of warrants, Class A
warrants and Class B warrants, under a contribution and subscription agreement
entered into with various investors, including Enron Energy Services. In the
initial private placement, investors other than Enron Energy Services made cash
contributions totaling $100 million. Enron Energy Services contributed retail
electricity and gas customer contracts and entered into a services agreement,
two commodity supply agreements and a software agreement, in exchange for shares
of Common Stock and Class A warrants. In
I-13
addition, both Enron and Enron Energy Services entered into a noncompetition
agreement limiting Enron and Enron Energy Services from competing against
NewPower in specified businesses and a business opportunity agreement and other
agreements that govern how NewPower will address future business opportunities
between itself and Enron and Enron Energy Services. For more detail about these
agreements, please see "Financial Statements and Supplementary Data Note
10 -- Related Party Transactions" in NewPower's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000, which section is incorporated herein by
reference. In exchange for these contributions and agreements, NewPower issued
to the investors in the initial private placement, in the aggregate, 19,800,000
shares of Common Stock, Class A warrants to acquire 60,000,000 shares of Common
Stock, and Class B warrants to acquire 10,322,800 shares of Common Stock.
In a second private placement in July 2000, NewPower issued 639,000 shares
of Common Stock and Class A warrants to acquire 9,070,800 shares of Common Stock
to investors in exchange for cash contributions of approximately $104 million.
The following stockholders made aggregate contributions in exchange for NewPower
securities in our two private placement rounds:
The following stockholders made aggregate contributions in exchange for
NewPower securities in our two private placement rounds:
<Table>
<Caption>
SHARES OF
CASH COMMON CLASS A CLASS B
INVESTOR CONTRIBUTION($) STOCK WARRANTS(1) WARRANTS(1)
- -------- --------------- ---------- ----------- -----------
Enron Energy Services, LLC................. --(2) 14,800,000 45,000,000 --
DLJMB Partners(3).......................... 42,500,000 1,750,000 5,947,800 3,613,000
GE Capital Equity Investments, Inc. ....... 35,000,000 1,750,000 5,250,000 3,613,000
California Public Employees'
Retirement System........................ 40,000,000 750,000 4,575,800 1,548,400
Ontario Teachers' Pension Plan Board....... 30,000,000 750,000 3,645,600 1,548,400
LJM2-TNPC, LLC(4).......................... 50,000,000 -- 4,651,600 --
Lou L. Pai................................. 4,999,844 463,000 -- --
H. Eugene Lockhart......................... 194,378 18,000 -- --
William I. Jacobs.......................... 194,378 18,000 -- --
Marc E. Manly.............................. 194,378 18,000 -- --
A.S.A. Wyatt............................... 64,793 6,000 -- --
David A. Eichinger......................... 194,378 18,000 -- --
All other officers as a group.............. 863,904 80,000 -- --
</Table>
- ---------------
(1) The Class A warrants are exercisable for shares of Common Stock at an
exercise price of $0.05 per share until their expiration on December 31,
2005. The Class B warrants were converted into 5,560,787 shares of Common
Stock in connection with the initial public offering, based on a cashless
conversion, at a rate of $9.69 per share.
(2) As noted above, Enron Energy Services contributed certain contracts and
entered into certain agreements in exchange for shares of Common Stock and
Class A Warrants.
(3) For a description of DLJMB Partners, see footnote (5) to the table entitled
"Principal and Management Stockholders."
(4) The member interests of LJM2-TNPC, LLC are partially held by LJM2
Co-Investment, L.P. For a description of the relationship between Enron and
LJM2 Co-Investment, L.P., see footnote (4) to the table entitled "Principal
and Management Stockholders."
I-14
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership, as of February 1, 2002, of the Company's Common Stock and Class A
warrants exercisable for shares of Common Stock at an exercise price of $0.05
per share (a) by each person who is known to be the beneficial owner of more
than five percent of the outstanding shares of Common Stock, (b) each director,
(c) each of the Named Executive Officers and (d) all directors and executive
officers as a group. Certain of the stockholders set forth below are parties to
Tender Agreements (see Item 3 of the Schedule 14D-9).
To our knowledge, except as indicated in the footnotes to this table or
pursuant to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to the shares of Common Stock
indicated.
Certain information set forth below is based on public filings made with
the SEC.
<Table>
<Caption>
COMMON CLASS A COMBINED
BENEFICIAL OWNER (1)(2) STOCK WARRANTS PERCENTAGE(3)
- ----------------------- ---------- ---------- -------------
Enron Corp. (4)......................................... 13,650,400 42,134,200 43.83%
Christiana Bank & Trust Company (5)..................... 3,696,283 5,947,800 7.58%
GE Capital Equity Investments, Inc...................... 3,696,288 5,250,000 7.03%
Ontario Teachers' Pension Plan Fund..................... 2,547,308 5,682,400 6.47%
California Public Employees' Retirement System.......... 1,860,508 5,404,800 5.71%
LJM2-TNPC, LLC (6)...................................... 4,554,692 -- 3.58%
William J. Cronin....................................... 2,600 -- *
Peter T. Grauer (7)..................................... -- -- *
William I. Jacobs (8)................................... 110,719 -- *
H. Eugene Lockhart (8).................................. 218,576 -- *
Marc E. Manly(8)........................................ 32,600 -- *
Lou L. Pai.............................................. 2,495,400 -- 1.96%
Eugene B. Shanks, Jr.................................... 14,000 -- *
Nicholas A. Utton (8)................................... 10,100 -- *
Richard L. Weill........................................ 22,000 -- *
All directors and executive officers as a group (12
persons)(9)(10)....................................... 2,912,795 -- 2.29%
</Table>
- ---------------
* Less than one percent.
(1) Correspondence to all executive officers and directors of NewPower may be
mailed c/o NewPower Holdings, Inc., One Manhattanville Road, Purchase, New
York 10577.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Exchange Act. Shares of Common Stock that a person has the right to acquire
within 60 days of the Record Date are deemed to be beneficially owned by
such person and are included in the computation of the ownership and voting
percentages only of such person. Each person has sole voting and investment
power with respect to the shares indicated except as otherwise stated in
the footnotes to the table.
(3) All percentages are calculated assuming the exercise of all outstanding
Class A warrants.
(4) As reported in a Schedule 13G filed by Enron Corp. on May 15, 2001, the
Common Stock reflected as owned by Enron includes 5,000,000 shares of
Common Stock owned by Cortez Energy Services, LLC. Pursuant to the terms of
the Contribution and Subscription Agreement executed in connection with
NewPower's initial private placement, immediately upon receipt of the
shares of Common Stock issued to Enron Energy Services, a subsidiary of
Enron, in that transaction, Enron Energy Services contributed 5,000,000 of
those shares of Common Stock to Cortez. Cortez Energy Services, LLC is a
limited liability company with Enron Energy Services as its managing member
and LJM2 Co-Investment, L.P.
I-15
as its only other member. The general partner of LJM2 Co-Investment, L.P.
is LJM2 Capital Management, L.P., whose general partner is LJM2 Capital
Management, LLC, whose managing member was Mr. Andrew S. Fastow. Mr. Fastow
was Executive Vice President and Chief Financial Officer of Enron Corp.
LJM2 Co-Investment, L.P. is also the managing member of LJM2-TNPC, LLC. As
a result of Mr. Fastow's positions at LJM2 Capital Management, LLC and
Enron Corp., Enron Corp. may be deemed to beneficially own the LJM2-TNPC
member interests held by LJM2 Co-Investment, L.P., and thus the shares of
Common Stock that LJM2-TNPC may acquire upon exercise of its Class A
warrants. Enron Corp. disclaims beneficial ownership of the shares of
Common Stock held by LJM2-TNPC. The Class A warrants reflected as owned by
Enron Corp. include 6,766,400 Class A warrants that have been transferred
by Enron Energy Services to McGarret I, L.L.C., 8,458,200 Class A warrants
that have been transferred by Enron Energy Services to McGarret II, L.L.C.
and 2,791,800 Class A warrants that have been transferred by Enron Energy
Services to McGarret III, L.L.C. (together with McGarret I, L.L.C. and
McGarret II, L.L.C., the "McGarret LLCs") and Enron Energy Services is the
sole managing member of these entities. As reported in a Schedule 13D filed
by Canadian Imperial Bank of Commerce ("CIBC") on December 3, 2001, CIBC
was appointed as sales agent with respect to the 18,016,400 Class A
warrants of the McGarret LLCs. The Class A warrants reflected as owned by
Enron Corp. also include 24,117,800 Class A warrants that have been
transferred by Enron Energy Services to EES Warrant Trust. Enron Corp. and
Enron Energy Services have voting and dispositive power over the Class A
warrants held by EES Warrant Trust.
(5) Beneficial ownership of the Common Stock reported herein was acquired by
Christiana Bank & Trust Company pursuant to a Voting Trust Agreement dated
as of October 11, 2000 among DLJMB Funding II, Inc., DLJ Merchant Banking
Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners, L.P., DLJ Millennium Partners-A. L.P., DLJ First ESC
L.P., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P. and DLJ ESC
II, L.P. (collectively, "DLJMB Partners"), Christiana Bank & Trust Company,
as voting trustee.
(6) LJM2-TNPC, LLC owns 7.25% of the Common Stock.
(7) Does not include 3,696,283 shares of Common Stock and 5,947,800 Class A
Warrants owned by Christiana Bank & Trust Company, an affiliate of DLJ
Merchant Banking, Inc. Mr. Grauer, in his capacity as a Managing Director
of DLJ Merchant Banking, Inc., may be deemed to beneficially own such
shares as a result of his position with DLJ. Mr. Grauer disclaims
beneficial ownership of these shares.
(8) Mr. Jacobs disclaims beneficial ownership of 6,400 shares of Common Stock,
which are in the names of his son and his daughter. Mr. Lockhart disclaims
beneficial ownership of 2,400 shares of Common Stock, which are in the
names his father and his father-in-law. Mr. Manly disclaims beneficial
ownership of 358 shares of Common Stock, which are in the name of Chalice
Partnership. Mr. Utton disclaims beneficial ownership of 10,000 shares of
Common Stock, which are in the name of his wife.
(9) Pursuant to Rule 3b-7 under the Exchange Act, executive officers include
the Company's CEO, President and all officers in charge of a principal
business unit, division or function.
(10) On February 1, 2002, there were 62,866,568 shares of Common Stock and
64,419,200 Class A warrants outstanding.
I-16
ANNEX II
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
February 19, 2002
Board of Directors
NewPower Holdings, Inc.
One Manhattanville Road
Purchase, New York 10577-2100
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock of NewPower
Holdings, Inc. ("NewPower"), other than Centrica plc ("Centrica") and its
affiliates, of the Cash Consideration (as defined below) set forth in an
Agreement and Plan of Merger (the "Merger Agreement") to be entered into among
Centrica, Windsor Acquisition Corporation, a wholly owned subsidiary of Centrica
("Sub"), and NewPower. Pursuant to the Merger Agreement, (i) Sub will commence a
tender offer (the "Tender Offer") for all outstanding shares of the common
stock, par value $0.01 per share, of NewPower ("NewPower Common Stock") at a
purchase price of $1.05 per share, net to the seller in cash, subject to
adjustment as provided in the Merger Agreement (the "Cash Consideration");
provided that in no event will the Cash Consideration be less than $0.80 per
share or more than $1.30 per share, and (ii) subsequent to the Tender Offer, Sub
will merge with NewPower (the "Merger" and, together with the Tender Offer, the
"Transaction"), NewPower will become a wholly owned subsidiary of Centrica, and
each outstanding share of NewPower Common Stock not beneficially owned by
Centrica will be converted into the right to receive the Cash Consideration.
In arriving at our opinion, we have reviewed a draft dated February 14,
2002 of the Merger Agreement and certain publicly available business and
financial information relating to NewPower. We also have reviewed certain other
information relating to NewPower, including financial forecasts, provided to or
discussed with us by NewPower, and have met with the management of NewPower to
discuss the business and prospects of NewPower, including the liquidity needs
of, and capital resources available to, NewPower. We also have considered
certain financial and stock market data of NewPower, and we have considered, to
the extent publicly available, the financial terms of certain other business
combinations and other transactions which have been effected. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts, we have been advised, and have assumed, that
such forecasts have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of NewPower as to
the future financial performance of NewPower and other matters covered thereby.
We also have assumed, with your consent, that in the course of obtaining the
necessary regulatory and third party approvals and consents for the proposed
Transaction, no modification, delay, limitation, restriction or condition will
be imposed that would have an adverse effect on the proposed Transaction and
that the Transaction will be consummated in accordance with the terms of the
Merger Agreement, without waiver, amendment or modification of any material
term, condition or agreement. In addition, we have not been requested to make,
and we have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of NewPower, nor have we been furnished
with any such evaluations or appraisals. Representatives of NewPower have
advised us, and we therefore have assumed, that the final terms of the Merger
Agreement will not vary materially from the draft reviewed by us. Our opinion is
necessarily based upon information available to us, and financial, economic,
market and other conditions as they exist and can be evaluated, on the date
hereof. In connection with our engagement, we were requested to solicit
indications
II-1
Board of Directors
NewPower Holdings, Inc.
February 19, 2002
Page 2
of interest from, and held discussions with, third parties regarding the
possible acquisition of all or a part of NewPower.
We have acted as financial advisor to NewPower in connection with the
Transaction and will receive a fee for our services contingent upon the
consummation of the Transaction. We and our affiliates in the past have
provided, currently are providing and in the future may provide, investment
banking and financial services to NewPower and certain of its affiliates,
including Enron Corporation and certain of its affiliates, for which services we
have received, and expect to receive, compensation. As you are aware, a Managing
Director of Credit Suisse First Boston Corporation ("Credit Suisse First
Boston") is a member of the Board of Directors of NewPower, and certain
affiliates of Credit Suisse First Boston, as well as certain investment funds
(the "Funds") sponsored, managed by or affiliated or associated with Credit
Suisse First Boston, including Funds in which Credit Suisse First Boston and
certain of its affiliates have direct and indirect investments, directly or
indirectly own equity securities and securities exercisable for equity
securities of NewPower. We understand that certain of the Funds have agreed,
subject to certain terms and conditions, to tender their shares of NewPower
Common Stock in the Tender Offer and, if applicable, vote such shares in favor
of the Merger. In the ordinary course of business, we and our affiliates also
may actively trade the debt and equity securities of NewPower, Centrica and
certain of their affiliates for our and our affiliates' own accounts and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of NewPower in connection with its evaluation of the Transaction and
does not constitute a recommendation as to whether any stockholder of NewPower
should tender shares of NewPower Common Stock pursuant to the Tender Offer or
with respect to how any such stockholder should vote or act on any other matter
relating to the Transaction, including the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Cash Consideration to be received by the holders of NewPower
Common Stock pursuant to the Transaction is fair, to such holders, other than
Centrica and its affiliates, from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
II-2