PREM14A 1 s729114pre14a.htm s729114pre14a.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
(Rule 14a-101)
 
INFORMATION REQUIRED IN PROXY STATEMENT
 
SCHEDULE 14A INFORMATION
 
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
 
Filed by the Registrant    x
Filed by a Party other than the Registrant o
 
Check the appropriate box:
x
Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
 
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
(Name of Registrant as Specified in Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
  o No fee required.
  x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)        Title of each class of securities to which transaction applies:
 
Common Stock, $6 par value per share, of Central Vermont Public Service Corporation (“Central Vermont common stock”)

(2)        Aggregate number of securities to which transaction applies:
 
13,744,388 shares of Central Vermont common stock, which consists of (a) 13,422,469 shares of Central Vermont common stock as of July 27, 2011, (b) 254,897 shares of Central Vermont common stock subject to issuance upon exercise of outstanding options granted under the Central Vermont Public Service Corporation Stock Plans as of July 27, 2011, with exercise prices below $35.25, and (c) 67,022 shares of Central Vermont common stock (contingent grants plus accrued dividends at target payout as of June 30, 2011 plus estimated dividends accrued as of June 30, 2012) for the three outstanding performance cycles for the executive officers subject to issuance under the Central Vermont Public Service Corporation Performance Share Incentive Plan (“performance shares”).

(3)        Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 The filing fee of $95,904 was calculated based upon the sum of (a) 13,422,469 shares of Central Vermont common stock multiplied by $35.25 per share, (b) options to purchase 254,897 shares of Central Vermont common stock with exercise prices below $35.25 per share, multiplied by $15.76 per share (which is the difference between $35.25 and the weighted average exercise price per share of $19.49), and (c) 67,022 performance shares multiplied by $35.25 per share. In accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $479,521,734, which is the sum of the preceding sentence, by 1/50th of one percent.
 
 
 

 
 

(4)        Proposed maximum aggregate value of transaction:

$479,521,734

(5)        Total fee paid:

$95,904

o  Fee paid previously with preliminary materials:

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)        Amount Previously Paid:

(2)        Form, Schedule or Registration Statement No.:

(3)        Filing Party:

(4)        Date Filed:

 


 
 

 
 
 
To Our Shareholders:
 
On July 11, 2011, Central Vermont Public Service Corporation (“Central Vermont”) entered into an Agreement and Plan of Merger (the “merger agreement”) with Gaz Métro Limited Partnership (“Gaz Métro”) and Danaus Vermont Corp., an indirect, wholly-owned subsidiary of Gaz Métro (“Merger Sub”), pursuant to which Merger Sub will merge with and into Central Vermont, with Central Vermont continuing as the surviving corporation and an indirect wholly-owned subsidiary of Gaz Métro. If the merger is completed, you will be entitled to receive $35.25 in cash, without interest, for each share of our common stock that you own immediately prior to the effective time of the merger.
 
Our board of directors, by a unanimous vote, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, Central Vermont and our shareholders, has approved and adopted the merger agreement, and recommends that our shareholders approve the merger agreement.
 
A special meeting of our shareholders will be held on [__________], at [_____] a.m., Rutland, Vermont time, to vote, among other things, on a proposal to approve the merger agreement. The special meeting of shareholders will be held at [________________________________]. Notice of the special meeting is enclosed. This proxy statement gives you detailed information about the special meeting and the merger and includes the merger agreement as Annex A. We encourage you to read this proxy statement and the merger agreement carefully and in their entirety.
 
Your vote is important. We cannot complete the merger unless holders of a majority of all shares of our common stock entitled to vote approve the merger agreement. Our board of directors unanimously recommends that you vote “FOR” approval of the merger agreement. The failure of any shareholder to vote on the merger agreement will have the same effect as a vote against the merger agreement.
 
Each of our directors and executive officers has indicated that he or she intends to vote his or her own shares in favor of approval of the merger agreement.
 
Whether or not you plan to attend the special meeting, please vote your shares promptly by completing, signing and dating the accompanying proxy card and returning it in the enclosed prepaid envelope or by voting by telephone or through the Internet by following the instructions on the accompanying proxy or voting instruction card.
 
Our board of directors and management appreciate your continuing support of Central Vermont Public Service Corporation, and we hope you will approve this compelling transaction.
 
 
     
William R. Sayre      Lawrence J. Reilly
Chairman, Board of Directors     President and Chief Executive Officer
 
                                                                                  
 
 

 
                                                            
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
__________________

Rutland, Vermont

_________________
 
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
 
To the Shareholders of
Central Vermont Public Service Corporation
 

Date and Time:
[______________] at ______a.m.
   
Place:
[________________________]
 
[________________________]
 
[________________________]
Items of Business:
The purpose of the meeting is to consider the following matters:
   
 
·      A proposal to approve the Agreement and Plan of Merger, effective as of July 11, 2011, by and among Gaz Métro Limited Partnership, a Québec limited partnership (Gaz Métro), Danaus Vermont Corp., a Vermont corporation and indirect wholly-owned subsidiary of Gaz Métro (Merger Sub) and Central Vermont Public Service Corporation, a Vermont corporation (Central Vermont), pursuant to which, among other things, (a) Merger Sub will merge with and into Central Vermont, with Central Vermont continuing as the surviving corporation and an indirect wholly-owned subsidiary of Gaz Métro, and (b) each outstanding share of Central Vermont’s common stock, $6.00 par value (other than shares owned by us or any of our wholly-owned subsidiaries or Gaz Métro or Merger Sub or any direct or indirect wholly-owned subsidiary of Gaz Métro and shares for which the holder has exercised its right to dissent pursuant to Chapter 13 of the Vermont Business Corporation Act), will be converted into the right to receive $35.25 in cash, without interest and less any applicable withholding taxes;
   
 
·      A grant of authority to the proxyholders to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date for a reasonable business purpose, including to solicit additional proxies in favor of the approval of the merger agreement, if there are not sufficient votes for approval of the merger agreement at the special meeting;
   
 
·     To consider and vote on a proposal to approve, by a non-binding advisory vote, the change in control payments payable to Lawrence J. Reilly, our President and Chief Executive Officer, relating to the merger; and
   
 
·     Such other matters as may properly come before the special meeting or any adjournments or postponements of the special meeting.
   
Record Date:
[________________________]
 
 
 

 
 
Proxy Voting:
We urge you to read the accompanying proxy statement carefully as it sets forth details of the merger agreement and other important information related to the merger. We have fixed the close of business on [_____________], as the record date for the determination of shareholders entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting. Accordingly, only shareholders of record as of that date will be entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting. As of the close of business on [_____________], there were outstanding and entitled to vote [_____________] shares of our common stock. Holders of our common stock are entitled to dissenters’ rights under Vermont law in connection with the merger. A list of the shareholders entitled to vote will be available at the special meeting for examination by any shareholder. The list will also be available for any purpose germane to the special meeting beginning [__________], two business days after notice of the special meeting is given, and through the special meeting, at our principal office, 77 Grove Street, Rutland, Vermont 05701.
   
 
To assure that your shares are represented at the special meeting, regardless of whether you plan to attend the special meeting in person, please fill in your vote, sign and mail the enclosed proxy as soon as possible. We have enclosed a return envelope, which requires no postage if mailed in the United States.  Alternatively, you may vote by telephone by calling 1-800-776-9437 or through the Internet at www.voteproxy.com. Your proxy is being solicited by the board of directors of Central Vermont.
   
 
If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Morrow & Co., LLC, at 1-800-278-2141.
   
 
The board of directors of Central Vermont Public Service Corporation unanimously recommends that you vote “FOR” approval of the merger agreement.
 

 
       
    [Signatory]  
 
 
[_______________________], 2011
 
Please Vote—Your Vote is Important

 
 

 
 
PROXY STATEMENT
FOR THE SPECIAL MEETING OF THE
SHAREHOLDERS OF
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
 
The board of directors of Central Vermont Public Service Corporation (“Central Vermont,” the “Company,” “we,” “us” or “our”) provides this proxy statement to you to solicit your vote on the approval of the merger agreement. Pursuant to the merger agreement, Danaus Vermont Corp. (“Merger Sub”) will merge with and into Central Vermont, with Central Vermont continuing as the surviving corporation and an indirect wholly-owned subsidiary of Gaz Métro Limited Partnership (“Gaz Métro”). If our shareholders approve the merger agreement and the other conditions to the merger are satisfied, each shareholder will receive $35.25 in cash, without interest, per share of our common stock owned at the time of the merger.
 
The merger cannot occur unless the holders of a majority of all shares of our common stock entitled to vote thereon approve the merger agreement.  A failure to vote is the same as voting your shares against the merger agreement. The board of directors has scheduled a special meeting of shareholders to vote on the merger agreement as follows:
 
[_____________________] at [___] a.m.
Rutland, Vermont time
[_____________________]
[_____________________]
[_____________________]
 
This document provides you with detailed information about the merger proposal. Please see “Where You Can Find More Information” on page [___] for additional information about Central Vermont on file with the Securities and Exchange Commission.
 
This proxy statement and the accompanying proxy card are being mailed to shareholders beginning on or about [_____________], 2011.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transaction contemplated in this proxy statement, passed upon the merits or fairness of the transaction or passed upon the adequacy or accuracy of the disclosure in this proxy statement. Any representation to the contrary is a criminal offense.
 
No person has been authorized to give any information or make any representation other than those contained in this proxy statement, and, if given or made, such information or representation must not be relied upon as having been authorized. The information in this proxy statement may only be accurate on the date of this proxy statement.
 
We urge you to read and consider carefully this proxy statement in its entirety.
 
The date of this proxy statement is [__________], 2011.

 
 

 
 
TABLE OF CONTENTS
 
 
Page
   
   
   
SUMMARY
3
 
The Merger
3
 
Parties to the Merger
3
 
The Special Meeting
4
 
What You Will Be Entitled to Receive upon Completion of the Merger
6
 
Treatment of Stock Options, Restricted Stock, RSUs, 401(k) Plan and Equity Plans
6
 
Market Price and Dividend Data
6
 
Recommendation of Our Board of Directors
7
 
Opinion of Our Financial Advisor
7
 
Interests of Directors and Executive Officers in the Merger
8
 
Material U.S. Federal Income Tax Consequences of the Merger
8
 
Regulatory Approvals
8
 
The Agreement and Plan of Merger
9
 
You are Entitled to Dissenters’ Rights in the Merger
13
   
QUESTIONS AND ANSWERS ABOUT THE MERGER
14
   
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 19
   
PARTIES TO THE MERGER 20
   
SPECIAL MEETING 21
 
Date, Time and Place of the Special Meeting
21
 
Proposal to be Considered at the Special Meeting
21
 
Record Date
21
 
Voting Rights; Quorum; Vote Required for Approval
21
 
How to Vote
22
 
Revocation of Proxies
22
 
Postponements and Adjournments
23
 
Solicitation of Proxies
23
 
Shareholder List
23
 
Questions and Additional Information
23
   
THE MERGER 24
 
Background of the Merger
24
 
Recommendation of Our Board of Directors; Reasons for the Merger
34
 
Opinion of Our Financial Advisor
38
 
Forward-Looking Financial Information
47
 
Merger Consideration
48
 
Interests of Directors and Executive Officers in the Merger
48
 
Financing of the Merger
53
 
Effects of the Merger
54
 
Regulatory Approvals
54
 
Material U.S. Federal Income Tax Consequences of the Merger to Our Shareholders
56
 
Accounting Treatment
56
 
Consequences if the Merger is Not Completed.
56
 
Delisting and Deregistration of Our Common Stock
57
 
Dissenters’ Rights
57
 
 
1

 
 
TABLE OF CONTENTS
 
   
Page
     
     
 
Litigation Related to the Merger
60
   
THE AGREEMENT AND PLAN OF MERGER
61
 
Effective Date of the Merger Agreement
61
 
The Merger
61
 
Closing
61
 
Directors and Officers
61
 
Merger Consideration
62
 
Treatment of Stock Options, Restricted Stock, RSUs, 401(k) Plan and Equity Plans
62
 
Exchange Procedures
63
 
Lost, Stolen and Destroyed Certificates
63
 
Dissenting Shares
63
 
Representations and Warranties
63
 
Covenants Regarding Conduct of Business by Central Vermont Prior to the Merger
67
 
Treatment of Preferred Stock
69
 
Obligations with respect to this Proxy Statement and the Special Meeting
69
 
No Solicitation
69
 
Obligation of Our Board of Directors with respect to Its Recommendation
71
 
Termination of the Merger Agreement in the Event of a Superior Proposal
72
 
Efforts to Consummate the Merger; Regulatory Matters
72
 
Access to Information
73
 
Director and Officer Indemnification and Insurance
74
 
Employee Benefits
74
 
Post-Merger Operations
75
 
Conditions to the Merger
76
 
Termination of the Merger Agreement
77
 
Termination Fee; Expenses
78
 
Fortis Termination Payment
80
 
Miscellaneous
80
   
CHANGE IN CONTROL PAYMENT ADVISORY VOTE PROPOSAL
81
   
MARKET PRICE AND DIVIDEND DATA
82
   
STOCK OWNERSHIP
83
 
Principal Shareholders
83
 
Directors and Executive Officers
83
   
OTHER MATTERS
85
 
Other Matters for Action at the Special Meeting
85
   
SHAREHOLDER PROPOSALS
85
   
HOUSEHOLDING OF PROXY MATERIAL
85
   
WHERE YOU CAN FIND MORE INFORMATION
85
 
 
2

 

           SUMMARY
 
This summary highlights certain information in this proxy statement, but may not contain all of the information that may be important to you. You should carefully read this entire proxy statement and the attached Annexes and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about Central Vermont Public Service Corporation. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in “Where You Can Find More Information” on page [__]. Unless the context otherwise indicates, the terms “Central Vermont,” the “Company,” “we, “ “us” or “our” mean Central Vermont Public Service Corporation and its subsidiaries.
 
The Merger (see page __)
 
 
·
The Agreement and Plan of Merger, effective  as of July 11, 2011, which we refer to in this proxy statement as the merger agreement, among Central Vermont, Gaz Métro Limited Partnership, which we refer to in this proxy statement as Gaz Métro, and Danaus Vermont Corp., which we refer to in this proxy statement as Merger Sub, provides that Merger Sub will merge with and into Central Vermont, with Central Vermont continuing as the surviving corporation and an indirect wholly-owned subsidiary of Gaz Métro.
 
 
·
Upon completion of the merger, each issued and outstanding share of Central Vermont’s common stock, other than shares held by us or any of our wholly-owned subsidiaries or by Gaz Métro or Merger Sub or any direct or indirect wholly-owned subsidiary of Gaz Métro and shares for which the holder has exercised  its right to dissent pursuant to Chapter 13 of the Vermont Business Corporation Act, will automatically be canceled and will be converted into the right to receive $35.25 per share, in cash, without interest, which amount per share we sometimes refer to in this proxy statement as the merger consideration, less any applicable withholding taxes.
 
 
·
As a result of the merger, Central Vermont will cease to be an independent, publicly-traded company and will become an indirect wholly-owned subsidiary of Gaz Métro.
 
Parties to the Merger (see page __)
 
Central Vermont.  Central Vermont is the largest electric utility in Vermont.  The Company is engaged principally in the purchase, production, transmission, distribution and sale of electricity.  Central Vermont serves approximately 160,000 customers in [163] towns, villages and cities in Vermont.  The Vermont utility operation is our core business.  We typically generate most of our revenues through retail electricity sales.  We also sell excess power, if any, to third parties in New England and to ISO-NE, the operator of the region’s bulk power system and wholesale electricity markets.  Our headquarters are located at 77 Grove Street, Rutland, Vermont 05701 and our telephone number is 1-800-649-2877.
 
Gaz Métro.  With over $3.6 billion in assets, Gaz Métro is Québec’s leading natural gas distributor. Its 10,000 kilometer network serves 300 municipalities. Gaz Métro has operated in this regulated industry since 1957 and is the trusted energy provider to its customers in Québec and Vermont, who choose natural gas for its competitive price, efficiency, comfort and environmental benefits. Gaz Métro is also present in the electricity distribution market in Vermont through its indirect wholly-owned subsidiary Green Mountain Power Corporation with a corporate headquarters in Colchester, Vermont and which we refer to in this proxy statement as GMP, and is involved in natural gas transportation and storage, the development of projects such as wind power, natural gas as fuel for the transportation industry, and biomethanation. Gaz Métro is committed to the satisfaction of its customers, partners, employees and the communities it serves.  Gaz Métro’s headquarters are located at 1717 du Havre, Montréal, Québec, H2K 2X3 and its telephone number is 1-800-690-3883.
 
Merger Sub.  Merger Sub is a Vermont corporation formed solely for the purpose of merging with and into Central Vermont. Merger Sub is an indirect wholly-owned subsidiary of Gaz Métro.  The executive office of Merger Sub is located c/o Green Mountain Power Corporation, 163 Acorn Lane, Colchester, Vermont 05446.
 
 
3

 
           
The Special Meeting (see page __)
 
Date, Time and Place of the Special Meeting. The special meeting of shareholders is scheduled to be held as follows:
 
  Date:   [_________]  
  Time:   __________ a.m., Rutland, Vermont time  
  Place:  
[________________]
[________________]
[________________]
 
 
Proposals to Be Considered at the Special Meeting. At the special meeting, you will be asked to vote on (1) a proposal to approve the merger agreement, which we sometimes refer to in this proxy statement as the merger proposal, pursuant to which, among other things, Merger Sub will merge with and into Central Vermont, with Central Vermont continuing as the surviving corporation, (2) a grant of authority to the proxyholders to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date for a reasonable business purpose, including to solicit additional proxies in favor of the approval of the merger agreement, if there are not sufficient votes for approval of the merger agreement at the special meeting; and (3) a proposal to approve, by a non-binding advisory vote, the change in control payments payable to Mr. Reilly relating to the merger. A copy of the merger agreement is attached as Annex A. We urge you to read the merger agreement carefully in its entirety as it is the document that governs the merger.
 
Record Date; Outstanding Voting Securities. Our board of directors has fixed the close of business on [________], as the record date for the special meeting and only holders of record of our common stock on the record date are entitled to vote at the special meeting. As of the close of business on [________], there were outstanding and entitled to vote [____________] shares of our common stock.
 
Voting Rights; Quorum. Each share of our common stock entitles its holder to one vote on all matters properly coming before the special meeting. The presence in person or representation by proxy of shareholders entitled to cast a majority of the votes of all issued and outstanding shares entitled to vote on the proposals, considered together, constitutes a quorum for the purpose of considering such matters. Abstentions and “broker non-votes” (as defined below) will be treated as shares present and entitled to vote for purposes of determining a quorum at the special meeting. There must be a quorum for the vote on the proposals.
 
Shares held in the Name of a Broker, Bank or Other Nominee.  If you hold your shares in an account with a broker or bank, which we refer to in this proxy statement as holding your shares in “street name,” you must instruct the broker or bank on how to vote your shares. If an executed proxy card returned by a broker or bank holding shares indicates that the broker or bank does not have authority to vote on the merger proposal, the shares will be considered present at the meeting for purposes of determining the presence of a quorum, but your shares of common stock will not be voted on the proposals, which will have the same effect as a vote ‘‘AGAINST’’ the merger proposal, and will not have any effect on the proposal to adjourn the special meeting or the non-binding advisory vote proposal regarding Mr. Reilly’s merger-related change in control payments. This is called a “broker non-vote.” Your broker or bank will vote your shares only if you provide instructions on how to vote by following the instructions provided to you by your broker or bank. If you hold your shares of our common stock in street name, you must request a legal proxy from your broker or bank in order to vote in person at the special meeting.
 
Required Vote.
 
Merger Agreement.  Under our articles of incorporation and Vermont law, the approval of the merger proposal requires the affirmative vote of a majority of all shares of our common stock entitled to vote thereon. Abstentions and “broker non-votes” will have the same effect as a vote against the merger proposal.
 
Advisory vote approving change in control payments.  The approval, by a non-binding advisory vote, of the change in control payments payable to Mr. Reilly requires the affirmative vote of holders of a majority of the votes cast at the special meeting and entitled to vote thereon. Abstentions and “broker non-votes”  will not have any effect on the advisory vote proposal.
 
 
4

 
 
As of the close of business on [________], 2011, our directors and executive officers (as such term is defined below in “The Merger—Interests of Directors and Executive Officers in the Merger”) beneficially owned approximately [________] shares of our common stock, or approximately _____% of the shares entitled to vote at the special meeting. [It is expected that each of our directors and executive officers will vote the shares of our common stock owned by him or her in favor of the merger proposal.]
 
How to Vote. After carefully reading and considering the information contained in this proxy statement, we urge you to vote your shares as soon as possible so that your shares are represented at the special meeting. You may vote your shares by completing, dating and signing your proxy card and mailing it in the enclosed return envelope or by voting by telephone by calling 1-800-776-9437 or through the Internet at www.voteproxy.com. You can also vote in person at the meeting, but we encourage you to submit your proxy card promptly in any event. If a bank or broker holds your shares, you may be able to vote by telephone or via the Internet if the bank or broker offers these options.  Please follow the instructions you receive from your bank or broker.  Unless you specify to the contrary on your proxy card, all of your shares represented by valid proxies will be voted “FOR” the merger proposal, the proposal to permit the proxies to vote, in their discretion, on the postponement or adjournment of the special meeting, if necessary, and the proposal to approve, by a non-binding advisory vote, the change in control payments payable to Mr. Reilly relating to the merger. The persons named as proxies will not have the discretion to vote in favor of any postponement or adjournment as to any shares of our common stock that have been voted against the merger proposal.
 
If you are a participant in the Central Vermont Public Service Corporation Employee Savings and Investment Plan which we refer to in this proxy statement as the 401(k) Plan and which includes all shares formerly held in the accounts formerly held in the Employee Stock Ownership Plan of Central Vermont Public Service Corporation and its subsidiaries, a proxy card has been provided to allow you to direct the trustee of the 401(k) Plan how to vote any shares attributable to your individual account under the 401(k) Plan.  The trustee will only vote such shares as directed by participants in the 401(k) Plan.
 
If you hold your shares in certificated form, please do not send in your stock certificates with your proxy card. If the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to exchange your stock certificates or surrender your book-entry shares for the merger consideration.
 
Revocation of Proxies.  Until exercised at the special meeting, you can revoke your proxy and change your vote in any of the following ways:
 
                ·  
by delivering written notification or a proxy of a later date to us by ___________ at 5:00 pm at our principal executive offices at 77 Grove Street, Rutland, Vermont 05701, Attention: Corporate Secretary; or
 
                ·  
by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting).
 
If you voted by telephone or through the Internet, you can also revoke your proxy and change your vote by any of these methods or you can revoke your proxy and change your vote by telephone by calling 1-800-776-9437 or through the Internet at www.voteproxy.com.  If you decide to vote by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy and change your vote by telephone or through the Internet. If you have instructed a broker or bank to vote your shares, you can revoke your proxy and change your vote by following the directions received from your broker or bank to change those instructions.
 
Questions and Additional Information. For additional information regarding the procedure for delivering your proxy, see “The Special Meeting— How to Vote and Revocation of Proxies” on page ___ and “The Special Meeting — Solicitation of Proxies” on page ___. If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Morrow & Co., LLC, at 1-800-278-2141.
 
 
5

 
 
What You Will Be Entitled to Receive upon Completion of the Merger (see page ____)
 
Holders of shares of our common stock will be entitled to receive $35.25 in cash, without interest, less any applicable withholding taxes, in exchange for each share of our common stock that they own at the time of the completion of the merger. After we complete the merger, holders of our common stock will no longer own our common stock and we will become an indirect wholly-owned subsidiary of Gaz Métro. After the merger is completed, you will have the right to receive the merger consideration, but you will no longer have any rights as a Central Vermont shareholder and will have no rights as a shareholder of Gaz Métro. If you do not validly elect and exercise your right to dissent from the merger, you will receive the merger consideration after exchanging your stock certificates or surrendering your book-entry shares in accordance with the instructions contained in the letter of transmittal to be sent to you shortly after the completion of the merger. Shares of our common stock held by us or any of our wholly-owned subsidiaries or by Gaz Métro or any direct or indirect wholly-owned subsidiary of Gaz Métro will be canceled at the effective time of the merger. See “The Merger—Merger Consideration.”
 
Treatment of Stock Options, Restricted Stock, RSUs, 401(k) Plan and Equity Plans
 
Each option to purchase shares of our common stock outstanding immediately prior to the effective time of the merger will be fully vested and cancelled and, in exchange therefor, former holders of such options will be entitled to receive a cash payment, without interest, in an amount equal to the product of (i) the total number of shares of common stock subject to such option and (ii) the excess, if any, of the merger consideration of $35.25 per share over the exercise price per share of such option, less withholding with respect to applicable taxes.
 
Each share of our restricted stock outstanding immediately prior to the effective time of the merger will vest in full and all restrictions thereon will lapse and, as of the effective time of the merger, each such share of restricted stock will be converted into the right to receive the merger consideration of $35.25 in cash, without interest, less withholding with respect to applicable taxes.
 
Each restricted stock unit granted pursuant to our performance share incentive plans and outstanding immediately prior to the effective time of the merger will be canceled and, in exchange therefor, former holders of such restricted stock units will be entitled to receive a cash payment, without interest, in an amount equal to the product of (i) the merger consideration of $35.25 per share and (ii) the number of shares of common stock subject to the vested portion of such restricted stock unit as of the effective time of the merger (prorated for time at target level of performance including dividends), less withholding with respect to applicable taxes.
 
If the merger is completed, each participant in the 401(k) Plan will be entitled to receive the merger consideration for each share of Central Vermont’s common stock that the participant holds in his or her 401(k) Plan account. However, participants will not receive the proceeds from their 401(k) Plan shares directly. Instead, on the day(s) that the proceeds are received by shareholders of Central Vermont’s common stock generally, each participant’s proceeds will be deposited into his or her account under the 401(k) Plan and then automatically invested in [__________]. Participants will be able to direct all aspects of their accounts, including transferring the proceeds out of the [__________] and into any other investment option available under the 401(k) Plan. Following the merger, participants will not hold any shares of the surviving corporation nor will an investment fund be created under the 401(k) Plan for that purpose.
 
After the effective time of the merger, all of our equity plans (including the employee stock funds in the 401(k) Plan) will be terminated and no further options, restricted stock, RSUs or other rights with respect to shares of our common stock will be granted pursuant to such equity plans.
 
At the effective time of the merger, Gaz Métro will make a cash contribution to the surviving corporation to permit the surviving corporation to make the foregoing payments. See “The Agreement and Plan of Merger—Treatment of Stock Options, Restricted Stock, RSUs, 401(k) Plan and Equity Plans.”
 
Market Price and Dividend Data (see page ____)
 
Our common stock is traded on the New York Stock Exchange, which we refer to in this proxy statement as the NYSE, under the symbol “CV.” On May 4, 2011, the last full trading day before the publication of a media report speculating as to a possible transaction involving Central Vermont, the closing price for our common stock was $22.71. On July 11, 2011, the last full trading day prior to the public announcement of the merger, the closing price for our common stock was $36.00 per share. On [_________], 2011, the last full trading day prior to the date of this proxy statement, the closing price for our common stock was $[_____] per share. See “Market Price and Dividend Data.”
 
 
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Recommendation of Our Board of Directors (see page ___)
 
After careful consideration, our board of directors unanimously:
 
                ·  
determined that the merger proposal is advisable, fair to, and in the best interests of, Central Vermont  and our shareholders;
 
                ·  
approved and adopted the merger proposal; and
 
                ·  
recommended that our shareholders vote to approve the merger proposal.
 
Our board of directors unanimously recommends that at the special meeting you vote “FOR” the merger proposal, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies and “FOR” the approval, by a non-binding advisory vote, of Mr. Reilly’s change in control payments relating to the merger.
 
For a discussion of the material reasons considered by our board of directors in reaching its conclusions, see “The Merger—Recommendation of Our Board of Directors; Reasons for the Merger.” In view of the wide variety of factors considered by our board of directors in connection with its evaluation of the merger, our board of directors did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision.  The determination to adopt the merger agreement was made after consideration of all of the factors as a whole.  In addition, individual members of our board of directors may have given different weights to different factors.
 
Opinion of Our Financial Advisor (see page ____)
 
On July 11, 2011, our financial advisor, Lazard Frères & Co. LLC, which we refer to in this proxy statement as Lazard, rendered to our board of directors its written opinion that, as of the date of the opinion and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the merger consideration to be paid to holders of our common stock (other than specified excluded holders) in the merger was fair, from a financial point of view, to such holders.
 
The full text of Lazard’s written opinion, dated July 11, 2011, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein in its entirety.  The summary of Lazard’s opinion included in the section captioned “The Merger—Opinion of Our Financial Advisor” is qualified in its entirety by reference to the full text of the opinion.  You are encouraged to read Lazard’s opinion and that section carefully and in their entirety. Lazard’s opinion was directed to our board of directors for the information and assistance of our board of directors in connection with its evaluation of the merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to holders of Central Vermont common stock (other than the specified excluded holders) of the consideration to be paid to such holders in the merger.  Lazard’s opinion was not intended to, and does not, constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger or any matter relating thereto.
 
 
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Interests of Directors and Executive Officers in the Merger (see page __)
 
In considering the recommendation of our board of directors that you vote for the merger proposal, you should be aware that some of our executive officers and members of our board of directors have interests in the merger that may be in addition to or different from the interests of our shareholders generally. These interests include the following:
 
                ·  
the vesting and exercisability of options to purchase our common stock held by our employees, including the executive officers, will be accelerated in connection with the merger, entitling such executive officers to a cash payment in an amount by which the merger consideration exceeds the exercise price of the option;
 
                ·  
the vesting of shares of restricted stock will be accelerated and all shares of restricted stock (whether vested or unvested) will be converted into cash in the merger;
 
                ·  
existing indemnification arrangements and insurance for our directors and officers will be continued if the merger is completed;
 
                ·  
directors’ and officers’ liability insurance coverage of our directors and officers for matters occurring prior to the completion of the merger will be continued by Gaz Métro after the merger is completed for a period of six years; and
 
                ·  
other employee benefits that, in the aggregate, are no less favorable than those provided to the executive officers by us immediately prior to the effective time of the merger.
 
The members of our board of directors were aware of these interests and considered them at the time they approved and adopted the merger proposal and made their recommendation to our shareholders. See “The Merger—Interests of Directors and Executive Officers in the Merger.”
 
Material U.S. Federal Income Tax Consequences of the Merger (see page __)
 
The exchange of cash for shares of our common stock in the merger will be a taxable transaction for U.S. federal income tax purposes.  As a result, assuming you are a U.S. taxpayer, the exchange of your shares of our common stock for cash in the merger will be subject to United States federal income tax and also may be taxed under applicable state, local, and other tax laws. In general, you will recognize gain or loss equal to the difference, if any, between (1) $35.25 per share and (2) your adjusted tax basis of each of your shares of our common stock. You should read “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to Our Shareholders”, which provides a discussion of the material U.S. federal income tax consequences of the merger.  Tax matters are very complicated, and the tax consequences of the merger to you will depend on the facts of your particular situation. You should consult your own tax advisor as to the specific tax consequences to you of the merger, including the applicable federal, state, local and foreign tax consequences.
 
Regulatory Approvals (see page __)
 
To complete the merger, we and Gaz Métro must obtain approvals or consents from, or make filings with, the following U.S. federal, state and local regulatory authorities:
 
                ·  
the Federal Energy Regulatory Commission, which we refer to in this proxy statement as the FERC;
 
                ·  
the Vermont Public Service Board, which we refer to in this proxy statement as the VPSB;
 
                ·  
the Antitrust Division of the U.S. Department of Justice, which we refer to in this proxy statement as the Antitrust Division, and the Federal Trade Commission, which we refer to in this proxy statement as the FTC, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to in this proxy statement as the HSR Act;
 
                ·  
the Committee on Foreign Investment in the United States, which we refer to in this proxy statement as the CFIUS;
 
 
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                ·  
the Federal Communications Commission, which we refer to in this proxy statement as the FCC; and
 
                ·  
the Nuclear Regulatory Commission, which we refer to in this proxy statement as the NRC.
 
In addition, Central Vermont plans to file an application for approval with the New York State Public Service Commission and the New Hampshire Public Utilities Commission, which we refer to in this proxy as the NYPSC and NHPUC, respectively.  Gaz Métro will  need to file an application with the Maine Public Utilities Commission, which we refer to in this proxy statement as the MPUC.  See “The Merger—Regulatory Approvals” for further information.
 
As of the date of this proxy statement, we and Gaz Métro are in the process of obtaining the regulatory approvals required by applicable law or regulations.
  
The Agreement and Plan of Merger (see page ____)
 
Conditions to the Merger.
 
Conditions to Each Party’s Obligations.  Each party’s obligations to effect the merger are subject to the satisfaction or waiver of the following conditions:
 
                ·  
receipt of the approval of the merger agreement from our common shareholders;
 
                ·  
the absence of any order, decree, judgment, injunction or other ruling or law which prevents or prohibits the consummation of the merger;
 
                ·  
expiration or early termination of the waiting period under the HSR Act;
 
                ·  
receipt of all required governmental approvals, none of which shall impose terms or conditions that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on Gaz Métro’s wholly-owned subsidiary Northern New England Energy Corporation, which we refer to in this proxy statement as NNEEC, the surviving corporation and NNEEC’s subsidiaries, taken as a whole; and
 
                ·  
written confirmation from the CFIUS that it has reviewed the information provided to it regarding the merger and based on its review and investigation, and after full consideration of all relevant national security factors, the CFIUS has determined that there are no unresolved national security concerns with respect to the merger.
 
Conditions to Gaz Métro’s and Merger Sub’s Obligations. The obligations of Gaz Métro and Merger Sub to effect the merger are also subject to the satisfaction or waiver of the following additional conditions:
 
                ·       
our representations and warranties (i) with respect to our capitalization must be true and correct in all respects (except for de minimis inaccuracies), (ii) with respect to our authority to execute and perform our obligations under the merger agreement and the approval of the merger agreement and the merger by our board of directors must be true and correct in all material respects and (iii) contained in the remainder of the merger agreement, without regard to materiality or material adverse effect qualifiers, must be true and correct, except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on Central Vermont, in each case as of the effective date of the merger agreement and as of the effective time of the merger as though made on and as of the effective time of the merger (except for those representations and warranties that address matters only as of a particular date, in which case as of such date), and Gaz Métro must have received a certificate to that effect;
 
 
9

 
 
                ·       
we must have performed or complied in all material respects with all agreements and covenants required to be performed or complied with by us under the merger agreement at or prior to the effective time of the merger, and Gaz Métro must have received a certificate to that effect; and
 
                ·       
since the date of Gaz Métro’s and Merger Sub’s execution of the merger agreement, there must not have occurred any material adverse effect on Central Vermont or any event or development that would, individually or in the aggregate, reasonably be expected to result in a material adverse effect on Central Vermont.
 
Conditions to Our Obligations.  Our obligations to effect the merger are also subject to the satisfaction or waiver of the following additional conditions:
 
                ·       
Gaz Métro’s and Merger Sub’s representations and warranties (i) with respect to the authority of Gaz Métro and Merger Sub to execute and perform their respective obligations under the merger agreement must be true and correct in all material respects and (ii) contained in the remainder of the merger agreement, without regard to materiality qualifiers, must be true and correct except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to prevent or materially impair the ability of Gaz Métro and Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement, in each case as of the effective date of the merger agreement and as of the effective time of the merger as though made on and as of the effective time of the merger (except for those representations and warranties that address matters only as of a particular date, in which case as of such date), and we must have received a certificate to that effect;
 
                ·       
each of Gaz Métro and Merger Sub must have performed or complied in all material respects with all agreements and covenants required to be performed or complied with by them under the merger agreement at or prior to the effective time of the merger, and we must have received a certificate to that effect; and
 
                ·       
the approval of the merger and the other transactions contemplated by the merger agreement from the VPSB must not contain any term that has the effect of reducing the merger consideration to be received by our common shareholders in their capacity as such.
 
Each of Gaz Métro, Merger Sub and Central Vermont may waive the conditions to the performance of its respective obligations under the merger agreement and effect the merger even though one or more of these conditions have not been met.  We cannot give any assurance that all of the conditions of the merger will be either satisfied or waived or that the merger will occur.
 
Termination of the Merger Agreement
 
Mutual Termination Right
 
The merger agreement may be terminated at any time before the completion of the merger by the mutual written consent of Gaz Métro and Central Vermont.
 
Joint Termination Rights
 
In addition, the merger agreement may be terminated at any time by either Gaz Métro or Central Vermont if:
 
                ·  
the merger is not consummated by July 11, 2012; provided that if on July 11, 2012 the condition to closing relating to receipt of all required governmental approvals has not been satisfied, but all other closing conditions have been waived or satisfied (or are otherwise capable of being satisfied at closing), then such date will be extended to January 11, 2013; provided further that such right to terminate the merger agreement will not be available to any party if the failure of the effective time of the merger to occur on or before such date is the result of such party having breached or failed to perform any of its representations, warranties, covenants or agreements set forth in the merger agreement;
 
 
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                ·  
our common shareholders do not approve the merger agreement at the special meeting, or at any adjournment of such meeting; provided that such right to terminate the merger agreement will not be available to us if the failure to obtain the approval of the merger agreement by our common shareholders has been primarily caused by our breach of our non-solicitation obligations under the merger agreement or our obligations under the merger agreement relating to this proxy statement and the special meeting; or
 
                ·  
any court of competent jurisdiction or other governmental entity has issued an order or injunction or taken any other action permanently enjoining, restraining or prohibiting the merger and such order or other action is final and non-appealable; provided that the party seeking to avail itself of such right to terminate must have used its reasonable best efforts to resist, resolve or lift such order, injunction or other action.
 
Central Vermont Termination Rights
 
In addition, we may terminate the merger agreement:
 
                ·  
at any time prior to the approval of the merger agreement by our common shareholders, in order to enter into a definitive agreement with respect to a superior proposal, provided that we have complied with all of the requirements described below under “The Agreement and Plan of Merger—Termination of the Merger Agreement in the event of a Superior Proposal”;
 
                ·  
at any time if (i) Gaz Métro or Merger Sub has breached or failed to perform any of its representations, warranties, covenants or agreements under the merger agreement such that a condition to closing relating to the accuracy of Gaz Métro’s and Merger Sub’s representations and warranties or Gaz Métro’s and Merger Sub’s performance or compliance with its covenants and agreements is not reasonably capable of being satisfied, (ii) we have delivered written notice to Gaz Métro of such breach or failure to perform and (iii) such breach or failure to perform is not capable of being cured or is not cured within 30 days after delivery of our notice to Gaz Métro (provided that we have not breached or failed to perform any of our representations, warranties, covenants or agreements under the merger agreement such that a condition to closing relating to the accuracy of our representations and warranties or our performance or compliance with our covenants and agreements is not reasonably capable of being satisfied); or
 
                ·  
at any time if all of the conditions to Gaz Métro’s and Merger Sub’s obligations to effect the merger have been satisfied or waived and Gaz Métro and Merger Sub have failed to effect the merger.
 
Gaz Métro Termination Rights
 
In addition, Gaz Métro may terminate the merger agreement:
 
                ·  
at any time prior to the approval of the merger agreement by our common shareholders, if (i) our board of directors effects a change of board recommendation (whether or not in compliance with our non-solicitation obligations under the merger agreement) or (ii) we enter into a definitive agreement with respect to a superior proposal; or
 
                ·  
at any time if (i) we have breached or failed to perform any of our representations, warranties, covenants or agreements under the merger agreement such that a condition to closing relating to the accuracy of our representations and warranties or our performance or compliance with our covenants and agreements is not reasonably capable of being satisfied, (ii) Gaz Métro has delivered written notice to us of such breach or failure to perform and (iii) such breach or failure to perform is not capable of being cured or is not cured within 30 days after delivery of Gaz Métro’s notice to us (provided that neither Gaz Métro nor Merger Sub has breached or failed to perform any of its representations, warranties, covenants or agreements under the merger agreement such that a condition to closing relating to the accuracy of Gaz Métro’s and Merger Sub’s representations and warranties or Gaz Métro’s and Merger Sub’s performance or compliance with its covenants and agreements is not reasonably capable of being satisfied); or
 
 
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                ·  
at any time if all of the conditions to our obligations to effect the merger have been satisfied or waived and we have failed to effect the merger.
 
Termination Fee; Expenses
 
Termination Fee
 
Under the terms of the merger agreement, we must pay Gaz Métro a termination fee of $17.5 million in the event that:
 
                ·  
Gaz Métro terminates the merger agreement because our board of directors effects a change of board recommendation or we enter into a definitive agreement with respect to a superior proposal;
 
                ·  
we terminate the merger agreement in order to enter into a definitive agreement with respect to a superior proposal;
 
                ·  
(i) either we or Gaz Métro terminates the merger agreement because (a) the merger has not been consummated by July 11, 2012 or, if extended, January 11, 2013 or (b) our common shareholders do not approve the merger agreement at the special meeting, (ii) prior to (a) the termination of the merger agreement as a result of reaching July 11, 2012 or, if extended, January 11, 2013 or (b) the special meeting, an acquisition proposal is made to us or our board of directors or is publicly disclosed and, in each case, not withdrawn and (iii) within twelve months after termination of the merger agreement, we enter into a definitive agreement or consummate a transaction with respect to an acquisition proposal (solely for purposes of this provision, all percentages in the definition of “acquisition proposal,” which is described in the section of this proxy statement titled “The Agreement and Plan of Merger—No Solicitation”, are deemed to be changed to 50%); or
 
                ·  
(i) Gaz Métro terminates the merger agreement because (a) we breach or fail to perform any of our representations, warranties, covenants or agreements under the merger agreement such that a condition to closing related thereto is not reasonably capable of being satisfied and such breach or failure to perform is incapable of being cured or is not cured within 30 days after receipt of notice thereof from Gaz Métro or (b) all of the conditions to our obligations to effect the merger have been satisfied or waived and we have failed to effect the merger, (ii) prior to the breach giving rise to Gaz Métro’s right to terminate, an acquisition proposal is made to us or our board of directors or is publicly disclosed and not withdrawn and (iii) within twelve months after termination of the merger agreement, we enter into a definitive agreement or consummate a transaction with respect to an acquisition proposal (solely for purposes of this provision, all percentages in the definition of “acquisition proposal,” which is described in the section of this proxy statement titled “The Agreement and Plan of Merger—No Solicitation”, are deemed to be changed to 50%).
 
Expenses
 
Except as described below, each party will bear its own expenses in connection with the merger. Gaz Métro will pay all fees and expenses associated with filings pursuant to the HSR Act.
 
We will reimburse Gaz Métro for all reasonable and documented, out-of-pocket fees and expenses incurred or paid by or on behalf of Gaz Métro in connection with the merger, including all reasonable fees and expenses of counsel, investment banking firms, accountants, experts and consultants to Gaz Métro and its affiliates, up to an aggregate of $2 million, in the event that:
 
 
12

 
 
                ·  
Gaz Métro terminates the merger agreement because our board of directors effects a change of board recommendation or we enter into a definitive agreement with respect to a superior proposal;
 
                ·  
we terminate the merger agreement in order to enter into a definitive agreement with respect to a superior proposal;
 
                ·  
(i) either we or Gaz Métro terminates the merger agreement because (a) the merger has not been consummated by July 11, 2012 or, if extended, January 11, 2013 or (b) our common shareholders do not approve the merger agreement at the special meeting and (ii) prior to the termination of the merger agreement as a result of reaching July 11, 2012 or, if extended, January 11, 2013 or the special meeting, an acquisition proposal is made to us or our board of directors or is publicly disclosed and, in each case, not withdrawn; or
 
                ·  
(i) Gaz Métro terminates the merger agreement because (a) we breach or fail to perform any of our representations, warranties, covenants or agreements under the merger agreement such that a condition to closing related thereto is not reasonably capable of being satisfied and such breach or failure to perform is incapable of being cured or is not cured within 30 days after receipt of notice thereof from Gaz Métro or (b) all of the conditions to our obligations to effect the merger have been satisfied or waived and we have failed to effect the merger and (ii) prior to the breach giving rise to the right of Gaz Métro to terminate the merger agreement, an acquisition proposal is made to us or our board of directors or is publicly disclosed and not withdrawn.
 
You are Entitled to Dissenters’ Rights in the Merger (see page ____)
 
Under the Vermont Business Corporation Act, shareholders who do not vote in favor of the merger proposal will be entitled to exercise dissenters’ rights in connection with the merger. Shareholders desiring to exercise such dissenters’ rights will have the rights and duties and must follow the procedures set forth in Chapter 13 of the Vermont Business Corporation Act, the full text of which is set forth in Annex C to this proxy statement. Shareholders who wish to exercise dissenters’ rights must carefully follow the procedures described in Chapter 13 of the Vermont Business Corporation Act and are urged to read Annex C in its entirety. See “The Merger—Dissenters’ Rights.”
 
 
 
 
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QUESTIONS AND ANSWERS ABOUT THE MERGER
 
The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting of shareholders to be held for the purpose of voting on the merger proposal. These questions and answers do not address all questions that may be important to you as a Central Vermont  shareholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the Annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.
 
Q1.
What is the proposed transaction?
 
A1.
You are being asked to vote to approve the merger proposal. Pursuant to the merger, Merger Sub, an indirect wholly-owned subsidiary of Gaz Métro, will merge with and into Central Vermont with Central Vermont being the surviving corporation and becoming an indirect wholly-owned subsidiary of Gaz Métro.
 
Q2.
If the merger is completed, what will I receive for my shares of common stock?
 
A2.
After completion of the merger, you will receive $35.25 in cash, without interest, for each share of our common stock you own, following surrender of your shares of our common stock, regardless of whether you hold such shares in certificated or book-entry form. As a result of the merger, our common stock will cease to be listed on the NYSE, will not be publicly traded and will be deregistered under the Securities Exchange Act of 1934, as amended, which we refer to in this proxy statement as the Exchange Act.
 
Q3.
Why is the board of directors recommending the approval of the merger proposal?
 
A3.
Upon careful consideration, our board of directors unanimously believes that the merger proposal is advisable, fair to, and in the best interests of, Central Vermont and our shareholders. To review the reasons of our board of directors for recommending approval of the merger proposal, see pages __ through __.
 
Q4.
When is the merger expected to be completed?
 
A4.
We and Gaz Métro are working toward completing the merger as quickly as possible. We and Gaz Métro expect to complete the merger promptly after we receive approval by our shareholders at the special meeting and receive all necessary regulatory approvals. We currently anticipate that the merger will be completed within approximately [_____] to [_____] months following the date of this proxy statement. See “The Agreement and Plan of Merger—Conditions to the Merger.”
 
Q5.
Who is entitled to vote at the special meeting?
 
A5.
Holders of record of our common stock as of the close of business on ________ are entitled to vote at the special meeting. Each of our shareholders is entitled to one vote for each share of our common stock owned by the shareholder.
 
Q6.
How many shares need to be represented at the meeting?
 
A6.
The holders of a majority of the outstanding shares of common stock entitled to vote at the special meeting must be present in person or represented by proxy to constitute a quorum for the transaction of business. As of the close of business on ___________,  2011, there were __________________ shares of common stock outstanding. If you vote by proxy card or in person at the special meeting, you will be considered part of the quorum.
 
Q7.
What vote is required for our shareholders to approve the merger proposal?
 
A7.
An affirmative vote of the holders of a majority of all shares of our common stock entitled to vote thereon is required to approve the merger proposal.
 
 
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Q8.
Do I need to attend the special meeting in person?
 
A8.
No. It is not necessary for you to attend the special meeting in order to vote your shares.
 
Q9.
What do I need to do now?
 
A9.
After carefully reading and considering the information contained in this proxy statement and the Annexes attached to this proxy statement, please vote your shares of our common stock as soon as possible. Please vote your shares by returning the enclosed proxy card or by telephone or through the Internet, even if you plan to attend the special meeting, to ensure that your shares are voted. Your proxy card includes detailed information on how to vote.
 
In order for your shares to be represented at the special meeting:
 
                ·  
you can attend the special meeting in person;
 
                ·  
you can vote by telephone by calling toll-free 1-800-776-9437 on any touch-tone telephone before 11:59 p.m., Rutland, Vermont time, on [________], or by following the instructions included on your proxy card;
 
                ·  
you can vote through the Internet by accessing www.voteproxy.com before 11:59 p.m., Rutland, Vermont time, on ________,  or by following the instructions included on your proxy card; or
 
                ·  
you can indicate on the enclosed proxy card how you would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope.
 
Your proxy card will instruct the persons named on the proxy card to vote your shares of our common stock at the special meeting as you direct. If you are a record holder of shares and you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be voted “FOR” the merger proposal. If you do not sign or send in your proxy card, or if you abstain, the effect will be a vote “AGAINST” the merger proposal. Your vote is very important, regardless of the number of shares that you own.
 
Q10.
If my shares are held for me by my broker, will my broker vote those shares for me with respect to the merger proposal?
 
A10.
Your broker will not have the power to vote your shares of our common stock with respect to the merger proposal unless you provide instructions to your broker on how to vote. You should instruct your broker on how to vote your shares with respect to the merger proposal, using the instructions provided by your broker. If you fail to instruct your broker on how to vote, it will have the effect of a vote “AGAINST” the merger proposal.
 
Q11.
May I vote in person?
 
A11.
Yes. If your shares are not held in “street name” through a broker or bank you may attend the special meeting and vote your shares in person, rather than signing and returning your proxy card or voting by telephone or through the Internet. If your shares are held in “street name,” you must get a properly executed proxy card from your broker or bank in order to attend the special meeting and vote in person. Even if you plan to attend the special meeting in person you should still submit your proxy as soon as possible. You will still be able to vote in person if you choose to attend the special meeting.
 
Q12.
May I vote by telephone or through the Internet?
 
A12.
If you are a registered shareholder (that is, if you hold your stock in certificated form or own shares purchased through the dividend reinvestment stock purchase plan), you may vote by telephone at 1-800-776-9437, or electronically through the Internet at www.voteproxy.com and by following the instructions included with your proxy card. The deadline for voting by telephone or electronically is 11:59 p.m., Rutland, Vermont time, on [_________]. If your shares are held in “street name,” please check your proxy card or contact your broker or nominee to determine whether you will be able to vote by telephone or electronically.
 
 
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Q13.
What happens if I abstain from voting or do not return my proxy card?
 
A13.
If you abstain from voting or do not vote (either in person or by proxy) it will have the same effect as a vote “AGAINST” the merger proposal. Brokers who hold shares of our common stock in “street name” for customers who are the beneficial owners of those shares may not give a proxy to vote those shares without specific instructions from their customers.
 
Q14.
What happens if the merger is not completed?
 
A.14
In the event that the merger proposal is not approved by the holders of a majority of all shares of our common stock entitled to vote thereon or if the merger is not completed for any other reason, you would not receive any consideration from Gaz Métro or Merger Sub for your shares of Central Vermont common stock. Instead, we would remain an independent public company, our common stock would continue to be listed and traded on the NYSE and the holders of shares of our common stock would continue to be subject to the same risks and opportunities as they currently are subject to with respect to their ownership of Central Vermont common stock. If the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of our common stock, including the risk that the market price of our common stock may decline to the extent that the current market price of our stock reflects a market assumption that the merger will be completed. If the merger proposal is not approved by the holders of a majority of all shares of our common stock entitled to vote thereon or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us would be offered or that our business, prospects or results of operations would not be adversely impacted.
 
 
In addition, if the merger proposal is not approved by the holders a majority of all shares of our common stock entitled to vote thereon or if the merger is not consummated for any other reason, Central Vermont will not receive the $17.5 million termination fee and $2.0 million of expense reimbursement it paid to Fortis for which Gaz Métro agreed to reimburse Central Vermont for following the approval of the merger agreement by our common shareholders.
 
Q15.
Can I change my vote after I have mailed my proxy card?
 
A15.
Yes. You can change your vote at any time before your proxy is voted at the special meeting. You may revoke your proxy by notifying us in writing at Central Vermont Public Service Corporation, 77 Grove Street, Rutland, Vermont 05701, Attention: Corporate Secretary, or by submitting a new proxy, in each case, dated after the date of the proxy being revoked. In addition, your proxy may be revoked by attending the special meeting and voting in person. However, simply attending the special meeting without voting will not revoke your proxy. If you voted by telephone or through the Internet, you can also revoke your proxy and change your vote by any of these methods or you can revoke your proxy and change your vote by telephone or through the Internet. If you decide to vote by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy and change your vote by telephone or through the Internet. If you have instructed a broker to vote your shares, you must follow the instructions received from your broker to change your vote. All properly submitted proxies received by us before the special meeting that are not revoked prior to being voted at the special meeting, will be voted at the special meeting in accordance with the instructions indicated on the proxies or, if no instructions were provided, “FOR” the merger proposal and the proposal to permit the proxies to vote, in their discretion, on the postponement or adjournment of the special meeting, if necessary.
 
 
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Q16.
What happens if I sell my shares of common stock before the special meeting?
 
A16.
The record date for the special meeting is earlier than the expected date of the merger. If you own shares of our common stock on the record date, but transfer your shares after the record date but before the merger, you will retain your right to vote at the special meeting, but the right to receive the merger consideration will pass to the person to whom you transferred your shares.
 
Q17
Can I exercise dissenters’ rights in the merger?
 
A17.
Yes. Under the Vermont Business Corporation Act, shareholders who do not vote in favor of the merger proposal will be entitled to exercise dissenters’ rights in connection with the merger. Shareholders desiring to exercise such dissenters’ rights will have the rights and duties and must follow the procedures set forth in Chapter 13 of the Vermont Business Corporation Act, the full text of which is set forth in Annex C to this proxy statement. Shareholders who wish to exercise dissenters’ rights must carefully follow the procedures described in Chapter 13 of the Vermont Business Corporation Act and are urged to read Annex C in its entirety. See “The Merger—Dissenters’ Rights.”
 
Q18.
If I hold my shares in certificated form, should I send in my stock certificates now?
 
A18.
No. After the merger is completed, you will be sent detailed written instructions for exchanging your stock certificates. You must return your stock certificates as described in those instructions to receive the merger consideration. If you hold shares of our common stock in book-entry form, you must follow the instructions in the letter of transmittal for surrendering your shares in exchange for the merger consideration.
 
Q19.
Should I send in my stock option agreements, restricted stock agreements and/or restricted stock unit agreements now?
 
A19.
No. After the merger is completed, you will be sent detailed written instructions for exchanging your stock option agreements, restricted stock agreements and/or restricted stock unit agreements for the merger consideration. You must return your stock option agreements, restricted stock agreements and/or restricted stock unit agreements as described in those instructions to receive the merger consideration.
 
Q20.
How do I vote shares held in the Employee Savings and Investment Plan?
 
A20.
If you hold shares of our common stock through your participation in the 401(k) Plan a proxy card has been provided to allow you to direct the trustee of the 401(k) Plan how to vote any shares attributable to your individual account under the 401(k) Plan. The trustee will only vote such shares as directed by participants in the 401(k) Plan. If you do not instruct the trustee to vote your shares of Central Vermont common stock, your shares of Central Vermont common stock will not be voted and the effect will be the same as a vote “AGAINST” the merger proposal.
 
Q21.
What other matters will be voted on at the special meeting?
 
A21.
At the special meeting the shareholders may (1) grant to the proxy holders the authority to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date for a reasonable business purpose, including to solicit additional proxies in favor of the merger proposal, if there are not sufficient votes for approval of the merger proposal at the special meeting, (2) consider and vote, by a non-binding advisory vote, on the change in control payments payable to Mr. Reilly relating to the merger, and (3) consider and vote upon such other matters as may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
 
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Q22.
Where can I find more information about Central Vermont?
 
A22.
Central Vermont files periodic reports and other information with the Securities and Exchange Commission. You may read and copy this information at the Securities and Exchange Commission’s public reference facilities. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for information about these facilities. This information is also available on the internet site maintained by the Securities and Exchange Commission at www.sec.gov. For a more detailed description of the information available, please refer to “Where You Can Find More Information” on page __ of this proxy statement.
 
Q23.
Who can help answer my questions?
 
A23.
If you would like additional copies, without charge, of this proxy statement or have questions about the merger after reading this proxy statement, including the procedures for voting your shares, please call our proxy solicitor, Morrow & Co., LLC, toll-free at 1-800-278-2141. You may also contact us at Attention: Corporate Secretary, Central Vermont Public Service Corporation, 77 Grove Street, Rutland, Vermont 05701, Telephone: 1-800-649-2877.
 
 
 
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement contains forward-looking statements about Central Vermont. The Securities and Exchange Commission, which we refer to in the proxy statement as the Securities and Exchange Commission or the SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. These statements may be made directly in this proxy statement and they may also be made a part of this proxy statement by reference to other documents filed by us with the Securities and Exchange Commission, which is known as “incorporation by reference.”
 
Statements contained in this proxy statement that are not historical fact are forward-looking statements within the meaning of the ‘safe-harbor’ provisions of the Private Securities Litigation Reform Act of 1995.  Whenever used in this report, the words “estimate,” “expect,” “believe,” or similar expressions are intended to identify such forward-looking statements.  Forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Actual results will depend upon, among other things: the occurrence of any event, effect or change that could give rise to a termination of the merger agreement; the outcome of any legal proceedings that have been or may be instituted against Central Vermont and others following announcement of the merger agreement; the inability to complete the merger due to the failure to obtain shareholder approval or the failure to satisfy other conditions to the completion of the merger, including the receipt of regulatory approvals; risks that the merger disrupts current plans and operations and creates potential difficulties in employee retention; the amount of the costs, fees, expenses and charges related to the merger; the actions of regulatory bodies with respect to allowed rates of return, continued recovery of regulatory assets and alternative regulation; liquidity requirements; the performance and continued operation of the Vermont Yankee nuclear power plant; changes in the cost or availability of capital; our ability to replace or renegotiate our long-term power supply contracts; effects of and changes in local, national and worldwide economic conditions; effects of and changes in weather and economic conditions; volatility in wholesale power markets; our ability to maintain or improve our current credit ratings; the operations of ISO-NE; changes in financial or regulatory accounting principles or policies imposed by governing bodies; capital market conditions, including price risk due to marketable securities held as investments in trust for nuclear decommissioning, pension and postretirement medical plans; changes in the levels and timing of capital expenditures, including our discretionary future investments in Transco; the performance of other parties in joint projects, including other Vermont utilities, state entities and Transco; our ability to successfully manage a number of projects involving new and evolving  technology; our ability to replace a mature workforce and retain qualified, skilled and experienced personnel; our ability to maintain our current credit rating; and other presently unknown or unforeseen factors.
 
These and other risk factors are detailed in Central Vermont’s SEC filings. Central Vermont cannot predict the outcome of any of these matters; accordingly, there can be no assurance that such indicated results will be realized. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this proxy statement. Central Vermont does not undertake any obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this proxy statement.
 
For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please see the filings and reports that we make with the SEC as described under “Where You Can Find More Information.”
 
 
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PARTIES TO THE MERGER
 
Central Vermont.  Central Vermont is the largest electric utility in Vermont.  The Company is engaged principally in the purchase, production, transmission, distribution and sale of electricity.  Central Vermont serves approximately 160,000 customers in [163] towns, villages and cities in Vermont.  The Vermont utility operation is our core business.  We typically generate most of our revenues through retail electricity sales.  We also sell excess power, if any, to third parties in New England and to ISO-NE, the operator of the region’s bulk power system and wholesale electricity markets.  Our headquarters are located at 77 Grove Street, Rutland, Vermont 05701 and our telephone number is 1-800-649-2877.
 
Gaz Métro.  With over $3.6 billion in assets, Gaz Métro is Québec’s leading natural gas distributor. Its 10,000 kilometer network serves 300 municipalities. Gaz Métro has operated in this regulated industry since 1957 and is the trusted energy provider to its customers in Québec and Vermont, who choose natural gas for its competitive price, efficiency, comfort and environmental benefits. Gaz Métro is also present in the electricity distribution market in Vermont through GMP and is involved in natural gas transportation and storage, the development of projects such as wind power, natural gas as fuel for the transportation industry, and biomethanation. Gaz Métro is committed to the satisfaction of its customers, partners, employees and the communities it serves.  Gaz Métro’s headquarters are located at 1717 du Havre, Montréal, Québec H2K 2X3 and its telephone number is 1-800-690-3883.
 
Merger Sub.  Merger Sub is a Vermont corporation formed for the purpose of merging with and into Central Vermont. Merger Sub is an indirect wholly-owned subsidiary of Gaz Métro.  The executive office of Merger Sub is located at c/o Green Mountain Power Corporation, 163 Acorn Lane, Colchester, Vermont, 05446 and its telephone number is 1-888-835-4672.
 
 
 
 
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SPECIAL MEETING
 
This proxy statement is furnished in connection with the solicitation of proxies by our board of directors in connection with a special meeting of our shareholders, which we refer to in this proxy statement as the special meeting.
 
Date, Time and Place of the Special Meeting
 
The special meeting is scheduled to be held as follows:
Date:              __________________
Time:              ____________, Rutland, Vermont time
                Place:             __________________
                                       __________________
 
Proposal to be Considered at the Special Meeting
 
At the special meeting, you will consider and vote upon (1) a proposal to approve the merger proposal, (2) a grant of authority to the proxyholders to vote in their discretion with respect to the approval of any proposal to postpone or adjourn the special meeting to a later date for a reasonable business purpose, including to solicit additional proxies in favor of the approval of the merger agreement, if there are not sufficient votes for approval of the merger agreement at the special meeting, (3) a proposal to approve, by a non-binding advisory vote, the change in control payments payable to Mr. Reilly relating to the merger and (4) such other matters as may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
Record Date
 
Our board of directors has fixed the close of business on ____________ as the record date for the special meeting and only holders of record of our common stock on the record date are entitled to vote at the special meeting. As of the close of business on __________________, there were issued and outstanding and entitled to vote _______________ shares of our common stock.
 
As of the close of business on ______________, our directors and executive officers beneficially owned and had the right to vote ____________ shares of our common stock entitling them to exercise approximately ____% of the voting power of our common stock.
 
Voting Rights; Quorum; Vote Required for Approval
 
Each share of our common stock entitles its holder to one vote on all matters properly coming before the special meeting. The presence in person or representation by proxy of shareholders entitled to cast a majority of the votes of all issued and outstanding shares entitled to vote on the proposals, considered together, constitutes a quorum for the purpose of considering such matters. Shares of our common stock represented at the special meeting but not voted, including shares of our common stock for which proxies have been received but for which shareholders have abstained and “broker non-votes” (as defined below), will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.
 
If you hold your shares in an account with a broker or bank, which we refer to in this proxy statement as holding your shares in “street name,” you must instruct the broker or bank on how to vote your shares. If an executed proxy card returned by a broker or bank holding shares indicates that the broker or bank does not have authority to vote on the merger proposal, the shares will be considered present at the meeting for purposes of determining the presence of a quorum, but your shares of common stock will not be voted on the proposals, which will have the same effect as a vote ‘‘AGAINST’’ the merger proposal, and will not have any effect on the proposal to adjourn the special meeting or the non-binding advisory vote proposal regarding Mr. Reilly’s merger-related change in control payments. This is called a “broker non-vote.” Your broker or bank will vote your shares only if you provide instructions on how to vote by following the instructions provided to you by your broker or bank. If you hold your shares of our common stock in street name, you must request a legal proxy from your broker or bank in order to vote in person at the special meeting.
 
 
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Under our articles of incorporation, approval of the merger proposal requires the affirmative vote of the holders of a majority of all shares of our common stock entitled to vote on the merger proposal.  Abstentions and “broker non-votes” will have the same effect as a vote “AGAINST” the merger proposal.
 
The affirmative vote of a majority of the votes cast at the special meeting and entitled to vote thereon will be required to approve, by a non-binding advisory vote, Mr. Reilly’s change in control payments. Because the vote is advisory in nature only, it will not be binding on Central Vermont, and failure to receive the vote required for approval will not in itself change Central Vermont’s obligations to make the change in control severance payments. Abstentions or broker non-votes will have no effect on this proposal.
 
How to Vote
 
Shareholders of record may submit proxies by mail, by telephone or through the Internet. Shareholders who wish to submit a proxy by mail should mark, date, sign and return the proxy card in the envelope furnished. The enclosed proxy card includes detailed information on how to vote by telephone at 1-800-776-9437 or through the Internet at www.voteproxy.com. Shareholders who hold shares beneficially through a nominee (such as a bank or broker) may be able to submit a proxy by telephone or through the Internet if those services are offered by the nominee.
 
Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. Where a specification is indicated by the proxy, it will be voted in accordance with the specification. Where no specification is indicated, the proxy will be voted “FOR” the merger proposal, the proposal to permit the proxies to vote, in their discretion, on the postponement or adjournment of the special meeting, if necessary, and the non-binding advisory vote proposal on Mr. Reilly’s change in control payments relating to the merger. No proxy voted against the merger proposal will be voted in favor of any adjournment or postponement.
 
If you are a participant in the 401(k) Plan, a proxy card has been provided to allow you to direct the trustee of the 401(k) Plan how to vote any shares attributable to your individual account under the 401(k) Plan.  The trustee will only vote such shares as directed by participants in the 401(k) Plan.
 
If you hold your shares in certificated form, please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration.
 
Revocation of Proxies
 
Until your proxy is exercised at the special meeting, you can revoke your proxy and change your vote in any of the following ways:
 
                ·  
by delivering written notification or a proxy of a later date to us by ___________ at 5:00 pm at our principal executive offices at 77 Grove Street, Rutland, Vermont 05701, Attention: Corporate Secretary; or
 
                ·  
by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting).
 
If you voted by telephone or through the Internet, you can also revoke your proxy and change your vote by any of these methods or you can revoke your proxy and change your vote by telephone by calling 1-800-776-9437 or through the Internet at www.voteproxy.com. If you decide to vote by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy and change your vote by telephone or through the Internet. If you have instructed a broker or bank to vote your shares, you can revoke your proxy and change your vote by following the directions received from your broker or bank to change those instructions.
 
All properly submitted proxies received by us before the special meeting that are not revoked prior to being voted at the special meeting will be voted at the special meeting in accordance with the instructions indicated on the proxies or, if no instructions were provided, “FOR” the merger proposal, the proposal to permit the proxies to vote, in their discretion, on the postponement or adjournment of the special meeting, if necessary, and the non-binding advisory vote proposal on Mr. Reilly’s change in control payments relating to the merger.
 
 
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Postponements and Adjournments
 
The special meeting may be postponed or adjourned for the purpose of soliciting additional proxies or for other reasons as determined in the sole discretion of the chairman of the meeting. Any proposal to postpone or adjourn the special meeting may be made without prior notice, including by an announcement made at the special meeting, by the chairman of the special meeting in his sole discretion. If a proposal for postponement or adjournment is properly presented at the special meeting, or any postponement or adjournment thereof, the persons named as proxies will vote the shares represented thereby in their discretion with respect to such postponement or adjournment if such specification is indicated by the proxy or if no specification is provided by the proxy. If no specification is provided by the proxy, the persons named as proxies will not, however, have discretion to vote in favor of any postponement or adjournment as to any shares of our common stock that have been voted against the merger proposal.
 
Solicitation of Proxies
 
We will bear the expenses in connection with the solicitation of proxies. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of our common stock held of record by those persons, and we may reimburse them for their reasonable transaction and clerical expenses. Solicitation of proxies will be made principally by mail. Proxies may also be solicited in person, or by telephone, facsimile, telegram or other means of communication, by our officers and regular employees. These people will receive no additional compensation for these services, but will be reimbursed for any transaction expenses incurred by them in connection with these services. We have retained Morrow & Co., LLC, a proxy solicitation firm, for assistance in connection with the solicitation of proxies for the special meeting at an anticipated cost not to exceed $17,500 plus reimbursement of reasonable out-of-pocket expenses for such items as mailing, copying, phone calls, faxes and other related items. In addition, we will indemnify Morrow & Co., LLC against any losses arising out of that firm’s proxy soliciting services on our behalf.
 
Shareholder List
 
A list of our shareholders entitled to vote at the special meeting will be available for examination by any of our shareholders at the special meeting. From two business days after the date of this proxy statement, this shareholder list will be available for inspection by shareholders, subject to compliance with applicable provisions of Vermont law, during ordinary business hours at our corporate offices located at 77 Grove Street, Rutland, Vermont 05701.
 
Questions and Additional Information
 
If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Morrow & Co., LLC, toll-free at 1-800-278-2141.
 
 
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THE MERGER
 
Background of the Merger
 
For the past several years, our board of directors and executive officers have periodically reviewed and assessed Central Vermont’s strategic plan.  From time to time our board of directors consults with our senior management and financial advisors to review various strategic alternatives, including remaining as an independent public company, the possibility of acquisition or merger with other companies and other transactions.  As part of those reviews, Central Vermont has carefully studied developments in the electric industry in the northeastern United States and evaluated options for achieving its long-term strategic goals of providing cost-effective energy solutions to its customers and increasing shareholder value.  Over the period of 2007 through 2009, Central Vermont considered various business strategies that included strategic combinations, but ultimately concluded that remaining an independent company was in Central Vermont’s best interests at that time.  During the recent global economic recession, the board of directors was kept abreast of developments in the electric industry, including the merger and acquisition environment and the impact of conditions in the financial markets on our stock price and financial results.
 
In May 2009, the board of directors received reports that, based on communications of our financial advisor with six potentially interest parties selected by our board in consultation with management and our financial advisor to explore a potential combination with Central Vermont, four parties provided indicative proposals for a strategic transaction with Central Vermont.  After discussion, based on financial considerations and the likelihood of a transaction being consummated, the board instructed its financial advisor to explore strategic alternatives with two of the identified parties, one of which was Fortis, Inc., which we refer to in this proxy statement as Fortis.  The other party is referred to in this proxy statement as Fund A.  In June 2009, Fortis made a proposal to acquire Central Vermont at a price per share of $23.20 in cash.  Fund A proposed an acquisition of Central Vermont at a price per share of $20.00 in cash.  On June 29, 2009, the board of directors met to discuss the proposals by Fortis and Fund A as well as Central Vermont’s financial and strategic alternatives.  After discussion, the board of directors determined that there was insufficient support for continuing discussion with either Fortis or Fund A and resolved to terminate the process.
 
During the latter half of 2009 into 2010, the board of directors continued to receive presentations from its advisors on the macroeconomic environment, utility sector, economic outlook, dividend policy and financing alternatives.
 
On July 8, 2010, Robert Young announced his intent to retire as President and Chief Executive Officer of Central Vermont, effective May 2011.
 
In connection with the board of directors’ annual review of Central Vermont’s strategic plan, on July 13, 2010, the board of directors resolved to form a financial advisor search team to review and advise the board on the quality of Central Vermont’s then current strategic plan with the goal of enhancing shareholder value.
 
From July to November 2010, management and the board continued to work on updating our strategic plan, which included the continuation of the financial advisor search, and search for a new president and chief executive officer.
 
On November 15, 2010, we received an unsolicited letter from Gaz Métro in which it expressed an interest in acquiring Central Vermont at a price per share of $25.00 in cash.  On the last trading day prior to receipt of the letter, the closing price of our common stock was $20.13 per share.  On November 16, 2010, our board of directors was informed of the receipt of the letter.  The board authorized Robert Young, then President and Chief Executive Officer of Central Vermont, to contact Gaz Métro to acknowledge receipt of the letter.
 
On December 6, 2010, the board of directors approved the retention of Lazard as Central Vermont’s financial advisor.
 
Effective as of January 1, 2011, Central Vermont and Lazard entered into an engagement letter with respect to Lazard’s role as financial advisor.  Lazard had not acted as Central Vermont’s financial advisor prior to this engagement.
 
 
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On December 11, 2010, the board of directors considered the unsolicited expression of interest from Gaz Métro and discussed its fiduciary duties with its outside counsel, Loeb & Loeb LLP, which we refer to in this proxy statement as Loeb & Loeb.  Lazard was also asked to conduct a review of the financial projections reflected in the Central Vermont management case in light of Gaz Métro’s proposal.
 
On December 15, 2010, at the direction of our board of directors, Mr. Young and William Sayre, the board’s lead director, had a telephone discussion with Gaz Métro during which Messrs. Young and Sayre indicated that Central Vermont would respond to Gaz Métro’s proposal by the end of January 2011.
 
On January 7, 2011, Central Vermont received an unsolicited letter from a third party, which we refer to in this proxy statement as Company B, in which it indicated an interest in pursuing an acquisition of Central Vermont at a price per share of $28.66 in cash, based on recent average stock prices.  On the last trading day prior to receipt of the letter, the closing price of our common stock was $21.93 per share.
 
On January 10, 2011, our board of directors held a meeting at which it discussed Lazard’s preliminary review of the financial projections reflected in our strategic plan.  The board of directors also discussed the indication of interest received from Company B.  The board of directors requested additional information from Lazard regarding the financial projections reflected in Central Vermont’s strategic plan and the proposals from Gaz Métro and Company B.
 
During the month of January 2011, the board of directors met several times and received periodic updates from Lazard on its review of the financial projections reflected in Central Vermont’s strategic plan.  The board, management and legal and financial advisors discussed a process for conducting a market check to assess the fairness of the indications of interest from Gaz Métro and Company B.
 
On January 28, 2011, the board of directors met and received presentations on its fiduciary duties from Loeb & Loeb.  The board also discussed Lazard’s review of the financial projections reflected in Central Vermont’s five-year strategic plan.
 
At meetings held on February 3 and 4, 2011, the board of directors reviewed and considered a proposed work plan and process regarding the evaluation of Central Vermont’s strategic alternatives with Lazard and Loeb & Loeb. After review and discussion, the board of directors authorized a formal process to explore Central Vermont’s strategic alternatives.  Pursuant to the process, Lazard was authorized to contact specified third parties (both strategic and financial) to determine whether they were interested in pursuing a possible transaction with Central Vermont.
 
On February 8, 2011, Lazard initiated the process and contacted 16 potentially interested parties selected by our board in consultation with Lazard and management (based upon assessments of the likelihood of interest in a transaction with Central Vermont).  The 16 parties included Gaz Métro, Fortis, Fund A and Company B.  From February 14 to March 1, 2011, eight of such parties entered into confidentiality agreements with Central Vermont to enable each such party to conduct further due diligence.
 
At a meeting held on February 14, 2011, our board of directors approved the retention of Sidley Austin LLP, which we refer to in this proxy statement as Sidley Austin, as special transaction counsel, in connection with an exploration of a possible strategic transaction.
 
On February 14, 2011, Lawrence J. Reilly was appointed to serve as our Chief Executive Officer and President effective March l, 2011. Robert H. Young, the Chief Executive Officer and President, would then become Executive Chair of the Company and remain on the Board of Directors until his previously announced planned retirement on May 3, 2011.
 
On February 22, 2011, Fortis submitted a written indication of interest regarding an acquisition of Central Vermont at a price per share of $28.70 in cash.  On the last trading day prior to receipt of the letter, the closing price of our common stock was $22.05 per share.
 
 
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Throughout the months of March, April and May, as the parties were conducting due diligence and negotiations, the board of directors received frequent updates from management and Central Vermont’s legal and financial advisors on the status of the process.
 
On March 9, 2011, after having requested that written indications of interest be submitted by that date, Lazard received written indications of interest from four of the 16 parties that had been contacted by it.  The four parties consisted of three strategic buyers (Gaz Métro, Fortis and Company B) and one financial buyer (Fund A).  The March 9 submission by Fortis reaffirmed its February 22 indication of interest at $28.70 per share.  Gaz Métro proposed a price per share of $26.50, while Company B and Fund A proposed acquisitions at prices per share of $28.00 and $25.00, respectively, each in cash.
 
On March 11, 2011, at a meeting of our board of directors, management presented its preliminary analysis regarding a variety of shareholder value creation opportunities that could potentially be incorporated into our long-term strategic plan.  The analysis included a range of risk-adjusted probabilities associated with achieving each opportunity identified by our management, and the impact that each opportunity was reasonably likely to have on our strategic plan.  Lazard and our legal advisors discussed the four indications of interest received on March 9, 2011.  After discussions, the board of directors determined that Gaz Métro, Fortis and Company B should be offered the opportunity to review additional non-public financial and other information regarding Central Vermont and thereafter submit a definitive proposal regarding an acquisition of Central Vermont.  The board determined not to proceed with Fund A.  In making such determination, the board noted that the price per share offered by Fund A was the lowest of the four indications of interest, and that it was unlikely, based on previous dealings with Fund A, that Fund A would be able to pursue an acquisition of Central Vermont at the price levels indicated by Gaz Métro, Fortis and Company B.
 
Beginning on or about March 15, 2011, we provided access to an electronic data room for the three parties to conduct in-depth due diligence.  During the months of March and April, management presentations and discussions with respect to Central Vermont’s strategic plan were held with Gaz Métro, Fortis and Company B.
 
On April 11, 2011, our board of directors held a telephonic meeting at which it reviewed a draft merger agreement prepared by Sidley Austin and an updated financial forecast prepared by management, and approved the distribution of such materials to Gaz Métro, Fortis and Company B.  Our management also presented an updated analysis of certain shareholder value creation opportunities it had previously identified, together with an analysis of risk-adjusted probabilities associated with achieving each opportunity.
 
On April 18, 2011, at the direction of our board of directors, Lazard sent to each of Gaz Métro, Fortis and Company B a letter indicating that the parties should submit firm and final offers by May 16, 2011 and that, in connection therewith, each of the bidders would be provided with a draft merger agreement.  In submitting an offer by May 16, each of the bidders was requested to provide a mark-up of a draft merger agreement detailing any proposed changes to the draft agreement.  Lazard’s letter encouraged each of the bidders to review and discuss with Lazard and Sidley Austin any proposed changes to the draft agreement in advance of the May 16 deadline.
 
In the evening of April 18, 2011, at the request of Fortis, Messrs. Reilly and  Young had dinner with Stanley Marshall, President and Chief Executive Officer of Fortis.  A representative of Lazard also attended the dinner.  During the dinner, Messrs. Reilly, Young and Marshall discussed the strategic process undertaken by Central Vermont, the updated financial forecast that had been provided to Fortis, as well as other items relating to Central Vermont’s business, and Fortis’ operating and management style.
 
On April 21, 2011, Sidley Austin supplied each of Gaz Métro, Fortis and Company B with the draft merger agreement.
 
On May 4, 2011, at the request of Gaz Métro, Messrs. Reilly and Young had dinner with representatives of Gaz Métro.  A representative of Lazard also attended the dinner.  During the dinner, Messrs. Reilly and Young and the representatives of Gaz Métro discussed the strategic process undertaken by Central Vermont and Gaz Métro’s operating and management style.
 
On May 5, 2011, an article was published in the electronic media stating that Central Vermont was “understood to have appointed Lazard to conduct a strategic review.”
 
 
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On May 8, 2011, Fortis provided us with a mark-up of the draft merger agreement and indicated its willingness to discuss the proposed changes.  On May 12, 2011, representatives of Fortis, its counsel, White & Case LLP, which we refer to herein as White & Case, Central Vermont, Lazard and Sidley Austin participated in a conference call in which Sidley Austin identified certain items in the mark-up that would likely put Fortis at a significant competitive disadvantage in the bidding process.   Shortly after the call, Barry Perry, the Chief Financial Officer of Fortis, sent an email to Lazard and Sidley Austin in which Mr. Perry indicated that Fortis’ mark-up of the merger agreement would be revised to address the concerns identified in the call, including those with respect to the steps Fortis would be required to take to obtain regulatory approval.
 
On May 12, 2011, at the request of Company B, Messrs. Reilly and Young had dinner with representatives of Company B.  A representative of Lazard also attended the dinner.  During the dinner, Messrs. Reilly and Young and the representatives of Company B discussed the strategic process undertaken by Central Vermont and Company B’s operating and management style.
 
On May 13, 2011, a representative of Company B sent to Mr. Reilly a draft of a May 16 bid letter (with the offer price left blank) and a mark-up of the merger agreement.  On May 15, 2011, after discussions with our management, Lazard, Sidley Austin and Loeb & Loeb, Mr. Reilly sent to Company B an email in which he identified certain items in the proposed mark-up that would put Company B at a significant competitive disadvantage in the bidding process.
 
On May 16, 2011, each of Gaz Métro, Fortis and Company B submitted an offer letter together with a mark-up of the draft merger agreement.  The offer letters of Gaz Métro, Fortis and Company B contained offer prices of $34.00, $30.27 and $30.50, respectively.
 
On May 17, 2011, after discussions among the chair of our board of directors and our management and financial and legal advisors, we determined that feedback should be provided to Gaz Métro with respect to its mark-up in a manner similar to that provided to Fortis and Company B.  Accordingly, on May 17, 2011, Mr. Reilly sent to the chief executive officer of Gaz Métro an email identifying various items in Gaz Métro’s mark-up that were likely to be viewed unfavorably by our board, were non-competitive in the bidding process or otherwise could not be accepted, including a provision that significantly weakened Gaz Métro’s obligations in connection with regulatory approvals.  During the morning of May 18, 2011, Mr. Reilly and the chief executive officer of Gaz Métro held a telephone conversation to discuss the matters referred to in Mr. Reilly’s email.  Later on May 18, 2011, representatives of Gaz Métro, its outside counsel, Central Vermont, Lazard and Sidley Austin participated in a conference call in which the parties discussed the matters referred to in Mr. Reilly’s email.
 
On May 20, 2011, the chief executive officer of Gaz Métro sent to Mr. Reilly a letter addressing certain of the matters referred to in Mr. Reilly’s email and discussed on the May 18 conference call.
 
On May 21, 2011, at a meeting of our board of directors, our management and financial and legal advisors reviewed the proposals received from each of the three bidders.  Lazard provided a preliminary financial analysis of the offers.  Internal legal counsel and representatives of Sidley Austin, Loeb & Loeb and our regulatory counsel, Downs Rachlin Martin PLLC, which we refer to in this proxy statement as Downs Rachlin Martin, reviewed Vermont and federal regulatory matters and the directors’ fiduciary and legal duties in connection with the potential transaction.  In the course of the meeting, Lazard also noted that, following the market speculation following the May 5 article speculating as to a possible transaction involving Central Vermont, Lazard and Mr. Reilly had been contacted by representatives of several third parties inquiring as to such a transaction.  Our board concluded that none of such parties was likely to be prepared to pursue an acquisition of Central Vermont at a price more attractive than the proposals received from the bidding process being conducted through Lazard, and that the delay and attendant risks from beginning a new process with these third parties were therefore not merited.  Following extensive discussion of the bids from Gaz Métro, Fortis and Company B, the Board determined that it was not prepared at that time to declare a winner of the bidding process.  Although Gaz Métro’s offer price meaningfully exceeded the offers of Fortis and Company B, the board was concerned that Gaz Métro’s offer was likely to involve significantly more challenges to receive regulatory approval and, related thereto, Gaz Métro’s mark-up of the merger agreement significantly weakened the steps required by Gaz Métro to obtain regulatory approval and allowed Gaz Métro to terminate the agreement without penalty if conditions imposed in regulatory approvals had a material adverse effect on Gaz Métro’s (unspecified) expected benefits from the transaction.  Accordingly, the board authorized Central Vermont’s management and advisors to pursue conversations with Gaz Métro to better understand the steps that Gaz Métro was prepared to take to obtain regulatory approval and the benefits Gaz Métro was expecting from the transaction.  In addition, Lazard was directed to advise all three bidders that the board would be meeting again on May 25, 2011 to further consider the offers and that, prior thereto, the bidders should inform Lazard of their best and final offers.  In that regard, each of Fortis and Company B was informed that they were at a significant disadvantage as to their proposed price and that they would need to increase their offers meaningfully in order to continue in the process.  Gaz Métro was advised that, while its proposed price was competitive, it would need to address the issue of regulatory approval and that the other bidders were being given an opportunity to improve their bids.
 
 
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On May 23, 2011, representatives of Gaz Métro, its financial and legal advisors, Central Vermont, Lazard and Sidley Austin met in person (with representatives of Sidley Austin participating by video conference) to discuss principally the issue of regulatory approval of Gaz Métro’s acquisition proposal.  Gaz Métro indicated that it was unwilling to change the merger agreement to strengthen certain obligations with respect to regulatory approvals.  Certain other items relating to Gaz Métro’s mark-up were also addressed at the meeting including the need for a retention plan for non-executive employees of Central Vermont.  Gaz Métro also indicated that if our board determined at its meeting on May 25, 2011 to proceed with Gaz Métro’s proposal, Gaz Métro would require, as a condition to proceeding, that Central Vermont enter into an exclusivity agreement with Gaz Métro.
 
In the afternoon of May 24, 2011, Fortis informed Lazard that it would be submitting later that day a revised offer and a form of exclusivity letter that it would expect to enter into with Central Vermont if we decided to pursue their revised offer.  Fortis shared a draft of the revised bid letter and exclusivity letter.  In response thereto, Lazard supplied Fortis with a form of no-shop agreement prepared by Sidley Austin that Central Vermont was prepared to enter into with the party selected by our board at its May 25 meeting to negotiate the final terms of a merger agreement.  The form no-shop agreement provided that, through June 1, 2011, Central Vermont would cease conversations with other bidders and not solicit any other offers from any other person relating to the acquisition of all or substantially all of our common stock.  Notwithstanding the foregoing, the no-shop agreement permitted Central Vermont to accept an offer from, or participate in discussions or negotiations with, any person who made an offer to acquire all or substantially all of our common stock if our board of directors determined, in good faith and after consultation with legal counsel, that the failure to do so would be inconsistent with its fiduciary duties under law.
 
Later on May 24, 2011, Fortis submitted a revised offer of $34.10 per share.  As part of its revised proposal, Fortis stated that the proposed break-up fee pursuant to the merger agreement would need to be increased from the level of 2.95% of the aggregate merger consideration provided in its prior mark-up to 3.5%, which amount was still less than the break-up fee proposed by Gaz Métro.  Fortis also submitted a signed copy of the form of no-shop agreement that had been supplied to it earlier in the day.
 
In the afternoon or evening of May 24, 2011, a representative of Company B informed Lazard that it was prepared to increase its offer to $32.50, but that amount represented its best and final offer.
 
In the evening of May 24, 2011, Lazard also supplied Gaz Métro with the form of no-shop agreement that Central Vermont was prepared to enter into with the party selected by the board at its meeting scheduled for May 25.  Gaz Métro was informed that prior to the meeting Gaz Métro should inform Lazard of the best and final price that Gaz Métro was prepared to offer.
 
In the morning of May 25, 2011, prior to the meeting of our board, a representative of Gaz Métro informed Lazard that its offer of $34.00 per share would not be modified.
 
Our board of directors held a telephonic meeting in the morning of May 25, 2011.  The board considered each of the bid proposals received, the status of due diligence and merger agreement negotiations.  In comparing the offers from Gaz Métro and Fortis, our board of directors noted that, while the price per share of $34.10 offered by Fortis was essentially the same as the offer of $34.00 per share offered by Gaz Métro, the contractual commitment by Fortis in connection with regulatory approvals was viewed as being stronger than that offered by Gaz Métro.  Also, while Vermont regulatory approval of a transaction with Fortis would require a determination by the Vermont regulators that certain previously announced standards would be satisfied by a transaction with Fortis, the board noted that a transaction with Gaz Métro would potentially be subject to and could require new or different standards for regulatory review.  The board also noted that a transaction with Fortis would likely be more beneficial to our employees and the local economy than a transaction with Gaz Métro.  In light of the fact that all of these factors favored a transaction with Fortis, the board of directors authorized Mr. Reilly to enter into the no-shop agreement with Fortis in the form previously provided to Fortis and Gaz Métro.  In addition, Sidley Austin was authorized to negotiate the terms of the merger agreement with Fortis’ legal counsel.
 
 
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Shortly after the meeting, we executed the no-shop agreement with Fortis and informed Gaz Métro and Company B that, in accordance with the terms of the no-shop agreement, we would not be pursuing their proposals and discussions with them would cease.  We also executed an amendment to our confidentiality agreement with Fortis pursuant to which the standstill provision in the confidentiality agreement would automatically terminate in the event that we publicly announced a definitive agreement with another person to acquire all or substantially of our common stock.
 
In the evening of May 25, 2011, a representative of Gaz Métro notified Lazard by email that it was increasing its offer to $35.00 per share.
 
Later in the evening of May 25, 2011, we informed Fortis that we had received an unsolicited proposal involving a price per share in excess of the $34.10 offered by Fortis and that our board would be meeting to discuss the proposal in the afternoon of May 26, 2011.
 
In the afternoon of May 26, 2011, Sidley Austin distributed a revised draft of the merger agreement to White & Case.  Shortly after distribution of the merger agreement, Sidley Austin and White & Case held a telephone call to negotiate the few remaining unresolved terms of the merger agreement, all of which were resolved.  During the call, White & Case also informed Sidley Austin that Fortis was not prepared to increase its price per share from the $34.10 that it had previously offered, and that it was prepared to terminate discussions with Central Vermont if we resumed discussions with the party who had made the unsolicited proposal.
 
Later in the afternoon of May 26, 2011, prior to the meeting of our board, Mr. Reilly had several telephone conversations with Stanley Marshall, President and Chief Executive Officer of Fortis, regarding various aspects of the proposed transaction.
 
In the evening of May 26, 2011, our board of directors met telephonically and discussed with management, Lazard and its legal advisors the updated status of the negotiations with Fortis, the receipt of the unsolicited competing bid proposal from Gaz Métro and key differences between the terms of the proposed merger agreements with Fortis and Gaz Métro, including with respect to regulatory matters.  While the meeting was in progress, representatives of White & Case informed representatives of Sidley Austin that (contrary to its statements a few hours earlier) Fortis was considering whether to increase its price per share.  The board instructed Mr. Reilly to engage in further discussions with Fortis regarding the proposed transaction, including with respect to the price offered by Fortis and Fortis’s offer to retain up to six directors from our existing board for two years after closing.  The board believed that retaining a larger number of the current directors could be of assistance in obtaining regulatory approvals, particularly given that Fortis did not have any operations in Vermont.  Gaz Métro had offered to retain each of our existing directors and Company C had offered to retain up to ten directors.
 
In the morning of May 27, 2011, Mr. Marshall called Mr. Reilly to inform him that Fortis was increasing its offer by $1.00 per share to $35.10 per share.  As part of its revised proposal, Fortis stated that the break-up fee pursuant to the merger agreement would need to be increased to $17,500,000 from the $14,000,000 reflected in the draft merger agreement distributed by Sidley Austin on May 26, 2011.  Fortis’ revised proposal was also conditioned upon Central Vermont agreeing not to pay any dividends on our common stock after November 2011, as well as requiring that members of our management agree to waive any right to assert that the merger would, by reason of Central Vermont becoming a subsidiary of Fortis, constitute “Good Reason” under the terms of change-in-control agreements between those individuals and Central Vermont, and the right of such individuals to receive severance benefits under the change-in-control agreements if they terminated their employment with Central Vermont within 30 days after the first anniversary of the date the merger closed.
 
 
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In the afternoon of May 27, 2011, our board of directors met telephonically.  Representatives of our management, Lazard, Sidley Austin, Loeb & Loeb and Downs Rachlin Martin were also present.  Mr. Reilly provided the board with an update of the status of the negotiations with Fortis, including its price increase and the other terms of its revised proposal.  Mr. Reilly noted that, notwithstanding its initial position earlier that morning, Fortis had agreed to permit Central Vermont to pay a quarterly dividend on our common stock after November 2011 in an amount not to exceed $0.01 per share, and that it had agreed not to require that members of our management waive their right to receive severance benefits under the change-in-control agreements if they terminated their employment with Central Vermont within 30 days after the first anniversary of the date the merger closed.  Mr. Reilly also discussed with the board management’s recommendation that the board approve the proposed merger with Fortis.  Representatives of Loeb & Loeb discussed the fiduciary duties of our directors.  Representatives of Sidley Austin reviewed with the directors the terms of the draft merger agreement that had been negotiated with Fortis and related legal matters.  Also at the meeting, Lazard reviewed with the board its financial analysis of the merger consideration provided for in the draft merger agreement and rendered to our board of directors its oral opinion (which was subsequently confirmed in writing by delivery of Lazard’s written opinion) that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the merger consideration of $35.10 in cash to be paid to the holders of our common stock (other than specified excluded holders) was fair, from a financial point of view, to such holders.  After discussion, our board of directors unanimously approved and adopted the merger proposal and unanimously recommended that our shareholders vote to approve the merger proposal.  At the conclusion of the meeting, the board directed Mr. Reilly to again request that Fortis increase from six the number of directors on our existing board that would be retained for two years after closing.  Shortly thereafter, Mr. Reilly and Mr. Marshall had a telephone conversation, during which Fortis agreed to retain up to seven members of our existing board.
 
Later in the evening of May 27, 2011, Central Vermont and Fortis executed the merger agreement.
 
On May 30, 2011, Central Vermont and Fortis each issued a separate press release announcing the execution of the merger agreement.
 
During the first several weeks in June, we worked to prepare a proxy statement for shareholders and approval requests for regulators.
 
In the morning of June 23, 2011, we received an unsolicited written acquisition proposal from Gaz Métro offering to acquire Central Vermont at a price per share of $35.25 in cash.  Shortly after submitting its proposal to us, Gaz Métro issued a press release announcing the proposal.  Gaz Métro’s proposal permitted us to continue paying our regular quarterly dividend of $0.23 per common share after November 30, 2011 and prior to the closing of the transaction (regardless of the time period required to obtain regulatory approvals).  In contrast, our merger agreement with Fortis essentially eliminated dividends after November 30, 2011.  Gaz Métro’s press release also announced that, if the acquisition was completed, Gaz Métro would provide customers of Central Vermont and GMP with $144 million in savings over 10 years.  Gaz Métro also provided us with a mark-up of our merger agreement with Fortis reflecting the changes Gaz Métro proposed to make.  The merger agreement provided that NNEEC would be a party to the merger agreement and the actual acquirer of Central Vermont, but, unlike Fortis, did not include a parent guarantee of the obligations of NNEEC under the merger agreement.  Gaz Métro’s proposal also did not address payment of the termination fee and expenses to Fortis, and did not include any provision for a retention plan for employees of Central Vermont, which we had previously informed Gaz Métro would be important in connection with any business combination transaction with them.
 
Following our receipt of Gaz Métro’s proposal, in accordance with our obligations under our merger agreement with Fortis, we notified Fortis orally and in writing of our receipt of the proposal, and delivered a copy of the draft merger agreement relating to the Gaz Métro proposal to Fortis.  We also issued a press release confirming our receipt of Gaz Métro’s proposal.
 
In the morning of June 24, 2011, our board of directors met telephonically to discuss the Gaz Métro proposal.  Representatives of our management, Lazard, Sidley Austin, Loeb & Loeb and Downs Rachlin Martin were also present.  Mr. Reilly provided the board with an overview of the terms of Gaz Métro’s proposal.  Representatives of Lazard discussed the financial terms of the proposal, while representatives of Downs Rachlin Martin discussed the regulatory aspects of Gaz Métro’s proposal.  Representatives of Sidley Austin and Loeb & Loeb discussed with the board its fiduciary duties and obligations under our merger agreement with Fortis with respect to the Gaz Métro proposal, which permitted the board to consider whether the Gaz Métro proposal constituted, or was reasonably likely to lead to, a “superior proposal,” as defined in our merger agreement with Fortis.  At that time, our board concluded that it was unable to make a determination as to whether the proposal from Gaz Métro constituted, or was reasonably likely to lead to, a superior proposal.
 
 
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In the afternoon of June 24, 2011, Mr. Reilly had a telephone conversation with Mr. Marshall regarding the Gaz Métro proposal and informed him that our board would be meeting on June 27, 2011 to consider the Gaz Métro proposal.
 
In the morning of June 27, 2011, our board of directors met telephonically and further discussed with management and our legal and financial advisors the terms of Gaz Métro’s proposal.  Mr. Reilly also provided the board with an update of his discussions with Mr. Marshall.
 
In the afternoon of June 27, 2011, our board of directors met telephonically.  Members of our management and representatives of Lazard, Sidley Austin, Loeb & Loeb and Downs Rachlin Martin were also present.  Following an additional discussion of the terms of Gaz Métro’s proposal, our board determined that Gaz Métro’s proposal was reasonably likely to lead to a superior proposal under the terms of our merger agreement with Fortis.  Under the Fortis merger agreement, this determination was a prerequisite for Central Vermont to furnish information to, and have discussions and negotiations with, Gaz Métro.  However, in making its determination, the board was concerned that, while Gaz Métro’s proposal included a price per share that exceeded the price offered by Fortis and permitted Central Vermont to continue paying regularly quarterly dividends on its common stock after November 30, 2011, Gaz Métro’s proposal did not address payment of the $17.5 million termination fee and reimbursement of expenses of up to $2 million to Fortis, did not include a parent guarantee of NNEEC’s obligations, did not permit Central Vermont to establish a retention plan for employees and did not provide any details regarding the proposed $144 million of customer savings.  Although our merger agreement with Fortis also did not provide for a retention plan, our board did not consider a retention plan for the Fortis transaction necessary, as Fortis intended to leave Central Vermont as an autonomous company within the Fortis group of companies, without workforce reductions.  Gaz Métro’s proposal, however, contemplated combining Central Vermont’s operations with GMP’s operations, which our board believed would cause our employees to be concerned about the security of their jobs with the combined company after closing and could cause them to terminate their employment before closing to the detriment of service to our customers.  Accordingly, our board and management believed that a retention plan was a necessary part of a transaction with Gaz Métro.  Based on the foregoing concerns, the board instructed Mr. Reilly to engage in negotiations with Gaz Métro to address these matters.  Later on June 27, 2011, Central Vermont sent a notice to Fortis informing it of the board’s determination.  We also issued a press release disclosing the board’s determination.
 
On June 28, 2011, we distributed a revised draft of the merger agreement to Gaz Métro.  The draft provided that, immediately following the execution of the agreement, Gaz Métro would reimburse Central Vermont for its payment of the termination fee and expenses to Fortis.  The draft also provided for a guarantee of the obligations of NNEEC under the merger agreement by Gaz Métro, and for a retention pool of up to $3 million that could be distributed to employees of Central Vermont at our discretion, subject to consultation with Gaz Métro.
 
In late afternoon of June 28, 2011, Sophie Brochu, President and Chief Executive Officer of Gaz Métro, called Mr. William Sayre, Chair of our board of directors, to request a meeting between representatives of Central Vermont and Gaz Métro to discuss Gaz Métro’s proposal and our draft merger agreement.  Following further discussion, we and Gaz Métro agreed to meet in person on July 1, 2011.
 
On June 30, 2011, our board of directors met in person for a regularly scheduled meeting.  During the meeting, our management and legal and financial advisors provided the board with an update of our discussions with Gaz Métro regarding its proposal.  Mr. Reilly noted that he and Mr. Sayre would be meeting with Gaz Métro the next day to discuss Gaz Métro’s proposal and the draft merger agreement in more detail.  In addition, representatives of Sidley Austin summarized for the board the changes made in the revised merger agreement sent to Gaz Métro on June 28.
 
Early in the afternoon of July 1, 2011, Messrs. Reilly and Sayre met in person with Ms. Brochu and Mary Powell, President and Chief Executive Officer of GMP, to discuss the terms of Gaz Métro’s proposal.  Legal representatives of each party also participated in a portion of the meeting.  During the meeting, Gaz Métro stated that it was willing to reimburse Central Vermont for our payment of the termination fee and expenses to Fortis after the merger agreement with Gaz Métro was approved by our shareholders, that Gaz Métro itself would become a party to the merger agreement in lieu of NNEEC (making the parent guarantee unnecessary) and that Gaz Métro would permit Central Vermont to establish a $3 million employee retention pool, provided that the plan require the approval by Gaz Métro of any payments thereunder.  With respect to Gaz Métro’s commitment to deliver $144 million in savings to customers over a 10-year period, however, Gaz Métro declined. With respect to Gaz Métro’s commitment to deliver $144 million in savings to customers over a 10-year period, however, Gaz Métro declined at that point in time to provide definitive particulars regarding how and when the savings would be achieved or when they would be delivered to customers. Gaz Métro did state that the $144 million of savings included approximately $21 million in customer benefits that were required by a 2001 order of the Vermont Public Service Board applicable to Central Vermont, that the $144 million was a nominal amount, as opposed to a net present value, of savings to customers and that it expected approximately 40% of the aggregate savings would be derived from employee attrition at Central Vermont and GMP.  Gaz Métro also indicated that it was not planning any employee layoffs at the combined company, other than some of Central Vermont’s senior officers.  Gaz Métro further stated that it would prepare and send us a revised draft of the merger agreement reflecting the points discussed at the meeting.
 
 
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Later in the afternoon of July 1, 2011, our board of directors met telephonically.  Members of our management and representatives of Lazard, Sidley Austin, Loeb & Loeb and Downs Rachlin Martin were also present.  Mr. Reilly provided the board with a summary of the meeting with Gaz Métro that had occurred earlier that day.  Following discussion of the revised terms of Gaz Métro’s proposal, the board agreed that Gaz Métro’s proposal regarding reimbursement of our payment of the termination fee and expenses to Fortis, the addition of Gaz Métro as a party to the merger agreement and Gaz Métro’s agreement to permit an employee retention pool, subject to its approval regarding payments, were acceptable compromises that supported a determination that Gaz Métro’s proposal was a superior proposal under the terms of the Fortis merger agreement.  However, the board concluded that, because of the lack of details from Gaz Métro regarding its proposal for $144 million in customer savings, which potentially could affect the regulatory approval process, it was unable at that time to determine whether the Gaz Métro proposal in fact constituted a superior proposal.  The board therefore instructed Mr. Reilly to continue discussions with Gaz Métro regarding its proposal, and to also engage in discussions with Fortis to determine whether Fortis would be prepared to improve its offer, both with respect to the consideration to be paid to our shareholders and (to facilitate regulatory approval) savings that could be provided to our customers.
 
In the evening of July 1, 2011, Mr. Reilly had a telephone conversation with Mr. Marshall to discuss possible ways in which Fortis could improve its offer for the benefit of our shareholders and customers.
 
On July 3, 2011, Gaz Métro’s counsel, Osler, Hoskin & Harcourt LLP, which we refer to in this proxy statement as Osler, distributed a revised draft of the merger agreement reflecting the points that were discussed during the July 1, 2011 meeting.
 
In the morning of July 6, 2011, representatives of Central Vermont and GMP met in person to discuss further Gaz Métro’s proposal of delivering $144 million in savings to customers over a 10-year period.  During the meeting, GMP provided additional details regarding its method of calculating the savings that would be derived from a combination of Central Vermont and GMP.
 
In the afternoon of July 6, 2011, our board of directors met telephonically.  Members of our management and representatives of Lazard, Sidley Austin, Loeb & Loeb and Downs Rachlin Martin were also present.  Mr. Reilly provided the board with an update on our discussions with Gaz Métro and GMP, including the meeting earlier that day with representatives of GMP to discuss the proposed customer savings.  Mr. Reilly also noted that we had received a revised draft of the merger agreement from Gaz Métro over the weekend reflecting the points discussed during the July 1, 2011 meeting.  Mr. Reilly also noted that representatives of Central Vermont and Fortis had been working on possible ways to improve Fortis’ offer.
 
On July 7, 2011, Sidley Austin distributed a revised draft of the merger agreement to Osler, together with a draft letter that Gaz Métro could use to transmit to Central Vermont a copy of the merger agreement executed by Gaz Métro and Merger Sub.  The letter, if executed and delivered by Gaz Métro, would constitute an irrevocable offer by Gaz Métro to acquire Central Vermont on the terms set forth in the enclosed merger agreement, which offer would remain open until 11:59 p.m., Eastern Time, on July 22, 2011.
 
In the morning of July 8, 2011, Osler distributed revised drafts of the merger agreement and transmittal letter to Sidley.  The mark-up of the transmittal letter provided that, once Gaz Métro executed and delivered the letter and merger agreement, its offer to acquire Central Vermont would remain open until noon, Eastern Time, on July 19, 2011.  The revised merger agreement resolved all open issues in the merger agreement, other than an issue regarding the location of the headquarters of the combined Central Vermont-GMP company following the closing.  Gaz Métro’s mark-up provided that the combined company would maintain a southern head office in Rutland, Vermont, while Central Vermont’s July 7 draft provided that the headquarters would be in Rutland, Vermont.  During a telephone conversation in the afternoon of July 8, 2011, Mr. Reilly and Ms. Powell agreed that the combined company would maintain two head offices:  a Headquarters for Operations and Energy Innovation in Rutland, Vermont and a Headquarters for Corporate Services and Northern Operations in Colchester, Vermont.  That evening, Sidley Austin and Osler finalized the merger agreement.  Later in the evening of July 8, Gaz Métro delivered to us an executed transmittal letter and a copy of the merger agreement executed by Gaz Métro and Merger Sub.  The transmittal letter stated that it was an irrevocable offer to acquire Central Vermont on the terms set forth in the merger agreement, and was open for acceptance by Central Vermont until noon, Eastern Time, on July 19, 2011.  Later that evening, we delivered a copy of the executed transmittal letter and merger agreement to Fortis.
 
 
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On July 9, 2011, Sidley Austin sent White & Case a draft letter that Central Vermont would deliver to Fortis if our board of directors determined that Gaz Métro’s proposal constituted a superior proposal under the Fortis merger agreement.  The draft letter also permitted Fortis, if it wished, to waive its right under the merger agreement to match Gaz Métro’s proposal during the five business days following its receipt of the letter.  Based on conversations between Sidley Austin and White & Case over the previous days, we believed that if Fortis elected not to exercise its match right it would want to terminate the Fortis merger agreement immediately.  If Fortis agreed to waive its match right, the letter provided that the Fortis merger agreement would be terminated and we would pay Fortis the termination fee of $17.5 million and expenses of up to $2 million no later than 3:00 p.m., Eastern time, on the day following the date the letter was executed.
 
During the weekend of July 9 and 10, 2011, we engaged in negotiations with Gaz Métro and GMP regarding ways to improve the terms of Gaz Métro’s proposal with respect to employees of Central Vermont and the local communities served by Central Vermont, in particular its headquarters of Rutland, Vermont.
 
In the early afternoon of July 11, 2011, Sidley Austin and White & Case finalized the terms of the letter that we would deliver to Fortis if our board determined that Gaz Métro’s proposal was a superior proposal.
 
In the afternoon of July 11, 2011, our board of directors met telephonically.  Representatives of our management, Lazard, Sidley Austin, Loeb & Loeb and Downs Rachlin Martin were also present.  Mr. Reilly provided the board with an update of the status of the negotiations with Gaz Métro over the past several days.  Mr. Reilly noted that Gaz Métro had agreed to a variety of initiatives designed to benefit Rutland, Vermont, the historic location of Central Vermont’s headquarters, and Central Vermont’s employees, including that Gaz Métro had agreed that the combined company would maintain two head offices, one of which would be located in Rutland, that employee attrition between Central Vermont and GMP would be managed so as to be proportionate between the two companies, and that there would be no layoffs or mandatory relocations of our employees.  Mr. Reilly also discussed the mutual efforts of Central Vermont and Fortis during the weeks since Gaz Métro originally submitted its proposal to develop ways in which Fortis could improve its offer, both with respect to the consideration to be paid to our shareholders and savings that could be delivered to our customers.  During the meeting, representatives of Sidley Austin discussed the fiduciary duties of our directors and described the principal differences between the merger agreement that Gaz Métro had executed and delivered on July 8 and the merger agreement we had executed with Fortis.  Downs Rachlin Martin discussed the process for obtaining Vermont regulatory approval and noted that, in the face of the Gaz Métro proposal, it was highly unlikely that the Fortis transaction would obtain regulatory approval.  In contrast, Downs Rachlin Martin stated that, based on the initiatives Gaz Métro was prepared to implement, the commitment by Gaz Métro in the merger agreement to use reasonable best efforts to obtain regulatory approval, subject to any conditions imposed by regulators not having a material adverse effect on NNEEC, the surviving corporation and NNEEC’s subsidiaries, taken as a whole, it was likely that the Gaz Métro proposal would ultimately be approved by the Vermont regulators.  Also at the meeting, Lazard reviewed with the board its financial analysis of the merger consideration provided for in Gaz Métro’s merger agreement, and indicated that it was prepared to render to our board of directors its opinion that, as of such date, and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the merger consideration of $35.25 in cash to be paid by Gaz Métro to the holders of our common stock (other than specified excluded holders) was fair, from a financial point of view, to such holders.  Following further discussion, our board of directors determined that Gaz Métro’s irrevocable offer, as set forth in its July 8 letter and the accompanying merger agreement, constituted a “superior proposal” as defined in the Fortis merger agreement and that the failure of Central Vermont to terminate the Fortis merger agreement to enter into the merger agreement with Gaz Métro would constitute a breach of the board’s fiduciary duties under applicable law.
 
 
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During the course of a recess during the board meeting, Mr. Reilly telephoned Mr. Marshall to inform him of the board’s determination.  Mr. Marshall advised Mr. Reilly that Fortis would not be proposing any changes to its merger agreement and would waive its match rights under the Fortis merger agreement (resulting in the immediate termination of the Fortis merger agreement) if Central Vermont promptly paid to Fortis the termination fee and expenses payable pursuant to the Fortis merger agreement.  This was confirmed in writing and the Fortis merger agreement was terminated.  Following such termination, our board of directors continued to meet.  Lazard then rendered to our board of directors its oral opinion (which was subsequently confirmed in writing by delivery of Lazard’s written opinion) that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the merger consideration of $35.25 in cash to be paid by Gaz Métro to the holders of our common stock (other than specified excluded holders) was fair, from a financial point of view, to such holders.  After further discussion and considering the factors described in the section of this proxy statement titled “—Recommendation of Our Board of Directors; Reasons for the Merger,” the board then authorized our entry into the merger agreement with Gaz Métro.
 
Later in the evening of July 11, 2011, Central Vermont and Gaz Métro finalized and executed the merger agreement.
 
In the morning of July 12, 2011, we paid Fortis the termination fee of $17.5 million and reimbursed it for $2 million of expenses, as required by the Fortis merger agreement.
 
Also on July 12, 2011, we and Gaz Métro issued a joint press release announcing the execution of the merger agreement.
  
Recommendation of Our Board of Directors; Reasons for the Merger
 
At its meeting on July 11, 2011, our board of directors unanimously (i) determined that the Gaz Métro proposal constituted a “superior proposal” as defined in the Fortis merger agreement and that the failure of Central Vermont to terminate the Fortis merger agreement would be a breach of the board’s fiduciary duties under applicable law, (ii) approved the termination of the Fortis merger agreement, (iii) determined that the entry into the merger agreement and consummation of the transactions contemplated by the merger agreement, including the merger, are fair to and in the best interests of Central Vermont and our shareholders, (iv) adopted, and declared advisable, the merger agreement and the transactions contemplated by the merger agreement, including the merger, (v) determined that the merger consideration is fair to our shareholders who are entitled to receive the merger consideration and (vi) recommended that our shareholders vote in favor of the approval of the merger agreement.
 
Our board of directors unanimously recommends that you vote “FOR” the merger proposal at the special meeting.
 
Over the course of a number of meetings of our board of directors beginning in November 2010, its members, in consultation with our senior management team and outside legal and financial advisors, considered a variety of factors, both positive and negative, relating to, initially, the merger agreement and merger with Fortis and, subsequently, the merger agreement and merger with Gaz Métro, including:

 
·
Our current, historical and projected financial condition and results of operations on a stand-alone basis.
 
 
·
The risk-adjusted probabilities associated with achieving our long-term strategic plan as a stand-alone company as compared to the opportunity afforded to our shareholders via the merger consideration.
 
 
·
Our board of directors’ analysis of other strategic alternatives for our company, including continued growth as a stand-alone company and the potential to acquire, be acquired or combine with other third parties, and the risks and uncertainties associated with each alternative, as well as the board’s assessment that none of these alternatives was reasonably likely to present superior opportunities for Central Vermont to create greater value for our shareholders, taking into account the timing and the likelihood of accomplishing such alternatives and the risks of execution, as well as business, competitive, industry and market risks.
 
 
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·
The current state of the energy industry in which we compete and the risks associated with our status as a small, stand-alone, investor-owned electric utility, including the risks associated with volatile wholesale power supply markets, the importance of strong credit ratings in procuring power supply resources and the possibility of future regulatory challenges that would impact our allowed rates of return, rate structures and ability to recover costs.
 
 
·
The financial analyses of Lazard, including its written opinion, dated July 11, 2011, that, as of such date and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the merger consideration was fair, from a financial point of view, to holders of shares of our common stock (other than specified excluded holders), as more fully described below in the section of this proxy statement titled “—Opinion of Our Financial Advisor” beginning on page [__].
 
 
·
The fact that the $35.25 per share to be paid under the merger agreement represents a premium of 55.2% over the closing price of $22.71 for our common stock on the NYSE on May 4, 2011 (the last trading day before the publication of a media report speculating as to a possible transaction involving Central Vermont), a premium of approximately 45% over the closing price of $24.32 on May 27, 2011 (the last trading day before the public announcement that we and Fortis had entered into the Fortis merger agreement) and a premium of approximately 51% to the 20-day volume weighted average price of our common stock for the 20 trading days ended May 27, 2011.
 
 
·
The process undertaken by our board of directors to explore strategic alternatives, which included contacting 16 parties (8 strategic parties and 8 financial parties), including Gaz Métro, to determine their interest in a strategic transaction after being afforded the opportunity to conduct due diligence.
 
 
·
The fact that the $35.25 per share price in the merger agreement was higher than the $35.10 price offered by Fortis, higher than the last price offered by Gaz Métro prior to our execution of the Fortis merger agreement and notably higher than the price proposed by Gaz Métro in its initial unsolicited letter from November 2010.
 
 
·
The fact that Gaz Métro’s offer permitted Central Vermont to continue paying our regular quarterly dividend of $0.23 per common share after November 30, 2011 and prior to the closing of the transaction (regardless of the time period required to obtain regulatory approvals). In contrast, after November 30, 2011, the Fortis merger agreement prohibited us from paying a quarterly dividend on our common stock in excess of $0.01 per share.
 
 
·
The fact that Gaz Métro had conceded its earlier position of conditioning its obligation to close on obtaining regulatory approvals that would not have a material adverse effect on its expected benefits from the transaction and, instead, had accepted the stronger contractual commitment given by Fortis in its merger agreement.
 
 
·
The advice of Downs Rachlin Martin, regulatory counsel to Central Vermont, that, based on the initiatives Gaz Métro was prepared to implement and the commitment by Gaz Métro in the merger agreement to use reasonable best efforts to obtain regulatory approval subject to any conditions imposed by regulators not having a material adverse effect on NNEEC, the surviving corporation and NNEEC’s subsidiaries, taken as a whole, it was likely that the Gaz Métro proposal would ultimately be approved by the Vermont regulators, and that it was highly unlikely that the Fortis transaction would obtain regulatory approval.
 
 
·
The fact that the consideration to be received by our common shareholders in the merger will consist entirely of cash, which will provide liquidity and certainty of value.
 
 
·
The fact that a vote of our common shareholders to approve the merger is required under Vermont law, and that common shareholders who do not vote in favor of the approval of the merger agreement will have dissenters’ rights to attempt to receive a higher payment for their shares in accordance with Vermont law.
 
 
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·
The recommendation of our senior management team in favor of the transaction.
 
 
·
Our board of directors’ belief that the terms of the merger agreement, taken as a whole, provide a significant degree of certainty that the merger will be consummated, including the fact that (i) each party has committed to use its reasonable best efforts to obtain regulatory approvals as promptly as practicable, (ii) the merger agreement contains limited closing conditions and (iii) the merger agreement contains no financing condition.
 
 
·
Our board of directors’ belief that the terms of the merger agreement, including the parties’ respective representations, warranties and covenants and the conditions to their respective obligations, are fair and reasonable.
 
 
·
The fact that the merger agreement provides that, under certain circumstances, and subject to certain conditions, we are permitted to furnish information to and participate in discussions or negotiations with a third party in connection with an unsolicited acquisition proposal that constitutes or is reasonably likely to lead to a superior proposal (as defined in the merger agreement).
 
 
·
The fact that we have the right to terminate the merger agreement in order to accept a superior proposal, subject to our board having determined in good faith that the failure to do so would be a breach of its fiduciary duties and certain other conditions (including the right of Gaz Métro to match competing bids) and the payment of a termination fee by us of $17.5 million and reimbursement of Gaz Métro for up to $2 million of its expenses.
 
 
·
The fact that, following the approval of the merger agreement by our common shareholders, Gaz Métro would reimburse us for our payment of the $17.5 million termination fee and $2.0 million of expense reimbursement to Fortis.
 
 
·
The commitments by Gaz Métro to (i) maintain, for a period of two years, employee benefit plans, benefits and compensation arrangements (other than equity plans) for our employees at the levels in effect on the date of Gaz Métro’s and Merger Sub’s execution of the merger agreement, (ii) maintain two head offices: a headquarters for Operations and Energy Innovation in Rutland, Vermont, and a headquarters for Corporate Services and Northern Operations in Colchester, Vermont, (iii) cause the surviving corporation to make annual charitable contributions within the communities served by the surviving corporation consistent with the level of charitable contributions made by us as of the effective date of the merger agreement, (iv) cause the surviving corporation to act as an owner of VELCO in accordance with the regulatory orders and other agreements related thereto, (v) cause the surviving corporation to perform Central Vermont’s obligations under its agreement with Local Union No. 300, affiliated with the International Brotherhood of Electrical Workers, (vi) cause the surviving corporation to maintain separate debt instruments and its own corporate and debt credit rating, (vii) cause the surviving corporation to continue to provide service consistent with the Service Quality and Reliability Performance, Monitoring and Reporting Plan adopted by Central Vermont, (viii) cause the surviving corporation to fulfill its obligations under Vermont’s sustainably priced energy enterprise development resources program, (x) cause the surviving corporation not to guarantee or financially support Gaz Métro or its affiliates, unless approved by the VPSB, and to maintain books and records separate from its affiliates, and (xi) cause the surviving corporation to use its reasonable best efforts, in coordination with, and subject to approvals of, local regulators, to implement the additional initiatives outlined in Gaz Métro’s press release dated June 23, 2011 announcing its acquisition proposal and the joint press release issued by Central Vermont and Gaz Métro on July 12, 2011 announcing the entry into the merger agreement, including the following initiatives:
 
 
· 
delivery of $144.0 million in nominal savings for customers of Central Vermont and GMP over 10 years;
   
 
 
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·
establishment of a public trust with $1.0 million in annual income to support a low-income rate plan through the contribution of an approximate 30% ownership interest in VELCO to a permanent trust under public direction;
 
 
·
no layoffs at Central Vermont other than a limited number of executive officers;
 
 
·
employee attrition between Central Vermont and GMP to be managed so as to be proportionate between the two companies;
 
 
·
no mandatory relocation of Central Vermont employees;
 
 
·
creation of funds designed to help the continued revitalization of Rutland, Vermont and to support specific initiatives to advance green sector jobs and technologies; and
 
 
·
development of a “solar city” program in Rutland, Vermont.
 
Our board of directors noted that certain of the foregoing commitments and initiatives would aid in obtaining regulatory approval of the merger, in addition to recognizing that the commitments benefit various constituencies of Central Vermont.
 
In addition to the foregoing factors, our board of directors also considered certain risks and other potentially negative factors concerning the merger, including:

 
·
The fact that, following the merger, we will no longer exist as an independent company and our shareholders will no longer participate in our growth.
 
 
·
The restrictions on the conduct of our business prior to consummation of the merger, which could delay or prevent us from undertaking business opportunities that might arise pending consummation of the merger.
 
 
·
The risks and costs to us if the merger is not completed, including the diversion of management and employee attention, and the potential effect on our business and relations with customers and suppliers.
 
 
·
The concerns of many of our employees regarding the security of their jobs with the combined Central Vermont-GMP company after the closing, which was mitigated by Gaz Métro’s agreement to permit up to a $3 million employee retention pool, if needed, and commitments by Gaz Métro to undertake no layoffs at Central Vermont other than certain executive officers, to manage employee attrition between Central Vermont and GMP so as to be proportionate between the two companies, and to prohibit mandatory relocation of our employees.
 
 
·
The difficulties and challenges inherent in consummating the merger and obtaining all regulatory and other approvals necessary to consummate the merger.
 
 
·
The fact that the merger might not be consummated in a timely manner or at all in the event of a failure of certain closing conditions, including a failure to obtain regulatory approvals.
 
 
·
The restrictions on our ability to solicit or participate in discussions or negotiations regarding alternative acquisition proposals, subject to specified exceptions, and the requirement that we pay Gaz Métro a termination fee of $17.5 million (3.7% of its offer price), and reimburse Gaz Métro for up to $2 million of its expenses, in certain circumstances specified in the merger agreement, which while potentially having the effect of discouraging third parties from proposing an alternative acquisition proposal, were the same as those we had agreed to in the Fortis merger agreement and were reasonable in light of, among other things, the anticipated benefits of the merger to our common shareholders and compared to the termination fee previously requested by Gaz Métro, which was 4.0% of its offer price.
 
 
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·
The fact that, in order to terminate the Fortis merger agreement, Central Vermont had to pay Fortis a termination fee of $17.5 million and reimburse Fortis for its expenses up to $2.0 million, which payment Gaz Métro had agreed to reimburse Central Vermont for following the approval of the merger agreement with Gaz Métro by our common shareholders, but which Central Vermont may be required to repay to Gaz Métro if the merger agreement with Gaz Métro is terminated under certain circumstances.
 
 
·
The fact that gains from an all-cash transaction would be taxable to our common shareholders for U.S. federal income tax purposes.
 
 
·
The possibility that, if the merger were not consummated, we would have incurred significant transaction and opportunity costs in connection with the merger.
 
The foregoing discussion of the factors considered by our board of directors is not intended to be exhaustive but, we believe, includes all material factors considered by our board of directors.  Our board of directors also considered certain interests our directors and executive officers have in the merger that are different from, or in addition to, those of our common shareholders generally, which are described in the section of this proxy statement titled “—Interests of Our Directors and Executive Officers in the Merger” on page [__].  In view of the wide variety of factors considered by our board of directors in connection with its evaluation of the merger, our board of directors did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision.  The determination to adopt the merger agreement was made after consideration of all of the factors as a whole.  In addition, individual members of our board of directors may have given different weights to different factors.
 
Opinion of Our Financial Advisor
 
Central Vermont (which for purposes of this section refers only to Central Vermont but not its subsidiaries) retained Lazard to provide it with financial advisory services and a fairness opinion in connection with the merger.  On July 11, 2011, Lazard rendered its written opinion to our board of directors that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the merger consideration of $35.25 in cash, without interest, per share of Central Vermont common stock to be paid to holders of Central Vermont common stock, other than the “excluded holders,” in the merger was fair, from a financial point of view, to such holders.  For purposes of this section, “excluded holders” means (i) holders of Central Vermont common stock who have exercised and not effectively withdrawn or lost the right to dissent with respect to their shares of Central Vermont common stock, (ii) Central Vermont (as the holder of treasury shares) or the subsidiaries of Central Vermont or (iii) Gaz Métro, Merger Sub or any of their respective wholly-owned subsidiaries.
 
The full text of Lazard’s written opinion, dated July 11, 2011, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein in its entirety.  The following summary of Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion.  You are encouraged to read Lazard’s opinion and this section carefully and in their entirety.
 
Lazard’s opinion was directed to our board of directors for the information and assistance of our board of directors in connection with its evaluation of the merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to holders of Central Vermont common stock (other than the excluded holders) of the consideration to be paid to such holders in the merger.  Lazard’s opinion was not intended to, and does not, constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger or any matter relating thereto.  Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of the opinion.  Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion.  Lazard did not express any opinion as to the price at which shares of Central Vermont common stock may trade at any time subsequent to the announcement of the merger.  In connection with its engagement, Lazard was only authorized to contact a limited number of third parties regarding a potential transaction with Central Vermont, and Lazard was not requested to consider, and its opinion did not address, the relative merits of the merger as compared to any other transaction or business strategy in which Central Vermont might engage or the merits of the underlying decision by Central Vermont to engage in the merger.
 
 
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In connection with its opinion, Lazard:
 
 
·
Reviewed the financial terms and conditions of the merger agreement;
 
 
·
Reviewed certain publicly available historical business and financial information relating to Central Vermont;
 
 
·
Reviewed various financial forecasts and other data provided to Lazard by Central Vermont relating to the business of Central Vermont;
 
 
·
Held discussions with members of the senior management of Central Vermont with respect to the business and prospects of Central Vermont;
 
 
·
Reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally relevant in evaluating the business of Central Vermont;
 
 
·
Reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally relevant in evaluating the business of Central Vermont;
 
 
·
Reviewed historical stock prices and trading volumes of Central Vermont common stock; and
 
 
·
Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.
 
Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information.  Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Central Vermont or concerning the solvency or fair value of Central Vermont, and Lazard was not furnished with any such valuation or appraisal.  With respect to the financial forecasts utilized in Lazard’s analyses, Lazard assumed, with the consent of Central Vermont, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future financial performance of Central Vermont.  Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they were based.
 
In rendering its opinion, Lazard assumed, with the consent of Central Vermont, that the merger would be consummated on the terms described in the merger agreement, without any waiver or modification of any material terms or conditions.  Lazard also assumed, with the consent of Central Vermont, that obtaining the necessary governmental, regulatory or third party approvals and consents for the merger would not have an adverse effect on Central Vermont or the merger.  Lazard did not express any opinion as to any tax or other consequences that might result from the merger, nor did Lazard’s opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Central Vermont had obtained such advice as it deemed necessary from qualified professionals.  Lazard expressed no view or opinion as to any terms or other aspects (other than the merger consideration to the extent expressly specified in the opinion) of the merger.  In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the merger, or class of such persons, relative to the merger consideration or otherwise.
 
 
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In connection with rendering its opinion, Lazard performed certain financial analyses and reviews that Lazard deemed appropriate in connection with rendering its opinion as summarized below under “—Summary of Lazard Financial Analyses” and “—Other Analyses.”  The summary of the analyses and reviews provided below under “—Summary of Lazard Financial Analyses” and “—Other Analyses” is not a complete description of the analyses and reviews underlying Lazard’s opinion.  The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to partial analysis or summary description.  Considering selected portions of these analyses and reviews or the summary contained in “—Summary of Lazard Financial Analyses” and “—Other Analyses,” without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Lazard’s opinion.  In arriving at its opinion, Lazard considered the results of all of its analyses and reviews and did not attribute any particular weight to any factor, analysis or review considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses and reviews.
 
For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Central Vermont.  No company, business or transaction used in Lazard’s analyses and reviews, as a comparison, is identical to Central Vermont or the merger, and an evaluation of the results of those analyses and reviews is not entirely mathematical.  Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Lazard’s analyses and reviews.  In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold.  Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.
 
Summary of Lazard Financial Analyses
 
The summary of the analyses and reviews provided below includes information presented in tabular format.  In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary.  The tables alone do not constitute a complete description of Lazard’s analyses and reviews.  Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.
 
Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 6, 2011, except with respect to market data regarding Central Vermont, which was based on market data as it existed on or before May 4, 2011, the last trading day before the publication of a media report speculating as to a possible transaction involving Central Vermont, and is not necessarily indicative of current market conditions.
 
Selected Comparable Company Multiples Analysis
 
Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to selected publicly traded regulated electric utility companies whose operations Lazard believed, based on its experience with companies in the regulated electric utility industry, to be similar to Central Vermont’s operations for purposes of this analysis.  Lazard then compared such information to the corresponding information for Central Vermont.
 
The selected group of companies used in this analysis, which we refer to in this proxy statement as the Central Vermont comparable companies, was as follows:
 
 
·
CH Energy Group, Inc.
 
 
·
Consolidated Edison, Inc.
 
 
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·
Northeast Utilities
 
 
·
NorthWestern Corporation
 
 
·
NSTAR
 
 
·
Pepco Holdings, Inc.
 
 
·
UIL Holdings Corporation
 
 
·
Unitil Corporation
 
Lazard selected the companies reviewed in this analysis because, among other things, the Central Vermont comparable companies operate businesses similar to the business of Central Vermont.  However, no selected company is identical to Central Vermont.  Accordingly, Lazard believes that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Central Vermont and the Central Vermont comparable companies that could affect the public trading values of each also are relevant.
 
Lazard calculated and compared various financial multiples and ratios of the Central Vermont comparable companies, including, among other things, the ratio of each company’s July 6, 2011 closing share price to its calendar year 2011 and 2012 estimated earnings per share, commonly referred to as “EPS.”  The calendar year 2011 and 2012 estimated EPS for each of the Central Vermont comparable companies used by Lazard in its analysis were based on I/B/E/S, which represents publicly available consensus estimates.  The following table summarizes the results of this review:
 
   
Central Vermont Comparable Companies P/E Multiples
Share Price to 2011E EPS
 
14.4x – 18.4x
     
Share Price to 2012E EPS
 
13.9x – 17.0x
     

Based on an analysis of the relevant metrics for each of the Central Vermont comparable companies, Lazard selected a reference range of 13.0x to 15.0x for share price to 2011 estimated EPS and 12.0x to 14.0x for share price to 2012 estimated EPS.
 
Lazard applied each such range of share price to earnings multiples, which are referred to as “P/E multiples,” for the Central Vermont comparable companies to the estimated EPS of Central Vermont, as reflected in the financial forecasts for Central Vermont prepared by the management of Central Vermont, which are referred to in this discussion as the “Central Vermont management case.”
 
Lazard also applied the 2011E P/E multiples range for the Central Vermont comparable companies to earnings estimates for calendar year 2015 in the Central Vermont management case to calculate the 2015 estimated share price of Central Vermont, and then discounted that share price to present value at a cost of equity of 10.0%.  “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, capital structure, income taxes, expected returns and other appropriate factors.  To arrive at an appropriate equity discount rate, Lazard analyzed the cost of equity capital for the Central Vermont comparable companies.  From this analysis, Lazard estimated an implied price per share range for shares of Central Vermont common stock, as compared to the merger consideration provided in the merger agreement, of:
 
 
Implied Price Per Share Range
 
Merger Consideration
 
$22.50 – $26.00
 
$35.25

 
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Consolidated Discounted Cash Flow Analysis
 
Lazard performed a consolidated discounted cash flow analysis of Central Vermont, which is a valuation methodology used to derive a valuation of a company by calculating the present value of estimated future cash flows of the company.  “Future cash flows” refers to projected unlevered free cash flows of a company.  Lazard calculated the discounted cash flow value for Central Vermont as the sum of the net present value of:
 
 
·
the estimated future cash flow that Central Vermont will generate for the years 2011 through 2015; and
 
 
·
the estimated value of Central Vermont at the end of such period, or the terminal value.
 
The estimated future cash flow was based on the relevant financial statistics of Central Vermont as reflected in the Central Vermont management case.  For its calculations, Lazard used a discount rate of 7.35% in 2011 that ratably increased to 7.95% for the calendar year 2013 (with the discount rate remaining at 7.95% for calendar years subsequent to 2013).  The discount rate was based on the midpoint of Lazard’s judgment of the estimated range of weighted average cost of capital, based on treasury rates assumed in the Central Vermont management case and analyses of the Central Vermont comparable companies.  The weighted average cost of capital assumed a cost of equity of 9.75% increasing ratably to 11.00% in 2013 (with the cost of equity remaining at 11.00% for calendar years subsequent to 2013), and a pre-tax cost of debt range of 5.50% to 7.50%, in each case determined with reference to the Central Vermont management case and analyses of the Central Vermont comparable companies, with a ratio of equity to total capitalization ranging from 50% to 60%.  The terminal value of Central Vermont was calculated using various exit EBITDA multiples ranging from 7.75x to 8.25x and using various exit P/E multiples ranging from 13.0x to 15.0x.  “EBITDA” refers to a company’s earnings before interest, taxes, depreciation and amortization.  The exit EBITDA multiples were selected by Lazard by reference to enterprise value to EBITDA trading multiples calculated for Central Vermont as well as the enterprise value to EBITDA trading multiples of the Central Vermont comparable companies.  The exit P/E multiples were selected by Lazard by reference to P/E multiples calculated for Central Vermont as well as the P/E multiples of the Central Vermont comparable companies.
 
Lazard separately applied (i) the range of exit EBITDA multiples to the relevant financial data of the core utility business of Central Vermont and (ii) the range of exit P/E multiples to the relevant financial data of Central Vermont’s interests in Vermont Transco LLC, which owns and operates a transmission system in Vermont.  Lazard combined the results of these calculations to determine a terminal value for Central Vermont.  In addition, Lazard calculated a terminal value for Central Vermont by applying the range of exit P/E multiples to the relevant financial data of Central Vermont on a consolidated basis.  Lazard averaged the price per share ranges implied by these calculations and, from this analysis, estimated an implied price per share range for shares of Central Vermont common stock, as compared to the merger consideration provided in the merger agreement, of:
 
 
Implied Price Per Share Range
 
Merger Consideration
 
$20.75 – $26.00
 
$35.25

 
Dividend Discount Analysis
 
Lazard also performed a dividend discount analysis of shares of Central Vermont common stock, which calculates an implied equity value per share by discounting to the present the value of the future dividends per share of Central Vermont common stock expected to be paid by Central Vermont, based on an assumed equity discount rate and an average amount of annual dividend growth or dividend growth rate.  The following assumptions were used for the years 2011 through 2015:
 
 
·
an equity discount rate range of 9.5% to 10.5%;
 
 
·
average annual dividend growth of $0.02 per share; and
 
 
·
an expected 2011 annual dividend per share of $0.92.
 
 
42

 
 
For the years subsequent to 2015, the following assumptions were used:
 
 
·
an equity discount rate range of 9.5% to 10.5%;
 
 
·
an estimated dividend growth rate range of 4.0% to 5.0%; and
 
 
·
an expected 2015 annual dividend per share of $1.00.
 
To arrive at an appropriate equity discount rate range for Central Vermont, Lazard analyzed the cost of equity capital for the Central Vermont comparable companies.  The average amount of annual dividend growth and the expected 2011 dividend per share used for the years 2011 through 2015 were based on the Central Vermont management case.  The dividend growth rate range and the expected 2015 dividend per share used for the years subsequent to 2015 were also based on the Central Vermont management case.
 
Based on this analysis, Lazard calculated an implied price per share range for shares of Central Vermont common stock, as compared to the merger consideration provided in the merger agreement, of:
 
 
Implied Price Per Share Range
 
Merger Consideration
 
$13.25 – $18.50
 
$35.25

 
Adjusted Dividend Discount Analysis
 
At Central Vermont’s instruction, Lazard also performed an adjusted dividend discount analysis of shares of Central Vermont common stock assuming increased dividend growth.  In this analysis, Lazard applied the same assumptions referred to above in “—Dividend Discount Analysis,” except that, for the years 2011 through 2015, Lazard assumed an average annual dividend growth of $0.16 per share and, for the years subsequent to 2015, Lazard assumed an estimated dividend growth rate range of 3.0% to 4.0% and an expected 2015 annual dividend per share of $1.56.  The average amount of annual dividend growth used for the years 2011 through 2015 and the dividend growth rate range and the expected 2015 dividend per share used for the years subsequent to 2015 were based on the Central Vermont management case, as adjusted by Central Vermont as described above.
 
Based on this analysis, Lazard calculated an implied value range for shares of Central Vermont common stock, as compared to the merger consideration provided in the merger agreement, of:
 
 
Implied Price Per Share Range
 
Merger Consideration
 
$17.50 – $23.25
 
$35.25

 
Selected Precedent Transactions Multiples Analysis
 
Lazard reviewed and analyzed selected precedent merger and acquisition transactions involving companies in the electric utilities industry it viewed as comparable to Central Vermont.  In performing these analyses, Lazard reviewed certain financial information and transaction multiples relating to the companies involved in the selected transactions and compared such information to the corresponding information for Central Vermont.  Specifically, Lazard reviewed 25 merger and acquisition transactions since June 1999 involving companies in the electric utilities industry for which sufficient public information was available.
 
 
43

 
 
The selected group of transactions used in this analysis was as follows:
 
Announcement Date
 
Acquiror
 
Target
4/28/2011
 
Exelon Corporation
 
Constellation Energy Group, Inc.
4/20/2011
 
The AES Corporation
 
DPL Inc.
12/8/2010
 
Algonquin Power & Utilities Corp.
 
Granite State Electric Company /
EnergyNorth Natural Gas Inc.
4/28/2010
 
PPL Corporation
 
E.ON U.S. LLC
3/12/2010
 
Emera Inc.
 
Maine & Maritimes Corporation
2/11/2010
 
FirstEnergy Corp.
 
Allegheny Energy, Inc.
4/22/2009
 
Algonquin Power & Utilities Corp. / Emera Inc. / California Pacific Electric Company
 
Assets of NV Energy, Inc.
4/20/2009
 
Chesapeake Utilities Corporation
 
Florida Public Utilities Company
10/26/2007
 
Macquarie Infrastructure Partners
 
Puget Energy, Inc.
6/25/2007
 
Iberdrola, S.A.
 
Energy East Corporation
2/26/2007
 
KKR & Co. L.P. / TPG Capital
 
TXU Corp.
2/7/2007
 
Great Plains Energy Incorporated /
Black Hills Corporation
 
Aquila, Inc.
7/10/2006
 
WPS Resources Corporation
 
Peoples Energy Corporation
7/5/2006
 
Macquarie Infrastructure Partners
 
Duquesne Light Holdings, Inc.
6/22/2006
 
Northern New England Energy Corporation
 
Green Mountain Power Corporation
2/27/2006
 
National Grid plc
 
KeySpan Corporation
5/24/2005
 
MidAmerican Energy Holdings Company
 
PacifiCorp
5/9/2005
 
Duke Energy Corporation
 
Cinergy Corp.
7/26/2004
 
PNM Resources, Inc.
 
TNP Enterprises, Inc.
2/3/2004
 
Ameren Corporation
 
Illinois Power Company
4/28/2002
 
Ameren Corporation
 
CILCORP Inc.
2/20/2001
 
Energy East Corporation
 
RGS Energy Group, Inc.
2/12/2001
 
Pepco Holdings, Inc.
 
Conectiv
6/29/2000
 
Emera Inc.
 
Bangor Hydro-Electric Company
6/14/1999
 
Energy East Corporation
 
Central Maine Power Company

 
44

 
 
To the extent publicly available, Lazard reviewed, among other things, the P/E multiples of each of the target companies implied by the selected transactions by comparing the per share acquisition price to the target company’s estimated EPS for the fiscal year following the year in which the relevant transaction was announced.  Estimated EPS for the target companies was based on I/B/E/S or other publicly available financial research.  The following table summarizes the results of this review:
 
   
Selected Precedent Transactions
P/E Multiples
High
 
22.7x
Mean
 
16.1x
Median
 
16.6x
Low
 
11.9x

Based on an analysis of the relevant metrics for each of the transactions, Lazard applied a P/E multiples range of 15.0x to 17.0x to the 2011 estimated EPS of Central Vermont and a P/E multiples range of 14.0x to 16.0x to the 2012 estimated EPS of Central Vermont.  Lazard also applied a P/E multiples range of 15.0x to 17.0x to earnings estimates in the Central Vermont management case to calculate the 2015 estimated share price of Central Vermont, and then discounted that share price to present value at a cost of equity of 10.0%.  The 2011, 2012 and 2015 estimated EPS for Central Vermont were based on the Central Vermont management case, and Lazard selected an appropriate equity discount rate by analyzing the cost of equity capital for the Central Vermont comparable companies.  From this analysis, Lazard estimated an implied price per share range for shares of Central Vermont common stock, as compared to the merger consideration provided in the merger agreement, of:
 
 
Implied Price Per Share Range
 
Merger Consideration
 
$26.00 – $29.50
 
$35.25
 
 
45

 
 
Other Analyses
 
The analyses and data described below were presented to our board of directors for informational purposes only and were not material to the rendering of Lazard’s opinion.
 
52-Week High / Low Trading Prices
 
Lazard reviewed the range of trading prices of shares of Central Vermont common stock for the 52 weeks ended on May 4, 2011, the last trading day before the publication of a media report speculating as to a possible transaction involving Central Vermont.  Lazard observed that, during such period, the closing share price of Central Vermont common stock ranged from $19.38 per share to $23.60 per share, as compared to the merger consideration of $35.25 per share.
 
Premium-to-Market Analysis
 
Lazard performed a premium-to-market analysis based on premiums paid in the selected transactions listed above in “—Selected Precedent Transactions Multiples Analysis.”  The implied premiums in this analysis were calculated by comparing, to the extent publicly available, the per share acquisition price to the target company’s (i) closing share price one day prior to the date the relevant transaction was announced, (ii) average closing share price for the five-day period prior to the date the relevant transaction was announced and (iii) average closing share price for the twenty-day period prior to the date the relevant transaction was announced.  The median of premiums ranged from 19.5% to 23.8% and the mean of premiums ranged from 24.3% to 25.6%.
 
Based on the foregoing analysis, Lazard applied a range of premiums from these transactions from 15% to 30% to the closing share price of Central Vermont common stock as of May 4, 2011.  The results of this analysis implied an equity value per share range for Central Vermont common stock of $26.00 to $29.50, as compared to the merger consideration of $35.25 per share.
 
Miscellaneous
 
In connection with Lazard’s services as financial advisor to Central Vermont with respect to the merger, Central Vermont agreed to pay Lazard a fee equal to $7.9 million less previously paid retainers of $50,000, of which one-fourth was paid upon the rendering of a previous opinion of Lazard’s regarding an alternate transaction to acquire Central Vermont, one-fourth is payable upon approval of the merger by Central Vermont’s shareholders and one-half is payable upon the closing of the merger.  Central Vermont has also agreed to reimburse Lazard for certain expenses incurred in connection with Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against various liabilities that may arise from or be related to Lazard’s engagement, including certain liabilities under United States federal securities laws.
 
Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for estate, corporate and other purposes.  In addition, in the ordinary course of their respective businesses, Lazard, LFCM Holdings LLC (an entity indirectly owned in large part by managing directors of Lazard) and their respective affiliates may actively trade securities of Central Vermont, Gaz Métro and certain of their respective affiliates for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities, and may also trade and hold securities on behalf of Central Vermont, Gaz Métro and certain of their respective affiliates.  The issuance of Lazard’s opinion was approved by the opinion committee of Lazard.
 
Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other services.  Lazard was selected to act as investment banker to Central Vermont because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions, as well as its familiarity with the business of Central Vermont.
 
 
46

 
 
Central Vermont and Gaz Métro determined the merger consideration of $35.25 in cash, without interest, per share of Central Vermont common stock to be paid to the holders Central Vermont common stock in the merger through arm’s-length negotiations, and our board of directors unanimously approved the merger consideration.  Lazard did not recommend any specific consideration to our board of directors or any other person or indicate that any given consideration constituted the only appropriate consideration for the merger.  Lazard’s opinion was one of many factors considered by our board of directors.
    
Forward-Looking Financial Information
 
Central Vermont does not as a matter of practice make public detailed projections as to future revenues, earnings or other results, other than for providing estimated ranges of expected earnings for as much as one year in advance in its regular earnings press releases and other investor materials.  However, in the course of our discussions with the various parties, we provided them, including Gaz Métro, with certain business and financial information which we believe was not publicly available.  The information provided to Gaz Métro included forward-looking financial information for years 2011 through 2015 based upon projections developed by Central Vermont through a regular internal planning and forecasting process.  The information provided to Gaz Métro and summarized below was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accounts for preparation and presentation of prospective financial information.  In the view of Central Vermont’s management, the information was prepared on a reasonable basis and reflected the best available estimates and judgments at the time of its preparation, and presented at the time of its preparation, to the best of Central Vermont management’s knowledge and belief, a reasonable projection of future financial performance of Central Vermont.  However, the information provided to Gaz Métro has not been updated, is not fact and should not be relied upon as being indicative of future results, and you are cautioned not to rely on this forward-looking financial information.
 
Neither Central Vermont’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the forward-looking information contained in this proxy statement, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the forward-looking financial information.
 
The following table is a portion of the forward-looking financial information Central Vermont provided to Gaz Métro for years 2011 through 2015:
 
    Year Ended December 31  
      2011E     2012E     2013E     2014E     2015E  
    (dollars in millions except per share amounts)  
Net Income   $ 23.0   $ 26.9   $ 30.6   $ 32.3   $ 35.6  
Earnings Per Share    $ 1.72   $ 2.01   $ 2.26   $ 2.38   $ 2.60  
 
The forward-looking financial information was based upon various assumptions, including, but not limited to, the following principal assumptions:

 
·
Central Vermont would maintain an equity ratio of between 52% and 55% ;
 
 
·
Central Vermont would make a total of $369 million of combined utility capital expenditures and equity investments in VELCO between 2011 and 2015;
 
 
·
A 10-year Treasury yield of 3.75% in 2011 and 4.25% in 2012-2015;
 
 
·
An authorized return on equity of 9.45% in 2011, 10.05% in 2012 and 10.30% in 2013, 2014 and 2015, respectively;
 
 
·
No issuances of stock other than approximately 300,000 shares pursuant to our dividend reinvestment plan;
 
 
47

 
 
 
·
75% of equity incentive plan expense for non-executive employees would be recoverable in 2011, increasing to 100% in 2012-2015; and
 
 
·
An adjustment for capital projects not meeting a regulatory “known and measurable” standard of, and thus excluded from rate base for the year in which they are placed into service, of -35% in 2012 and 2013 and -25% in 2014 and 2015.
 
The estimates and assumptions underlying the forward-looking financial information are inherently uncertain and, though considered reasonable by the management of Central Vermont as of the date of its preparation, are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking financial information. See “Special Note Regarding Forward-Looking Statements” on page __. Accordingly, there can be no assurance that the forward-looking results are indicative of the future performance of Central Vermont or that actual results will not differ materially from those presented in the forward-looking financial information. Inclusion of the forward-looking financial information in this proxy statement should not be regarded as a representation by any person that the results contained in the forward-looking financial information will be achieved.
 
Central Vermont does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations other than for providing estimated ranges of expected earnings for as much as one year in advance in its regular earnings press releases and other investor materials. Accordingly, Central Vermont does not intend to update or otherwise revise the forward-looking financial information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, Central Vermont does not intend to update or revise the forward-looking financial information to reflect changes in general economic or industry conditions.
 
The information concerning forward-looking financial information provided by Central Vermont is not included in this proxy statement in order to induce any shareholder to vote in favor of the merger agreement or to acquire securities of Central Vermont.
 
Merger Consideration
 
As of the effective time of the merger, all shares of our common stock, excluding shares held by us or any of our wholly-owned subsidiaries or by Gaz Métro or Merger Sub or any direct or indirect wholly-owned subsidiary of Gaz Métro, and shares for which the holder has exercised its right to dissent pursuant to the provisions of Chapter 13 of the Vermont Business Corporation Act, will no longer be outstanding and will automatically be canceled and will cease to exist, and each holder of a certificate representing any shares of our common stock at the time of the completion of the merger will cease to have any rights as a shareholder, except the right to receive $35.25 in cash per share, without interest. Shares held by us or any of our wholly-owned subsidiaries or by Gaz Métro or Merger Sub or any direct or indirect wholly-owned subsidiary of Gaz Métro will be canceled at the effective time of the merger.
 
Interests of Directors and Executive Officers in the Merger
 
Members of our board of directors and our executive officers have various interests in the merger described in this section that may be in addition to, or different from, the interests of our shareholders generally.  You should keep this in mind when considering the recommendation of our board of directors for the approval of the merger proposal.  The members of our board of directors were aware of these interests and considered them at the time they approved the merger proposal.
 
The following table sets forth the cash proceeds that each of our directors and Messrs. Deehan, Keefe, Kraus, Reilly, and Rocheleau, and Mmes. Gamble and Keefe, who we refer to in this proxy statement as our executive officers, could receive at the closing of the merger based on his or her beneficial ownership as of June 30, 2011:
 
 
48

 
 
               
Deferred
     
   
Shares
 
 
     
(Phantom)
 
Total Cash
 
   
Beneficially
 
Stock
 
Performance
 
Stock
 
Proceeds
 
Interested Party       
Owned (#)
  Options (#)  
Shares (#)
  Units (#)   
Consideration (14)
 
                    ($)  
Robert L. Barnett
 
18,394
 
0
 
0
 
2,048
 
720,581
 
Robert G. Clarke
 
12,805
(5)
0
 
0
 
3,617
 
578,876
 
William J. Deehan
 
18,308
 
18,277
 
8,841
 
0
 
1,241,793
 
Joan F. Gamble
 
3,875
(6)
13,127
 
8,841
 
12,390
 
1,078,313
 
John M. Goodrich 
 
2,008
 
0
 
0
 
920
 
103,212
 
Robert B. Johnston (7)
 
594
 
0
 
0
 
323
 
32,324
 
Brian P. Keefe
 
1,387
(8)
0
 
8,841
 
4,498
 
519,092
 
Pamela J. Keefe
 
1,771
 
0
 
13,865
 
6,670
 
786,287
 
Joseph M. Kraus
 
35,158
 
37,064
 
13,317
 
0
 
2,299,242
 
Lawrence J. Reilly
 
4,699
(9)
0
 
0
 
386
 
179,246
 
Elisabeth B. Robert
 
686
 
0
 
0
 
593
 
45,085
 
Dale A. Rocheleau
 
6,405
(10)
19,104
 
13,317
 
6,601
 
1,209,241
 
William R. Sayre
 
5,148
 
0
 
0
 
0
 
181,467
 
Janice L. Scites
 
12,688
 
0
 
0
 
0
 
447,252
 
William J. Stenger
 
601
 
0
 
0
 
6,088
 
235,787
 
Douglas J. Wacek
 
3,479
(11)
0
 
0
 
7,940
 
402,520
 
Robert H. Young (12)
 
161,291
(13)
167,325
 
0
 
0
 
8,352,623
 
   
289,297
(1)
254,897
(2)
67,022
(3)
52,074
(4)
18,412,939
 
                       
(1)
289,297 shares worth approximately $10,197,719, which represents the total value of the shares held by directors and executive officers based on $35.25 per share.  On May 27, 2011, the last full trading day prior to the public announcement of the Fortis merger agreement, the total value of these shares was $7,035,703, based on $24.32, the closing price of our common stock on that date.
   
(2)
254,897 shares worth approximately $4,017,086, which represents the excess of $35.25 per share over the option price per share under options held by our executive officers multiplied by the number of shares covered by the options.  On May 27, 2011, the last full trading day prior to the public announcement of the Fortis merger agreement, the total amount by which $24.32, the closing price of our common stock on that date, exceeded the option price per share for these options was $1,231,062.
   
(3)
67,022 shares worth approximately $2,362,526, which represents the total value of performance shares (contingent grants plus accrued dividends at target payout as of June 30, 2011, plus estimated dividends accrued as of June 30, 2012) for the three outstanding performance cycles for the executive officers under the Performance Share Incentive Plan.  On May 27, 2011, the last full trading day prior to the public announcement of the Fortis merger agreement, the total value of these shares was $1,629,975, based on $24.32, the closing price of our common stock on that date. The shares represented in this column are inflated since they are not prorated as of the date of Closing.  The actual number of shares and value are closer to half of the amount shown.
   
(4)
52,074 shares worth approximately $1,835,069, which represents the total value of stock-based units deferred by directors and executive officers under the Deferred Compensation Plan for Officers and Directors of Central Vermont Public Service Corporation that have not yet been paid under the deferral agreements. Payments to individual participants will vary depending on the individual’s prior selection of payment dates.  On May 27, 2011, the last full trading day prior to the public announcement of the Fortis merger agreement, the total value of these shares was $1,266,440, based on $24.32, the closing price of our common stock on that date.
 
 
49

 
 
(5)
Mr. Clarke owns 12,805 shares directly.  Of these shares, all are held jointly with his spouse, with whom he shares voting and investment power.
   
(6)
Ms. Gamble owns 3,875 of these shares directly or in her 401(k) plan.
   
(7)
Mr. Johnston represents one of our largest shareholders, Anita Zucker, who owns 852,000 shares and is subject to the restrictions outlined in the agreement between the Company, The Article 6 Marital Trust, Anita G. Zucker, Trustee, and Robert B. Johnston entered into November 7, 2010 in which Mr. Johnston agreed not to take certain actions that could affect control of the Company.
   
(8)
Mr. Keefe owns 1,387 of these shares directly or in his 401(k) plan.  Of those shares, eight are owned by his child for whom Mr. Keefe serves as custodian; Mr. Keefe disclaims any beneficial interest in the eight shares owned by his child.
   
(9)
4,699 shares for Mr. Reilly awarded March 1, 2011 with three-year cliff vesting from date of award under the Omnibus Stock Plan, which we refer to in this proxy statement as OSP.  Vesting will be accelerated at effective date of closing.
   
(10)
Mr. Rocheleau owns 6,405 of these shares directly or in his 401(k) plan.
   
(11)
Mr. Wacek owns 3,479 shares directly.  Of these shares, 1,838 shares are held jointly with his spouse over which he shares voting and investment power.
   
(12)
Mr. Young retired from his duties as Executive Chair of the Company on May 3, 2011.
   
(13)
Mr. Young owns 161,291 shares directly.  His spouse owns 1,117 and his son owns one of these shares.  Mr. Young disclaims any beneficial interest in the 1,117 shares or the one share held by his spouse and son, respectively.
   
(14)
Proceeds are calculated using $35.25 per share.  Stock options values have been calculated using $35.25 per share net of exercise price.
 
Change in Control Payments.  Change in control, referred to in this proxy statement as CIC, agreements providing severance and other benefits apply to all named executive officers.  A CIC under the agreements is deemed to occur upon the happening of one of the following events:
 
(1)   an acquisition of 20% or more of the Company’s outstanding voting securities;
 
(2)   a change of more than two-thirds of our board of directors over the term of the agreement except where the new board members were approved by a vote of at least two-thirds of the incumbent members of the board of directors;
 
(3)   a consummation of a reorganization, merger, or consolidation or sale or other disposition of more than 50% of the assets of the Company; or
 
(4)   approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
 
A payment event would occur under the CIC agreement if at any time within the three-year period following a CIC a covered executive’s employment is terminated in a manner that constitutes a separation from service as defined for purposes of Internal Revenue Code Section 409A for any reason other than (i) a voluntary termination by the covered executive without good reason, (ii) by the Company as a result of executive’s incapacity due to a physical or mental illness or for Cause (as defined in the CIC agreement), or (iii) due to the executive’s death.  For this purpose, “good reason” allows a covered executive to terminate employment for any reason during the thirteenth month after a CIC if a majority of the Company’s board of directors at such time is comprised of individuals who were not members of the board of directors at the time of the CIC.  However, under such circumstances, the CIC benefits will be reduced to the extent necessary to fall below the Internal Revenue Code Section 280(G) limit, i.e., three times the executive’s average W-2 compensation paid by the Company for the five calendar years preceding the CIC event.
 
 
50

 
 
The table below provides the incremental benefits available upon a CIC event as of December 31, 2011 for Mr. Reilly and as of December 31, 2010 for all others.  The actual amounts will vary based on the date of any change of control payments and the related impacts on payment and benefit provisions.
 
Golden Parachute Compensation
 
Name and Principal
Position
 
Cash
Severance
Payment (1)
   
Acceleration
of Equity
Awards(2)
   
SERP,
Outplacement
and Welfare
Benefit Value(3)
   
Excise Tax
and Related
Gross Ups
(4)
   
Reduction
to IRC
280(G)
Limit(5)
   
Total
Payments
under a
Change in
Control
 
Lawrence Reilly
President and CEO
  $ 900,000       $ 108,688       $ 36,830       $ 0       $ 0       $ 1,045,518    
Pamela J. Keefe Vice
President, CFO, and
Treasurer
    585,000         101,314         188,212         0         0         874,526    
Joan F. Gamble Vice
President -Strategic
Change and Business
Services
    758,862         62,058         283,334         0         0         1,104,254    
Joseph M. Kraus
Senior Vice President
Engineering and
Operations
    886,236         0         193,200         0         0         1,079,436    
Dale A. Rocheleau
Senior Vice President
for Legal and Public
Affairs, and
Corporate Secretary
    592,800         93,503         176,699         0         0         863,002    
William J. Deehan
Vice President—
Power Planning and
Regulatory Affairs
    747,500         0         144,688         0         0         892,188    
Brian Keefe Vice
President —
Governance and
Public Affairs
    355,000         62,058         206,422         0         (3,423 )       620,057    
 
 
 
__________________________
 
(1)
Equals annual base salary plus target annual incentive compensation times severance multiplier of 2.99 for Messrs. Deehan, Kraus and Ms. Gamble and 2.00 for Messrs. Keefe, Reilly, and Rocheleau and Ms. Keefe.
 
(2)
Performance shares (including reinvested dividends) valued at the closing stock price of $21.86 on December 31, 2010 were assumed to be paid at target for the pro-rata portion of the cycle through which executives had already worked at the time of the change in control. For Mr. Reilly, acceleration of equity awards reflects the value of restricted stock granted upon hire date valued at the closing stock price of $23.13 on April 14, 2011.
 
 
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(3)
These incremental benefits (limited to five-year average W-2 pay) are intended to be reasonable compensation for the executive officer’s commitment to provide consulting services as required by the Company for one year post-termination and refraining from working in competition with, or for a competitor of, the Company, for one year post-termination. To the extent that these benefits (limited to five-year average W-2 pay) exceed reasonable compensation for the post-termination consulting services and non-compete agreement, the benefits may be reduced or additional tax gross-ups may apply in accordance with the conditional tax gross-up provision described in notes (4) and (5) below.
 
The following standard actuarial assumptions were used to calculate the incremental SERP benefit values:
 
 Discount rate     5.75%
   
Mortality (post-retirement only) IRS generational mortality table
   
Benefit commencement
and payment form           
If eligible for early retirement, lump sum payable upon termination (Messrs. Deehan and Kraus), otherwise single life annuity payable at the earliest unreduced retirement age (62 for Ms. Gamble and 65 for Ms. Keefe and Messrs. Keefe and Rocheleau)
 
The Health and Welfare benefit values reflecting three years (Messrs. Deehan, Kraus and Ms. Gamble) and two years (Messrs. Keefe, Reilly and Rocheleau and Ms. Keefe) of continued participation were estimated at three and two times the current cost of coverage, respectively, and based on benefit elections. Health and Welfare benefits include medical, dental, life insurance, short-term disability, and long-term disability coverage. Mr. Reilly’s Health and Welfare benefits only include life insurance, short-term disability, and long-term disability coverage since he waived medical and dental coverage in 2011.
 
A one-time $15,000 outplacement benefit has been included in this item.
 
A tax gross-up applies to health care benefits (medical and dental) and the outplacement benefit and is reflected in this item.
 
(4)
Upon a change in control, employees may be subject to certain excise taxes under Section 280(G) of the Internal Revenue Code.  There is a conditional gross-up for excise tax on the termination payments under Section 4999 of the Internal Revenue Code only in circumstances where the change in control benefits are over the IRC Section 280(G) limits by more than 10%.  The Company has agreed to reimburse the affected employees for those excise taxes depending on the circumstances of the termination as well as any income and excise taxes payable by the executive as a result of any reimbursements for the 280(G) excise taxes. The amounts in the table are based on a 280(G) excise tax rate of 20%, and a 35% federal marginal income tax rate and Vermont State tax rate of 8.95% as specified in the change in control agreements.
 
(5)
If change in control benefits are between 100% and 110% of the IRC Section 280(G) limits, the total change in control benefit is reduced to 100% of the IRC Section 280(G) limit.
 
 
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Director and Officer Indemnification and Insurance. Under the terms of the merger agreement, for six years following the effective time of the merger, Gaz Métro will cause the surviving corporation to indemnify and hold harmless all past and present directors, officers and employees of Central Vermont or any subsidiary of Central Vermont to the same extent such persons are indemnified as of the date of the merger agreement pursuant to applicable law, Central Vermont’s and its subsidiaries’ organizational documents and indemnification agreements filed with the SEC arising out of acts or omissions in their capacity as directors, officers or employees of Central Vermont or any subsidiary of Central Vermont occurring at or prior to the effective time of the merger.  Gaz Métro has also agreed to cause the surviving corporation to advance expenses (including reasonable legal fees and expenses) incurred in the defense of any claim or investigation related thereto in accordance with the procedures and limitations in Central Vermont’s and its subsidiaries’ organizational documents and indemnification agreements.
 
In addition, for not less than six years following the effective time, Gaz Métro will cause the organizational documents of the surviving corporation to contain provisions with respect to exculpation, indemnification and advancement of expenses that are no less favorable as the exculpation, indemnification and advancement of expenses provisions contained in the organizational documents of Central Vermont in effect on the date of the merger agreement.  Gaz Métro will cause the surviving corporation to assume, following the effective time, any indemnification agreements in existence as of the date of the merger agreement and filed with the SEC.
 
Under the terms of the merger agreement, we are permitted, prior to the effective time of the merger, to obtain and fully pay the premium for a directors and officers insurance policy that provides coverage for a period of six years after the effective time of the merger for events occurring prior to the effective time of the merger that is substantially equivalent to our existing policy.  If we are unable to purchase such a policy, the surviving corporation is obligated to, as of the effective time of the merger, obtain and fully pay the premium for a directors and officers insurance policy on terms substantially equivalent to, and in any event not less favorable in the aggregate than, our existing policy.  However, the surviving corporation will not be required to pay annual premiums in excess of 300% of the last annual premium paid by Central Vermont for our existing policy.  In that event, the surviving corporation will be obligated to provide the maximum available coverage as may be obtained for 300% from an insurance carrier with the same or better credit rating than the primary carrier of our existing policy.
 
Financing of the Merger
 
The merger is not conditioned upon any financing.  Gaz Métro currently intends to finance the equity portion of the transaction of approximately $485 million with availability under current lines of credit, one or more sales of private or public debt and equity contributions from partner’s equity. As of March 31, 2011, Gaz Métro had Cdn$3.6 billion in total assets and Cdn$1.1 billion in partner’s equity. Gaz Métro has not made any final decisions concerning the sources mix it will utilize to finance the merger. Such decisions will depend upon a number of factors including prevailing interest rates, financial, economic, and market conditions, and such other factors as Gaz Métro deems advisable and appropriate.
 
 
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Effects of the Merger
 
Subject to the terms and conditions of the merger agreement and in accordance with Vermont law, at the effective time of the merger, Merger Sub, an indirect wholly-owned subsidiary of Gaz Métro formed for purposes of the merger, will be merged with and into Central Vermont, and Central Vermont will survive the merger as a subsidiary of Gaz Métro and will continue its corporate existence under Vermont law.
    
Regulatory Approvals
 
Antitrust Approvals. Under the HSR Act and the rules promulgated thereunder by the FTC, the merger cannot be completed until we and Gaz Métro file a notification and report form under the HSR Act and the applicable waiting period has expired or been terminated. We and Gaz Métro intend to file notification and report forms under the HSR Act with the FTC and the Antitrust Division during the third quarter of 2011. At any time before or after completion of the merger, notwithstanding the expiration or early termination of the waiting period under the HSR Act, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of Central Vermont  or Gaz Métro. At any time before or after the completion of the merger, and notwithstanding the expiration or early termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of Central Vermont or Gaz Métro. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
 
While there can be no assurance that the merger will not be challenged by a governmental authority or private party on antitrust grounds, we and Gaz Métro believe that the merger can be effected in compliance with federal and state antitrust laws. Under the terms of the merger agreement, however, Gaz Métro is not required to, and we may not, consent to or take any action that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on NNEEC, the surviving corporation and the subsidiaries of NNEEC, taken as a whole. See “The Agreement and Plan of Merger—Efforts to Consummate the Merger; Regulatory Matters.”
 
CFIUS Approval. The Exon-Florio Amendment to the Defense Production Act of 1950, or Exon-Florio provision, provides the President of the United States with the authority to investigate and, where necessary, suspend or prohibit any foreign acquisition, merger or takeover of companies engaged in U.S. interstate commerce, determined to threaten U.S. national security:
 
                ·  
if there is credible evidence that leads the President to believe that the foreign interest exercising control might take action that threatens to impair the national security; and
 
                ·  
if provisions of law, other than the Exon-Florio provision and the International Emergency Economic Powers Act, do not in the President’s judgment provide adequate and appropriate authority for the President to protect the national security in the matter before the President.
 
By executive order, the President has delegated his investigatory powers under the Exon–Florio provision to the CFIUS, an interagency committee chaired by the U.S. Treasury Department. We and Gaz Métro intend to file a voluntary notification of the proposed merger with the CFIUS during the third quarter of 2011, seeking confirmation that the transactions contemplated by the merger agreement do not threaten national security. The CFIUS has 30 days from the date of that filing in which to determine whether to seek a further investigation of the merger. We cannot assure you whether or not the CFIUS will decide to seek such investigation, or what action, if any, the President may decide to take with respect to the transaction. Among other actions, the President could block or otherwise require conditions on the proposed merger.
 
FERC Approval. Section 203 of the Federal Power Act provides that no public utility may sell or otherwise dispose of its jurisdictional facilities with a value in excess of $10 million, directly or indirectly merge or consolidate its jurisdictional facilities with those of any other person or acquire any security of any other public utility with a value in excess of $10 million without first having obtained authorization from the FERC. Because we own “jurisdictional facilities” under the Federal Power Act with a value in excess of $10 million, the approval of the FERC under Section 203 is required before we and Gaz Métro may consummate the merger.
 
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Section 203, as amended by the Energy Policy Act of 2005, provides that the FERC is required to grant its approval if the merger is found to be “consistent with the public interest” and will not result in cross-subsidization of a non-utility associate company, unless the FERC determines that the cross-subsidization, pledge or encumbrance will be consistent with the public interest. The FERC stated in its 1996 Merger Policy Statement that, in analyzing whether a merger is consistent with the public interest under Section 203, it will evaluate the following criteria:
 
                ·  
the effect of the merger on competition in electric power markets;
 
                ·  
the effect of the merger on the applicant’s wholesale and transmission rates; and
 
                ·  
the effect of the merger on state and federal regulation of the applicants.
 
If the FERC finds that the merger would adversely affect competition, wholesale rates or regulation or will result in cross-subsidies, it may, pursuant to the Federal Power Act, deny approval of the merger or impose remedial conditions intended to mitigate such effects; we and Gaz Métro then could review whether to accept such remedial conditions.
 
We plan to file our application under Section 203 during the third quarter of 2011.
 
VPSB Approval. We are subject to the jurisdiction of the VPSB. Under 30 V.S.A. §§ 104, 107, 109 and 311, the approval of the VPSB is required in connection with the amendment to the articles of incorporation of, and with the acquisition of a controlling interest in, or merger involving any company under its jurisdiction. In considering the merger, the VPSB is required to determine that it will promote the general good of the state and will not result in obstructing or preventing competition with respect to any product or service sold, purchased or manufactured by us and Gaz Métro.
 
FCC Approval.  We hold certain radio station licenses issued by the FCC that are utilized in connection with our utility operations.  FCC approval is required prior to the transfer of control of any entity holding such FCC licenses. The FCC will review whether the transfer of control of Central Vermont and our licenses is in the public interest. We plan to file our application for approval of the transfer of such licenses with the FCC during the third quarter of 2011.
 
Nuclear Regulatory Commission Approval.  We are subject to the jurisdiction of the NRC as a result of our ownership interest in the Millstone Unit #3 and Maine Yankee nuclear power plants.  The Atomic Energy Act of 1954 provides that a license may not be transferred or in any manner disposed of, directly or indirectly, through transfer of control unless the NRC finds that the transfer complies with the Atomic Energy Act and consents to the transfer.  We plan to file our application for approval with the NRC during the third quarter of 2011.
 
NYPSC Approval.  In connection with the merger, we plan to file our application pursuant to Section 70 of the Public Service Law during the third quarter of 2011 to obtain any necessary approvals.
 
NHPUC Approval. In connection with the merger, we plan to file our application pursuant to RSA 373:33 during the third quarter of 2011 to obtain any necessary approvals.
 
MPUC Approval.  Gaz Métro will need to file an application with the MPUC pursuant to 35-A M.R.S.A. § 708 and to obtain any necessary approvals.
 
 
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Material U.S. Federal Income Tax Consequences of the Merger to Our Shareholders
 
The following is a summary of U.S. federal income tax consequences of the merger to U.S. shareholders whose shares of our common stock are converted into the right to receive cash in the merger. The discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our shareholders. The discussion is based on current law, which is subject to change, possibly with retroactive effect. The discussion applies only to shareholders who hold shares of our common stock as capital assets, and may not apply to shares of our common stock received in connection with the exercise of employee stock options or otherwise as compensation or common stock held as part of a straddle, constructive sale, hedging conversion or other integrated transaction, to certain types of shareholders (such as insurance companies, banks, tax-exempt organizations, financial institutions and broker-dealers) who may be subject to special rules, or to taxpayers subject to the alternative minimum tax.  This discussion does not address the tax consequences to any shareholder who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust or to the beneficial owner of an entity that is treated as a partnership for U.S. federal income tax purposes.  In addition, this discussions does not address any aspect of state, local or foreign tax laws, or other federal tax law
 
The exchange of cash for shares of our common stock in the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a shareholder whose shares of our common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between $35.25 per share and the shareholder’s adjusted tax basis in each of the shares of our common stock surrendered. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss if a shareholder’s holding period for such shares is more than one year at the time of the consummation of the merger. Long-term capital gains of non-corporate taxpayers are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.
 
In general, backup withholding will apply to all cash payments to which a shareholder is entitled under the merger proposal, unless the shareholder provides a taxpayer identification number (social security number, in the case of individuals, or employer identification number, in the case of other shareholders), certifies that such number is correct, and otherwise complies with the backup withholding tax rules or unless an exemption applies. Each of our shareholders should complete and sign the Substitute Form W-9 included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding tax, unless an exemption applies and is established in a manner satisfactory to the paying agent.  Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowable as a refund or a credit against a shareholder’s U.S. federal income tax liability, provided the shareholders furnishes the required information to the Internal Revenue Service.
 
The U.S. federal income tax consequences set forth above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each shareholder should consult the shareholder’s tax advisor regarding the applicability of the rules discussed above to the shareholder and the particular tax effects to the shareholder of the merger, including the application of state, local and foreign tax laws.
 
Accounting Treatment
 
The merger will be accounted for as a “purchase transaction” for financial accounting purposes.
 
Consequences if the Merger is Not Completed
 
In the event that the merger proposal is not approved by the holders of a majority of all shares of our common stock entitled to vote thereon or if the merger is not completed for any other reason, you would not receive any consideration from Gaz Métro or Merger Sub for your shares of Central Vermont common stock. Instead, we would remain an independent public company, our common stock would continue to be listed and traded on the NYSE and the holders of shares of our common stock would continue to be subject to the same risks and opportunities as they currently are subject to with respect to their ownership of Central Vermont common stock. If the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of our common stock, including the risk that the market price of our common stock may decline to the extent that the current market price of our stock reflects a market assumption that the merger will be completed. If the merger proposal is not approved by the holders of a majority of all shares of our common stock entitled to vote thereon or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us would be offered or that our business, prospects or results of operations would not be adversely impacted.
 
 
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Delisting and Deregistration of Our Common Stock
 
If the merger is completed, our common stock will be delisted from the New York Stock Exchange and will be deregistered under the Exchange Act.
 
Dissenters’ Rights
 
The holders of shares of our common stock at the effective time of the merger will have certain rights pursuant to the provisions of Chapter 13 of the Vermont Business Corporation Act (Title 1 1A, V.S.A. Section 13.01 et seq.), which we refer to in this proxy statement as Chapter 13, to dissent from the merger and obtain payment of fair value for their shares of our common stock. The fair value is initially determined by Central Vermont. Under Chapter 13, dissenting shareholders who comply with the applicable statutory procedures will be entitled to receive a judicial appraisal of the fair value of their shares of our common stock (exclusive of any appreciation or depreciation in anticipation of the merger unless such exclusion would be inequitable) and to receive payment of such fair value in cash, together with interest from the effective date of the merger until the date of payment. Any such judicial determination of the fair value of shares of our common stock could be based upon factors other than, or in addition to, the price per share to be paid in the merger or the market value of the shares of our common stock. The judicially determined value could be more or less than the price per share to be paid in the merger. The foregoing summary of Chapter 13 does not purport to be complete and is qualified in its entirety by reference to Chapter 13. Failure to follow the steps required by Chapter 13 for exercising  dissenters’ rights may result in the loss of such rights.
 
Pursuant to Chapter 13, any holder of shares of our common stock who objects to the merger is entitled to dissent from the merger and to have the fair value of such shares of our common stock, which we refer to in this proxy statement as dissenting stock, as determined by us or, if necessary, judicially determined, paid to that holder, by complying with the provisions of Chapter 13. Failure to take any steps set forth in Chapter 13 in connection with the exercise of such rights may result in termination or waiver thereof.
 
The following is a summary of the statutory procedures required to be followed by a holder of dissenting stock, whom we refer to in this proxy statement as a dissenting shareholder, in order to exercise that holder’s rights under Vermont law. This summary is qualified in its entirety by reference to Chapter 13, the text of which is attached as Annex C to this proxy statement.
 
If a shareholder elects to exercise dissenters’ rights with respect to the merger, such shareholder must (i) deliver to us prior to the vote on the approval of the merger agreement at the special meeting a written notice of intention to demand payment for the holder’s shares of our common stock if the merger is effectuated and (ii) not vote in favor of approval of the merger agreement. The written notice required to be delivered to us by a dissenting shareholder is in addition to and separate from any proxy or vote against the merger proposal. Neither voting against nor failing to vote for the merger will constitute the written notice required to be filed by a dissenting shareholder. Failure to vote against the merger proposal, however, will not constitute a waiver of rights under Chapter 13, provided that a written objection has been properly filed and the shareholder does not vote in favor of the merger proposal. A signed proxy that is returned but which does not contain any instructions as to how it should be voted will be voted in favor of approval of the merger proposal and will be deemed a waiver of dissenters’ rights. See “The Special Meeting—Voting and Revocation of Proxies” on page ___ of this proxy statement.
 
A beneficial shareholder may assert dissenters’ rights as to shares of our common stock held on that shareholder’s behalf only if (i) such shareholder submits to us the record shareholder’s written consent to the dissent not later than the time that the beneficial shareholder asserts dissenters’ rights and (ii) such shareholder does so with respect to all shares of our common stock of which that shareholder is the beneficial owner or over which that shareholder has the power to direct the vote. If the beneficial shareholder holds shares of our common stock through a fiduciary, such as through a trustee of an employee benefit plan such as the 401(k) Plan, the beneficial shareholder should send written notice to such fiduciary of the shareholder's intent to assert dissenters' rights and request that the fiduciary provide its written consent to the dissent.  A record holder of shares of our common stock may dissent on behalf of any beneficial owner with respect to all, but not less than all, of the shares of common stock of such owner if the record holder notifies us in writing of the name and address of each such person on whose behalf such record holder asserts dissenters’ rights. All notices of intention to demand payment should be addressed to: Central Vermont Public Service Corporation, 77 Grove Street, Rutland, Vermont, 05701, Attention: General Counsel.
 
 
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If the merger agreement is approved, we are obligated to give written notice of the approval to each dissenting shareholder who timely filed a notice of intention to demand payment and who did not vote in favor of approval of the merger agreement no later than 10 days after the date that the merger becomes effective. The notice must be accompanied by a copy of Chapter 13 and must:
 
                ·  
state where a demand for payment must be sent and where and when certificates representing dissenting stock must be deposited in order to obtain payment;
 
                ·  
inform holders of uncertificated shares of our common stock to what extent transfer of the shares of our common stock will be restricted after the payment demand is received;
 
                ·  
be accompanied by a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed merger (May 30, 2011) and requires that the person asserting dissenters’ rights certify whether or not he or she acquired beneficial ownership of the dissenting stock before that date; and
 
                ·  
set a date by which we must receive the payment demand, which date shall not be less than 30 days nor more than 60 days after the date the notice is delivered.
 
A dissenting shareholder who fails to demand payment or to deposit certificates for dissenting stock as required shall have no right under Chapter 13 to receive payment for the dissenting stock.
 
Unless the merger has been effected within 60 days after the date for demanding payment and depositing certificates for dissenting stock, which 60 day period we refer to in this proxy statement as the demand period, we will return any certificates for dissenting stock so deposited and release any transfer restrictions imposed on uncertificated shares of our common stock. If certificates for such dissenting stock have been returned and such transfer restrictions have been released by us, we must at a later time send a new notice conforming to the requirements herein described if the merger is effected after the demand period.
 
Upon consummation of the merger, our obligations under Chapter 13 will be assumed by the surviving corporation.
 
As soon as the merger has been consummated, or upon receipt of demand for payment if the merger has already been consummated, except as set forth in the immediately following sentence, we will remit to each dissenting shareholder who has made proper demand and deposited that shareholder’s certificates with us the amount which we deem to be the fair value of that shareholder’s dissenting stock, with accrued interest, if any, accompanied by:
 
                ·  
our balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment;
 
                ·  
an income statement and a statement of changes in shareholders’ equity for such fiscal year;
 
                ·  
our latest available interim financial statements, if any;
 
                ·  
a statement of our estimate of the fair value of the dissenting stock and how such estimate was calculated;
 
                ·  
an explanation of how interest (if any) was calculated; and
 
                ·  
a statement of the dissenting shareholders’ right to demand payment pursuant to Section 13.28 of Chapter 13, together with a copy of Chapter 13.
 
 
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To the extent that a dissenting shareholder acquired dissenting shares after July 12, 2011, shares which we refer to in this proxy statement as after acquired shares, we may offer to pay our estimate of the fair value of after acquired shares, plus accrued interest, to each dissenting shareholder who agrees to accept it in full satisfaction of that shareholder’s demand instead of immediately paying such amount. “Fair value” of dissenting stock means the value of such stock immediately before the effective time of the merger, excluding any change in value in anticipation of the merger unless such exclusion would be inequitable (which fair value may be more, less, or the same as the merger consideration).
 
If:
 
                ·  
we fail to remit such fair value to a dissenting shareholder or offer to pay fair value to a dissenting shareholder with respect to after acquired shares within 60 days after the date set for demanding payment;
 
                ·  
a dissenting shareholder believes that the amount remitted or offered is less than the fair value of such holder’s dissenting stock (or that the interest, if any, is not correct); or
 
                ·  
we do not complete the merger and fail to return any deposited certificates for dissenting stock or release any transfer restrictions imposed on uncertificated shares of our common stock;
 
the affected dissenting shareholder may reject our offer and send us such shareholder’s own estimate of fair value (and interest, if any) and demand payment of the deficiency. If the dissenting shareholder does not file the estimate within 30 days of when we make or offer payment for the dissenting stock, such shareholder shall be entitled to no more than the amount remitted or offered.
 
If a dissenting shareholder holds dissenting shares at the time that the merger shall be deemed effective, and this dissenting shareholder withdraws the demand for payment for dissenting shares or otherwise loses the right to payment for shares, pursuant to the Vermont Business Corporation Act, the dissenting shares shall be deemed to be converted into, as of the effective date of the merger, the right to receive payment of the merger price for the shares.
 
Within 60 days after a demand for payment of a deficiency, if the demand remains unsettled, we will commence a proceeding in the ____________, Vermont Superior Court and petition the Court to determine the fair value of the dissenting stock and accrued interest. We will make all dissenting shareholders whose demands have not been settled parties to such action, and all parties shall be served a copy of the complaint. The Court will determine the fair value of the dissenting stock and each dissenting shareholder will be entitled to judgment for the amount, if any, by which the amount previously remitted by us is exceeded by the Court’s determination of fair value, plus interest, or for judgment equal to the value of the after acquired shares, plus interest. If we do not file a petition within 60 days, each dissenting shareholder who has made demand and who has not settled his or her claim shall be entitled to receive the amount demanded with interest.
 
There are no specific valuation methods prescribed under Vermont law to which the Court would be bound in determining fair value. The Court would consider the evidence that it deemed relevant and material and render its decision based on that evidence.
 
The Company may elect to withhold remittances to any dissenting shareholder who did not own his or her shares of our common stock before July 12, 2011, the day the merger was announced. With respect to these shares of common stock, upon consummation of the merger, we will give our fair value estimate and explain the basis thereof and offer to pay the amount plus accrued interest to such holders who agree to accept it in full satisfaction of their demands. If the dissenting shareholder disagrees, that shareholder may within 30 days mail to us his or her estimate and demand payment. If the dissenting shareholder fails to mail such a response, that shareholder is entitled only to our offer. If demand is made and remains unsettled, further proceedings will follow the procedures for judicial appraisal of shares of our common stock set forth above.
 
 
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Costs of an appraisal proceeding, including costs and expenses of appraisers appointed by the Court, will be determined by the Court and assessed against us, except that the Court may assess any part of such costs and expenses to all or some of the dissenting shareholders who are parties and whose action the Court finds to be arbitrary, vexatious, or not in good faith in demanding payment under Section 13.28 of Chapter 13. Fees and expenses of counsel and experts for the respective parties may be assessed against us if the Court finds that we failed to comply substantially with the requirements of Chapter 13 or may be assessed against us or all or some of the dissenting shareholders if such party acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by Chapter 13. If the Court finds that the services of counsel for any dissenting shareholder are of substantial benefit to other dissenting shareholders similarly situated and that the fees for those services should not be assessed against us, the Court may award to those counsel reasonable fees to be paid out of the amounts awarded the dissenting shareholders who were benefited.
 
Any shareholder wishing to exercise dissenters’ rights is urged to consult legal counsel before attempting to exercise dissenters’ rights. Failure to follow the steps required by Chapter 13 of the Vermont Business Corporation Act may result in the loss of a shareholder’s dissenters’ rights.
 
Litigation Related to the Merger
 
On July 13, 2011, a putative class action lawsuit challenging the merger was filed in the U.S. District Court, District of Vermont, against Central Vermont, our board of directors, Gaz Métro and Merger Sub. The plaintiffs in this lawsuit allege that our directors failed to fulfill their fiduciary duties with respect to Central Vermont’s entrance into the merger agreement by, among other things, failing to secure and obtain the best price that is reasonable under the circumstances in connection with the merger and failing to disclose to the Company’s shareholders all information necessary to make an informed decision with respect to the merger. The lawsuit also alleges that Central Vermont, Gaz Métro and Merger Sub aided and abetted our board of directors in breaching their fiduciary duties. We believe the allegations in this lawsuit are without merit, and we intend to defend against them vigorously.
 
In addition to the above mentioned complaint, in connection with the Fortis merger agreement, on or about June 2, 2011, an alleged Central Vermont shareholder, David Raul, filed a purported class action complaint on behalf of himself and all other similarly situated shareholders of Central Vermont in the Vermont Superior Court, Rutland Unit, captioned Raul v. Reilly, et al., Case No. 377-6-11-RDCV.  Central Vermont received an amended complaint dated June 23, 2011.  The lawsuit names as defendants Central Vermont and the ten members of our board of directors, as well as Fortis and its merger subsidiary.  On or about June 17, 2011, a second class action complaint was filed on behalf of the same purported class against Central Vermont, the ten members of our board of directors, Fortis and its merger subsidiary titled, IBEW Local 98 Pension Fund v. Central Vermont Public Service Corporation, et al., Case No. 417-6-11-RDCV.  On or about June 20, 2011, a third class action complaint was filed on behalf of the same purported class against Central Vermont, the ten members of our board of directors, Fortis and its merger subsidiary titled, Halberstam v. Central Vermont et al. Case No. 425-11RCV. On July 22, 2010, the Halberstam plaintiffs filed an amended complaint, which added Gaz Métro and one of its affiliates as defendants in addition to the defendants named in the original complaint. 
 
The complaints allege, among other things, that our directors ignored or did not protect against their conflicts of interests with respect to the merger, and breached their fiduciary duties in connection with the negotiation, consideration and approval of the merger agreement with Fortis by, among other things, conducting a flawed sales process and agreeing to sell Central Vermont for inadequate consideration and on otherwise inappropriate terms.  The complaints also allege that Central Vermont, Fortis and its merger subsidiary aided and abetted the alleged breaches of fiduciary duty by our directors.  Based on these allegations, the complaints seek equitable relief, including an injunction of the merger, and costs and expenses of the litigation, including attorneys’ fees. Based on the facts known to date, we consider the claims asserted in the complaint to be without merit and intend to vigorously defend against them.  These complaints may be amended in the future and other similar lawsuits may be filed.
 
 
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THE AGREEMENT AND PLAN OF MERGER
 
 
The summary of the material provisions of the merger agreement set forth below and elsewhere in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this proxy statement.  This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you.  We encourage you to read the merger agreement carefully in its entirety.
 
The merger agreement is described in this proxy statement and included as Annex A only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Central Vermont or Gaz Métro or their respective businesses.  Such information can be found elsewhere in this proxy statement and in the public filings that Central Vermont makes with the SEC, which are available without charge through the SEC’s website at www.sec.gov.
 
Effective Date of the Merger Agreement
 
The merger agreement was executed by Gaz Métro and Merger Sub on July 8, 2011, and was open for acceptance by Central Vermont until noon, Eastern time, on July 19, 2011.  Central Vermont executed the merger agreement on July 11, 2011, which date we refer to this in proxy statement as the effective date of the merger agreement.
 
The Merger
 
The merger agreement provides that, upon the terms and subject to the conditions of the merger agreement, and in accordance with Vermont law, at the effective time of the merger, Merger Sub will be merged with and into Central Vermont and, as a result of the merger, the separate corporate existence of Merger Sub will cease and Central Vermont will continue as the surviving corporation and a wholly-owned subsidiary of NNEEC, which is itself a wholly-owned subsidiary of Gaz Métro.
 
Closing
 
The closing of the merger will take place on a date to be specified by Gaz Métro, Merger Sub and Central Vermont, which will be no later than the second business day after satisfaction or waiver of all the conditions to closing of the merger set forth in the merger agreement and described in this proxy statement, unless another time or date is agreed to by Gaz Métro and Central Vermont.  On the closing date, Gaz Métro, Merger Sub and Central Vermont will file the articles of merger with the Secretary of State of the State of Vermont in accordance with Vermont law (at which time we expect the merger to become effective) and will make all other filings or recordings required under Vermont law.
 
At the effective time of the merger, Gaz Métro will cause the articles of incorporation of the surviving corporation to be amended in their entirety to be identical to the articles of incorporation of Merger Sub, except that the name of the surviving corporation will be changed to “Central Vermont Public Service Corporation,” until thereafter changed as provided in the articles of incorporation of the surviving corporation.  At the effective time of the merger, the bylaws of Merger Sub will become the bylaws of the surviving corporation, until thereafter changed or amended as provided therein or by applicable law.
 
Directors and Officers
 
The merger agreement provides that the directors of Merger Sub immediately prior to the effective time will be the initial directors of the surviving corporation.  Gaz Métro will consider current members of our board of directors for election to the board of directors of the surviving corporation or the board of directors of another Vermont-based affiliate of Gaz Métro following the effective time, with the selection of any such member of our board of directors to be in Gaz Métro’s sole discretion.  At the effective time, Gaz Métro will designate the persons who will serve as officers of the surviving corporation from and after the effective time.
 
 
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                                       Merger Consideration
 
Outstanding Central Vermont Common Stock
 
Except as described below, at the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than dissenting shares) will be converted into the right to receive $35.25 in cash, without interest, less withholding with respect to applicable taxes.
 
Treasury Shares; Shares Owned by Gaz Métro
 
At the effective time of the merger, each share of our common stock (i) held in our treasury, (ii) owned of record by any subsidiary of ours or (iii) owned of record by Gaz Métro, Merger Sub or any of their respective wholly-owned subsidiaries will, in each case, be canceled and cease to exist, and no consideration will be delivered in exchange for those shares.
 
Merger Sub Common Stock
 
At the effective time of the merger, each share of common stock of Merger Sub outstanding immediately prior to the effective time of the merger will be converted into and become one share of common stock of the surviving corporation.
 
Treatment of Stock Options, Restricted Stock, RSUs, 401(k) Plan and Equity Plans
 
Each option to purchase shares of our common stock outstanding immediately prior to the effective time of the merger will be fully vested and canceled and, in exchange therefor, former holders of such options will be entitled to receive a cash payment, without interest, in an amount equal to the product of (i) the total number of shares of common stock subject to such option and (ii) the excess, if any, of the merger consideration of $35.25 per share over the exercise price per share of such option, less withholding with respect to applicable taxes.
 
Each share of our restricted stock outstanding immediately prior to the effective time of the merger will vest in full and all restrictions thereon will lapse and, as of the effective time of the merger, each such share of restricted stock will be converted into the right to receive the merger consideration of $35.25 in cash, without interest, less withholding with respect to applicable taxes.
 
Each restricted stock unit granted pursuant to our performance share incentive plans and outstanding immediately prior to the effective time of the merger will be  canceled and, in exchange therefor, former holders of such restricted stock units will be entitled to receive a cash payment, without interest, in an amount equal to the product of (i) the merger consideration of $35.25 per share and (ii) the number of shares of common stock subject to the vested portion of such restricted stock unit as of the effective time of the merger (prorated for time at target level of performance including dividends), less withholding with respect to applicable taxes.
 
If the merger is completed, each participant in the 401(k) Plan will be entitled to receive the merger consideration for each share of Central Vermont’s common stock that the participant holds in his or her 401(k) Plan account. However, participants will not receive the proceeds from their 401(k) Plan shares directly. Instead, on the day(s) that the proceeds are received by shareholders of Central Vermont’s common stock generally, each participant’s proceeds will be deposited into his or her account under the 401(k) Plan and then automatically invested in [__________]. Participants will be able to direct all aspects of their accounts, including transferring the proceeds out of the [__________] and into any other investment option available under the 401(k) Plan. Following the merger, participants will not hold any shares of the surviving corporation nor will an investment fund be created under the 401(k) Plan for that purpose.
 
After the effective time of the merger, all of our equity plans (including the employee stock funds in the 401(k) Plan) will be terminated and no further options, restricted stock, RSUs or other rights with respect to shares of our common stock will be granted pursuant to such equity plans.
 
 
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At the effective time of the merger, Gaz Métro will make, or cause to be made, a cash contribution to the surviving corporation to permit the surviving corporation to make the foregoing payments.
 
Exchange Procedures
 
Prior to the effective time of the merger, Gaz Métro will designate a financial institution reasonably acceptable to us to act as paying agent, and will establish, or cause to be established, with the paying agent an exchange fund to hold cash in an amount equal to the aggregate merger consideration to be paid to our common shareholders in connection with the merger.
 
As promptly as practicable after the effective time of the merger, Gaz Métro will cause the paying agent to mail to each record holder of our common stock a letter of transmittal and instructions for surrendering the record holder’s stock certificates or book-entry shares in exchange for the amount in cash to be paid to such holder pursuant to the merger.  Upon delivery of a duly executed letter of transmittal in proper form and, if applicable, proper surrender of a Central Vermont stock certificate, the holder of such stock certificate or uncertificated shares will be entitled to receive the portion of the merger consideration payable to such holder pursuant to the merger.  The surrendered certificates representing shares of our common stock will be canceled.
 
Until surrendered as described above, at any time after the effective time of the merger, each certificate or uncertificated share representing Central Vermont common stock will be deemed to represent only the right to receive the merger consideration.  No interest will be paid or will accrue on the cash payable upon surrender of any such certificate or uncertificated share.  The cash paid upon surrender of any such certificate or uncertificated share will be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Central Vermont common stock formerly represented by such certificate or uncertificated share.
 
Holders of our common stock should not send in their stock certificates until they receive a letter of transmittal from the paying agent with instructions for the surrender of their stock certificates.
 
Lost, Stolen and Destroyed Certificates
 
If a Central Vermont stock certificate is lost, stolen or destroyed, the holder of such certificate must deliver an affidavit of that fact prior to receiving any merger consideration and, if required by Gaz Métro in its reasonable discretion, may also be required to provide a bond (in such amount as may be reasonably directed by Gaz Métro) prior to receiving any merger consideration.
 
Dissenting Shares
 
Under the Vermont Business Corporation Act, shareholders who do not vote in favor of the approval of the merger agreement will be entitled to exercise dissenters’ rights in connection with the merger, and shares of our common stock held by any such shareholders will not be converted into the right to receive the merger consideration at the effective time of the merger.  Shareholders desiring to exercise such dissenters’ rights will have the rights and duties and must follow the procedures set forth in Chapter 13 of the Vermont Business Corporation Act, the full text of which is set forth in Annex C to this proxy statement.  Shareholders who wish to exercise dissenters’ rights must carefully follow the procedures described in Chapter 13 of the Vermont Business Corporation Act and are urged to read Annex C in its entirety.
 
Representations and Warranties
 
Central Vermont, on the one hand, and Gaz Métro and Merger Sub, on the other hand, have each made representations and warranties to each other in the merger agreement.  The representations and warranties described below and included in the merger agreement were made solely for the benefit of the parties to the merger agreement. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed to by Central Vermont and Gaz Métro in connection with negotiating the terms of the merger agreement.  Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, or may have been made for the purpose of allocating risk between Central Vermont and Gaz Métro rather than establishing the matters addressed by such representations and warranties as facts.  The representations and warranties of each of the parties to the merger agreement will expire at the effective time of the merger.
 
 
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Representations and Warranties of Central Vermont
 
We have made a number of representations and warranties to Gaz Métro and Merger Sub in the merger regarding aspects of our business and other matters pertinent to the merger.  The topics covered by our representations and warranties include the following:
 
·      
the organization, qualification to do business and good standing of Central Vermont and its subsidiaries;
 
·      
our interests in significant joint ventures and jointly-owned plants;
 
·      
the capital structure of, and the absence of restrictions or encumbrances with respect to the capital stock of, Central Vermont and its subsidiaries;
 
·      
our authority to enter into and consummate the transactions contemplated by the merger agreement;
 
·      
the absence of any conflict or violation of the organizational documents of Central Vermont, its subsidiaries or Vermont Electric Power Company, Inc. and its wholly-owned subsidiary Vermont Electric Transmission Company, Inc. and its affiliate Vermont Transco LLC, which collectively we refer to in this proxy statement as VELCO, any laws applicable to Central Vermont, its subsidiaries or VELCO, any contract to which Central Vermont, its subsidiaries or VELCO is a party or the creation of an encumbrance on any of property or assets of Central Vermont, its subsidiaries or VELCO as a result of entering into and consummating the transactions contemplated by the merger agreement;
 
                ·  
the governmental and regulatory approvals required to complete the merger;
 
                ·  
the authorizations, licenses and permits of Central Vermont, its subsidiaries and VELCO;
 
                ·  
our SEC filings and the financial statements contained in those filings;
 
                ·  
our internal controls over financial reporting and disclosure controls and procedures;
 
                ·  
the absence of undisclosed liabilities;
 
                ·  
the absence of certain changes or events since December 31, 2010;
 
                ·  
the accuracy of the information supplied for this proxy statement;
 
                ·  
our benefit plans, labor and employment matters;
 
                ·  
our material contracts and the absence of breaches of such contracts;
 
                ·  
the absence of material litigation against Central Vermont, its subsidiaries or VELCO;
 
                ·  
our owned and leased real properties;
 
                ·  
environmental matters;
 
                ·  
our intellectual property;
 
 
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                ·  
our taxes and tax returns;
 
                ·  
our receipt of a fairness opinion from Lazard;
 
                ·  
our insurance policies;
 
                ·  
the vote of our common shareholders required to approve the merger agreement;
 
                ·  
entitlements to any broker, finder, financial advisor or similar fee in connection with the transactions contemplated by the merger agreement;
 
                ·  
our regulation as a utility;
 
                ·  
takeover laws;
 
                ·  
compliance with our risk management guidelines with respect to trading by Central Vermont and its subsidiaries; and
 
                ·  
our termination of the Fortis merger agreement.
 
Many of our representations and warranties are qualified by the concept of a “material adverse effect.”  Under the terms of the merger agreement, a material adverse effect on Central Vermont means any fact, change, event, circumstance, occurrence, effect or development that is materially adverse to (i) the business, assets, liabilities, financial condition or results of operations of Central Vermont and its subsidiaries, taken as a whole (including any fact, change, event, circumstance, occurrence, effect or development relating to VELCO or any jointly owned plant), or (ii) our ability to consummate the transactions contemplated by the merger agreement or to perform our obligations under the merger agreement on a timely basis in accordance with the terms of the merger agreement and applicable law.  However, the following items are not taken into account in determining whether there has been a material adverse effect on Central Vermont:
 
 
·
any change affecting the general economy or political, regulatory, business, economic, financial, credit or capital market conditions in the United States, including interest rates or exchange rates, except to the extent such change has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any change affecting the national, regional, state or local wholesale or retail markets for electric power or the national, regional, state or local electric transmission or distribution systems, except to the extent such change has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any change attributable to the execution or announcement of the merger agreement, or the pendency of the transactions contemplated by the merger agreement, including any litigation resulting therefrom, any reduction in sales resulting therefrom, any adverse change in supplier, distributor, employee, financing source, shareholder, partner or similar relationships resulting therefrom or any change in the credit rating of Central Vermont or any of its subsidiaries resulting therefrom;
 
 
·
any action taken, or failure to act, at the request or with the consent of Gaz Métro;
 
 
·
the implementation of the VPSB’s 2001 sharing order and the sharing of proceeds with our ratepayers pursuant thereto;
 
 
·
acts of war, the commencement, continuation or escalation of a war, acts of armed hostility, sabotage or terrorism or other international or national calamity or any material worsening of such conditions, except to the extent such fact, event or development has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
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·
any change in national, regional, state or local wholesale or retail electric power and capacity prices or in the market price for commodities, except to the extent such change has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any shutdown or suspension of operations at the Vermont Yankee nuclear power plant, except to the extent such event has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any hurricane, earthquake, flood or other natural disasters or acts of God, except to the extent such event has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any change resulting from weather conditions or customer use patterns, except to the extent such change has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any adoption, proposal or implementation of, or change in, any applicable law, or any interpretation thereof by any governmental entity, except to the extent such change has a materially disproportionate effect on Central Vermont and its subsidiaries, taken as a whole, compared with other persons operating in the electric utility industry;
 
 
·
any changes in U.S. generally accepted accounting principles after the date the merger agreement is signed or any interpretation thereof by any governmental entity;
 
 
·
any failure by us to meet any estimates of revenues, earnings, projections or other economic performance, whether published, internally prepared or provided to Gaz Métro, except that the facts and circumstances giving rise to such failure may be taken into account in determining whether there has been a material adverse effect on Central Vermont; and
 
 
·
any change in the price or trading volume of our common stock on the NYSE or any suspension of trading in securities generally on the NYSE, except that the facts and circumstances giving rise to such change may be taken into account in determining whether there has been a material adverse effect on Central Vermont.
 
Representations and Warranties of Gaz Métro and Merger Sub
 
Gaz Métro and Merger Sub have made a number of representations and warranties to us in the merger agreement, including representations and warranties relating to the following:
 
 
·
organization, qualification to do business and good standing of Gaz Métro and Merger Sub;
 
 
·
their authority to enter into and consummate the transactions contemplated by the merger agreement;
 
 
·
the absence of any conflict or violation of the organizational documents of Gaz Métro or Merger Sub, any applicable laws or any contract of Gaz Métro or any of its subsidiaries or the creation of an encumbrance on any of Gaz Métro’s or any of its subsidiaries’ property or assets as a result of entering into and consummating the transactions contemplated by the merger agreement;
 
 
·
the governmental and regulatory approvals required to complete the merger;
 
 
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·
the accuracy of the information supplied by Gaz Métro and Merger Sub for this proxy statement;
 
 
·
the absence of material litigation;
 
 
·
the absence of ownership of our common stock;
 
 
·
the sufficiency of funds to consummate the merger;
 
 
·
the ownership of Merger Sub by Gaz Métro and Merger Sub’s lack of other operating activity;
 
 
·
the absence of any agreements, arrangements or understandings with any of our or our subsidiaries’ officers or directors; and
 
 
·
entitlements to any broker, finder, financial advisor or similar fee in connection with the transactions contemplated by the merger agreement.
 
Covenants Regarding Conduct of Business by Central Vermont Prior to the Merger
 
Under the merger agreement, we have agreed, until the effective time of the merger, except as contemplated by the merger agreement, as required by applicable law, by a governmental entity or by the rules of the NYSE, or as consented to in writing by Gaz Métro, to, and to cause our subsidiaries to and to use our commercially reasonable efforts to cause VELCO to:
 
 
·
conduct our and their operations only in the ordinary course of business utilizing good utility practices;
 
 
·
comply in all material respects with all laws, orders and permits applicable to us and them; and
 
 
·
use commercially reasonable best efforts to preserve substantially intact our and their business organization and maintain satisfactory relationships with third parties and governmental entities having significant business dealings with us and them and to keep available the services of our and their key officers and employees.
 
In addition, we have agreed that, until the effective time of the merger, except as contemplated by the merger agreement, as required by applicable law, by a governmental entity or by the rules of the NYSE or as consented to in writing by Gaz Métro, we will not, and will not permit our subsidiaries to:
 
 
·
amend our or our subsidiaries’ articles of association, by-laws or equivalent organizational documents;
 
 
·
issue, sell or encumber any equity securities, or issue rights of any kind to acquire equity securities, subject to certain exceptions including issuances pursuant to our equity plans (not to exceed $2.5 million in aggregate value) or our dividend reinvestment plan;
 
 
·
dispose of or encumber any material property or assets, except pursuant to existing contracts, for dispositions of obsolete assets in the ordinary course of business or for dispositions in amounts not to exceed $2 million individually or $7.5 million in the aggregate;
 
 
·
pay dividends, other than (i) regular quarterly cash dividends on our common stock in an amount per share of not more than $0.23 per share, (ii) dividends payable on shares of our preferred stock, (iii) dividends paid by our subsidiaries to us or another subsidiary and (iv) dividend equivalent rights on RSUs;
 
 
·
reclassify, redeem or purchase securities, other than in the case of our subsidiaries, in connection with the cashless exercise of options to acquire our stock or tax withholdings on our restricted stock or RSUs or the redemption of our preferred stock;
 
 
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·
merge, consolidate or adopt a plan of complete or partial liquidation or resolutions providing for a liquidation, dissolution or other reorganization of us or our subsidiaries;
 
 
·
acquire any interest in any entity or any assets, other than acquisitions of assets in the ordinary course of business for consideration not to exceed $2 million individually or $7.5 million in the aggregate;
 
 
·
incur any indebtedness or issue any debt securities, or assume or guarantee any obligations (other than obligations of a wholly-owned subsidiary of Central Vermont), except refinancings of existing indebtedness as such indebtedness matures upon market terms and conditions, borrowings in the ordinary course of business under our existing credit facilities or indebtedness that is prepayable at any time without penalty, not to exceed $7.5 million in the aggregate;
 
 
·
make any loans, advances or capital contributions to, or investments in, any other person (other than any wholly-owned subsidiary of Central Vermont) in excess of $7.5 million in the aggregate;
 
 
·
(i) increase the compensation or benefits payable to, or grant any severance or termination pay rights, or enter into any employment or severance agreement with, any director, officer or, other than in the ordinary course of business, employee, or adopt or amend any collective bargaining, bonus, profit sharing, thrift, retirement, deferred compensation, employment, termination, severance or other plan or agreement for the benefit of any director, officer or, other than in the ordinary course of business, employee or (ii) amend or waive any performance or vesting criteria or accelerate vesting, exercisability or funding under any of our benefit plans except, in the case of clauses (i) and (ii), to the extent required by the existing terms of any of our existing benefit plans;
 
 
·
make any material tax election or settle or compromise any material tax liability or prepare any material tax return in a manner inconsistent with past practices;
 
 
·
make any material change in accounting policies or procedures except as required by GAAP;
 
 
·
make or commit to capital expenditures exceeding by $5.0 million the amount budgeted from the effective date of the merger agreement until December 31, 2011, or in the 12 month period ending December 31, 2012, except as required by a governmental entity or for emergency capital expenditures necessary to maintain or restore safe, adequate and reliable electric service to customers following a casualty, accident or natural disaster;
 
 
·
terminate or permit any permits to lapse, other than in accordance with their terms and regular expiration, or fail to timely apply for any renewal of a renewable permit;
 
 
·
(i) enter into, terminate, renew, amend or modify in any material respect certain specified contracts or (ii) waive, release, discharge, settle or satisfy any material claims, liabilities or obligations, other than, in the case of clauses (i) and (ii), in the ordinary course of business consistent with past practice;
 
 
·
plan, announce, implement or effect any reduction in force, lay-off, early retirement plan or severance program, other than employee terminations in the ordinary course of business;
 
 
·
hire an officer-level employee or terminate the employment, other than for cause, of any officer-level employee;
 
 
·
institute or settle any material litigation, investigation, proceeding or other claim pending or threatened before any arbitrator, court or other governmental entity;
 
 
·
redeem, repurchase, defease, cancel or otherwise acquire any indebtedness for borrowed money, subject to certain exceptions including at or within 120 days of stated maturity and pursuant to refinancings permitted pursuant to the eighth bullet above;
 
 
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                ·  
permit any material change in policies governing energy price risk management or marketing of energy, other than as a result of acquisitions or capital expenditures otherwise permitted under the merger agreement, or enter into any physical commodity transactions, exchange-traded futures and option transactions, over-the-counter transactions and similar transactions, other than as permitted by Central Vermont’s trading guidelines; or
 
                ·  
authorize or enter into any contract to do any of the foregoing.
 
In addition, we have agreed to, and to cause our subsidiaries to, consult with Gaz Métro prior to initiating any general rate case, making any material changes in our or our subsidiaries’ rates or charges, standards of service or accounting from those in effect on the effective date of the merger agreement or initiating any proceeding, or effecting any agreement, commitment, arrangement or consents with respect thereto.
 
Treatment of Preferred Stock
 
The merger agreement provides that, prior to the closing of the merger, we must redeem all outstanding shares of our preferred stock pursuant to the terms of such preferred stock.
 
Obligations with respect to this Proxy Statement and the Special Meeting
 
Under the terms of the merger agreement, we have agreed to call, give notice of, convene and hold the special meeting of our common shareholders as promptly as reasonably practicable following the date that we learn that this proxy statement will not be reviewed or that the staff of the SEC has no further comments on this proxy statement.  Unless there has been a change of board recommendation (as described below under “—Obligation of Our Board of Directors with respect to Its Recommendation”), our board of directors has agreed to recommend the approval of the merger agreement to our common shareholders.  We have also agreed to take all other action necessary or advisable to obtain the approval of the merger by our common shareholders, absent a change of board recommendation.
 
No Solicitation
 
Under the terms of the merger agreement, subject to certain exceptions described below, we have agreed that we will not, will cause our subsidiaries not to and will not authorize or permit any of our officers, directors or employees to, and will instruct and cause our representatives not to, directly or indirectly:
 
                ·  
initiate, solicit or knowingly encourage or facilitate the submission of any acquisition proposal (as defined in the merger agreement and described below), or any inquiry or proposal that could reasonably be expected to lead to an acquisition proposal; or
 
                ·  
participate in any discussions or negotiations with any person, or furnish to any person any information, with respect to an acquisition proposal, or any inquiry or proposal that could reasonably be expected to lead to an acquisition proposal.
 
Notwithstanding the foregoing prohibitions, if, at any time following the effective date of the merger agreement and prior to the approval of the merger agreement by our common shareholders, (i) we receive a bona fide written acquisition proposal from a third party that was not solicited after the effective date of the merger agreement by us, our subsidiaries or our representatives and did not otherwise result from a breach of the non-solicitation provisions of the merger agreement and (ii) our board of directors determines in good faith, after consultation with its financial advisors and outside counsel, that such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal (as defined in the merger agreement and described below), we may, subject to providing prior notice to Gaz Métro of our decision to take any such action, (a) furnish information with respect to us and our subsidiaries to the person making such acquisition proposal (and its representatives) and (b) participate in discussions or negotiations with the person making such acquisition proposal (and its representatives) regarding such acquisition proposal; provided that we (x) must first enter into a confidentiality agreement with the person making such acquisition proposal that contains confidentiality provisions of such person that are no less favorable in the aggregate to us than those contained in the confidentiality agreement between us and Gaz Métro and (y) must as promptly as practicable provide to Gaz Métro any material information concerning us or our subsidiaries provided or made available to the person making such acquisition proposal (or its representatives) which was not previously provided or made available to Gaz Métro.
 
 
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We are also obligated, as promptly as practicable (and in any event within 24 hours), to notify Gaz Métro in writing in the event that we receive any written acquisition proposal, including the material terms and conditions of such acquisition proposal, or any inquiry that would reasonably be expected to lead to an acquisition proposal.  In addition, we are obligated to keep Gaz Métro informed, in all material respects, on a prompt basis, of the status and details of any such acquisition proposal (including any change to the material terms and conditions of such acquisition proposal) and to provide to Gaz Métro as soon as practicable (and in any event within 24 hours and at least 24 hours prior to making any determination with respect to such acquisition proposal) after receipt or delivery of such acquisition proposal copies of all correspondence and other written material (including draft agreements) relating to the material terms and conditions of such acquisition proposal exchanged between us, our subsidiaries or our representatives, on the one hand, and the person making such acquisition proposal (or its representatives), on the other hand.
 
An “acquisition proposal” is defined in the merger agreement to mean any inquiry, offer, indication of interest or proposal (whether or not in writing) from, or public announcement by, any person relating to any transaction or series of transactions involving:
 
                ·  
any merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Central Vermont;
 
                ·  
any sale, lease, license or other disposition, directly or indirectly (including by way of merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution, joint venture, sale of equity interests or otherwise), of assets of Central Vermont or its subsidiaries representing 20% or more of the consolidated revenues, net income or assets of Central Vermont and its subsidiaries, taken as a whole;
 
                ·  
the issuance, sale or other disposition, directly or indirectly, of equity interests representing 20% or more of the voting power of Central Vermont;
 
                ·  
any direct or indirect acquisition of securities, tender offer or exchange offer or other similar transaction that, if consummated, would result in any person or group of persons, directly or indirectly acquiring beneficial or record ownership of more than 20% of Central Vermont’s common shares then outstanding; or
 
                ·  
any combination of the foregoing, in each case, other than the merger.
 
A “superior proposal” is defined in the merger agreement to mean any bona fide written acquisition proposal (except that all percentages therein shall be changed to 80%) made by a third party that, in the good faith judgment of our board of directors, after consultation with its financial advisors and outside counsel, taking into account all the terms and conditions of such proposal that our board of directors deems relevant (including the legal, financial, regulatory, timing, likelihood of consummation and other aspects of the proposal and any changes to the terms of the merger agreement proposed by Gaz Métro in response to such proposal or otherwise), is more favorable to the holders of our common stock than the merger; provided that if such acquisition proposal is contingent upon such third party obtaining financing or if such acquisition proposal is not conditioned upon financing but requires financing and such financing is not reasonably available, then such acquisition proposal will not be a “superior proposal”.
 
 
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Obligation of Our Board of Directors with respect to Its Recommendation
 
The merger agreement provides that neither our board of directors nor any committee of our board of directors will:
 
                ·  
(i) approve or recommend, or publicly propose to approve or recommend, any acquisition proposal, or any inquiry or proposal that could reasonably be expected to lead to an acquisition proposal or take any action or make any statement inconsistent with our board of directors’ recommendation of the merger agreement and the merger, (ii) withdraw or modify, in a manner adverse to Gaz Métro, our board of directors’ recommendation of the merger agreement and the merger (it being understood that taking a neutral or no position with respect to an acquisition proposal will be considered an adverse modification) or (iii) following the date any acquisition proposal or any material modification thereto is first made public, sent or given to our shareholders, fail to issue a press release that expressly reaffirms our board of directors’ recommendation of the merger agreement and the merger within five business days following Gaz Métro’s written request to do so (any action set forth in the foregoing clauses (i), (ii) or (iii) a “change of board recommendation”); or
 
                ·  
(i) allow or cause us or any of our subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement relating to any acquisition proposal or requiring us to abandon, terminate, delay or fail to consummate the merger or any other transaction contemplated by the merger agreement, (ii) release any third party from, grant any waiver of, or fail to enforce, any standstill or similar agreement or (iii) take any action pursuant to which any person (other than Gaz Métro, Merger Sub or their respective affiliates) or acquisition proposal would become exempt from or not otherwise subject to any takeover statute or article of incorporation provision relating to acquisition proposals.
 
Notwithstanding the foregoing, at any time prior to the approval of the merger agreement by our common shareholders, and so long as we are in compliance with our non-solicitation obligations under the merger agreement, if:
 
                ·  
we receive an acquisition proposal which our board of directors determines in good faith, after consultation with its financial advisors and outside counsel, constitutes a superior proposal and such acquisition proposal is not withdrawn; or
 
                ·  
there occurs any fact, change, event, circumstance, occurrence, effect or development that affects or would be reasonably likely to affect the business, assets, liabilities, financial condition or results of operations of Central Vermont and its subsidiaries, taken as a whole, that (i) is material, individually or in the aggregate, with any other such fact, change, event, circumstance, occurrence, effect or development, (ii) does not involve or relate to an acquisition proposal and (iii) is not known to our board of directors on the effective date of the merger agreement,
 
then, in either of the foregoing events, our board of directors may make a change of board recommendation if:
 
                ·  
we have provided prior written notice to Gaz Métro that our board of directors intends to effect a change of board recommendation (a “notice of change of recommendation”), which notice must specify the reasons for such change and, in the case of superior proposal, include the material terms and conditions of such superior proposal and attach a copy of the most current draft of any written agreement relating thereto;
 
                ·  
we have negotiated in good faith with Gaz Métro (including by making our representatives reasonably available to negotiate) with respect to any changes to the terms of the merger agreement proposed by Gaz Métro for at least five business days following Gaz Métro’s receipt of the notice of change of recommendation (and, in the case of a superior proposal, any amendment to any material term of such superior proposal shall require a new notice of change of recommendation and an additional three business day period from the date of such notice); and
 
                ·  
taking into account any changes to the terms of the merger agreement proposed by Gaz Métro, our board of directors has determined in good faith, after consultation with its financial advisors and outside counsel, that the failure by it to make a change of board recommendation would be a breach of its fiduciary duties under applicable law and, in the case of a superior proposal, such superior proposal continues to meet the definition of the term “superior proposal”.
 
 
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Notwithstanding any change of board recommendation, we are required to submit the merger agreement to our shareholders at the special meeting for the purpose of approving the merger, and nothing contained in the merger agreement, including any rights of us to take any of the foregoing actions, will be deemed to relieve us of such obligation.
 
Termination of the Merger Agreement in the Event of a Superior Proposal
 
If we receive an acquisition proposal which our board of directors determines in good faith, after consultation with its financial advisors and outside counsel, constitutes a superior proposal and such acquisition proposal has not been withdrawn, we may terminate the merger agreement to enter into a definitive agreement with respect to such superior proposal if:
 
                ·  
we have provided prior written notice to Gaz Métro that we intend to terminate the merger agreement to enter into a definitive agreement with respect to such superior proposal (a “notice of superior proposal”), which notice must specify the material terms and conditions of such superior proposal and attach a copy of the definitive agreement proposed to be entered into with respect to such superior proposal;
 
                ·  
we have negotiated in good faith with Gaz Métro (including by making our representatives reasonably available to negotiate) with respect to any changes to the terms of the merger agreement proposed by Gaz Métro for at least five business days following Gaz Métro’s receipt of the notice of superior proposal (and an additional three business days for any amendment to any material term of such superior proposal);
 
                ·  
taking into account any changes to the terms of the merger agreement proposed by Gaz Métro, our board of directors has determined in good faith, after consultation with its financial advisors and outside counsel, that such superior proposal continues to meet the definition of the term “superior proposal” and the failure by our board of directors to terminate the merger agreement to enter into the definitive agreement with respect to such superior proposal would be a breach of its fiduciary duties under applicable law; and
 
                ·  
concurrently with such termination we pay Gaz Métro the termination fee and reimburse it for its expenses, in each case as described below under “—Termination Fee; Expenses”.
 
Efforts to Consummate the Merger; Regulatory Matters
 
Under the terms of the merger agreement, we and Gaz Métro have each agreed to use our respective reasonable best efforts to take all appropriate action and to do all things necessary, proper or advisable to consummate the merger and the other transactions contemplated by the merger agreement as promptly as practicable, including:
 
                ·  
obtaining any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained from any governmental entity, or to avoid any action or proceeding by any governmental entity (including those in connection with the HSR Act and Vermont law);
 
                ·  
causing the satisfaction of all conditions to closing set forth in the merger agreement, as described below under “—Conditions to the Merger”;
 
                ·  
vigorously defending all lawsuits or other legal, regulatory or other governmental proceedings challenging or affecting the merger agreement or the consummation of the transactions contemplated thereby, in each case until a final, non-appealable order is issued;
 
 
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                ·  
seeking to have lifted or rescinded any injunction or restraining order which may adversely affect the ability of the parties to consummate the transactions contemplated by the merger agreement;
 
                ·  
proposing, negotiating, committing to and effecting the sale, divestiture, licensing or disposition of such assets of Gaz Métro or Central Vermont or any of Gaz Métro’s or Central Vermont’s respective subsidiaries;
 
                ·  
accepting any operational restrictions, including restrictions on the ability to change rates or charges or standards of service, that limit Gaz Métro’s or any of its subsidiaries’ freedom of action with respect to, or its ability to retain or freely operate, any of the assets, properties, licenses, rights, product lines, operations or businesses of Gaz Métro, Central Vermont or any of Gaz Métro’s or Central Vermont’s  respective subsidiaries; and
 
                ·  
as promptly as practicable, and in any event within 60 days after the effective date of the merger agreement, making all necessary applications, filings and any other required submissions, and paying any related fees, with respect to the merger agreement and the merger and subsequent merger required under the HSR Act, Vermont Law and Section 721 of Title VII of the Defense Production Act of 1950, as amended by the Omnibus Trade and Competitiveness Act of 1988 (relating to the approval of the CFIUS), and any other applicable law.
 
Notwithstanding the foregoing, Gaz Métro is not required to, and we may not, consent to or taken any action of the types described above that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on NNEEC, the surviving corporation and the subsidiaries of NNEEC, taken as a whole.  None of the exclusions to the definition of “material adverse effect” noted above under “—Representations and Warranties—Representations and Warranties of Central Vermont” shall be deemed to apply to the foregoing use of “material adverse effect”.
 
Under the terms of the merger agreement, we and Gaz Métro have agreed to cooperate with each other in determining whether any action by, or filing with, any governmental entity is required in connection with the merger and in seeking any such actions, consents, approvals or waivers or making any such filings.  We and Gaz Métro have also agreed to provide to each other all information required for any application or other filing under any applicable law in connection with the transactions contemplated by the merger agreement.  Neither party may consent to any voluntary delay of the closing at the behest of any governmental entity without the consent of the other party.  In addition, neither party shall, directly or indirectly, take any action that would reasonably be expected to cause a material delay in the satisfaction of the conditions to closing set forth in the merger agreement or the consummation of the merger.
 
We and Gaz Métro have also agreed to give any notices to third parties and use our respective reasonable best efforts to obtain any third-party consents necessary, proper or advisable to consummate the merger and the transactions contemplated by the merger agreement, or otherwise required by the merger agreement.
 
Access to Information
 
Under the merger agreement, we have agreed to, will cause our subsidiaries to and will use our reasonable best efforts to cause VELCO and each of Central Vermont’s and VELCO’s respective directors, officers, employees and other representatives to, afford Gaz Métro and its representatives reasonable access during normal business hours to the officers, employees, auditors, properties, offices and other facilities of Central Vermont, its subsidiaries and VELCO and the books and records thereof, and furnish promptly such information regarding the business, properties, contracts, assets and liabilities of Central Vermont, its subsidiaries and VELCO as Gaz Métro and its representatives may reasonably request.  Notwithstanding the foregoing obligations, we are not required to afford such access or furnish information to the extent that we believe in good faith that doing so would result in the loss of attorney-client privilege, violate confidentiality obligations or otherwise breach a contract to which we or any of our subsidiaries is a party or contravene any applicable law.
 
 
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Gaz Métro is required to comply, and cause its subsidiaries and representatives to comply, with its obligations under the confidentiality agreement executed by Gaz Métro and Central Vermont dated as of February 18, 2011.
 
Director and Officer Indemnification and Insurance
 
Under the terms of the merger agreement, for six years following the effective time of the merger, Gaz Métro will cause the surviving corporation to indemnify and hold harmless all past and present directors, officers and employees of Central Vermont or any subsidiary of Central Vermont to the same extent such persons are indemnified as of the effective date of the merger agreement pursuant to applicable law, Central Vermont’s and its subsidiaries’ organizational documents and indemnification agreements filed with the SEC arising out of acts or omissions in their capacity as directors, officers or employees of Central Vermont or any subsidiary of Central Vermont occurring at or prior to the effective time of the merger.  Gaz Métro has also agreed to cause the surviving corporation to advance expenses (including reasonable legal fees and expenses) incurred in the defense of any claim or investigation related thereto in accordance with the procedures and limitations in Central Vermont’s and its subsidiaries’ organizational documents and indemnification agreements.
 
In addition, for not less than six years following the effective time, Gaz Métro will cause the organizational documents of the surviving corporation to contain provisions with respect to exculpation, indemnification and advancement of expenses that are no less favorable as the exculpation, indemnification and advancement of expenses provisions contained in the organizational documents of Central Vermont in effect on the effective date of the merger agreement.  Gaz Métro will cause the surviving corporation to assume, following the effective time, any indemnification agreements in existence as of the effective date of the merger agreement and filed with the SEC.
 
Under the terms of the merger agreement, we are permitted, prior to the effective time of the merger, to obtain and fully pay the premium for a directors and officers insurance policy that provides coverage for a period of six years after the effective time of the merger for events occurring prior to the effective time of the merger that is substantially equivalent to our existing policy.  If we are unable to purchase such a policy, the surviving corporation is obligated to, as of the effective time of the merger, obtain and fully pay the premium for a directors and officers insurance policy on terms substantially equivalent to, and in any event not less favorable in the aggregate than, our existing policy.  However, the surviving corporation will not be required to pay annual premiums in excess of 300% of the last annual premium paid by Central Vermont for our existing policy.  In that event, the surviving corporation will be obligated to provide the maximum available coverage as may be obtained for 300% from an insurance carrier with the same or better credit rating than the primary carrier of our existing policy.
 
Employee Benefits
 
Under the terms of the merger agreement, Gaz Métro has agreed, for two years following the effective time of the merger, to either (i) assume and maintain our compensation and benefit plans (other than our equity plans) for the benefit of our employees immediately prior to the effective time of the merger at the benefit levels in effect on the date Gaz Métro and Merger Sub executed the merger agreement, and provide compensation and benefits under plans of Central Vermont or Gaz Métro that have a value sufficient to replace the value of the compensation and benefits provided to our employees under our compensation and benefit plans immediately prior to the effective time of the merger (not taking into account equity compensation), or (ii) provide compensation and benefits to each employee that, taken as a whole, is not less favorable in the aggregate than the compensation and benefits provided to such employee immediately prior to the effective time of the merger (not taking into account equity compensation).
 
In addition, Gaz Métro will assume and continue our employment, severance and termination plans, policies, programs, agreements and arrangements as in effect at the effective time of the merger without any amendment or modification, except as required by applicable law or as consented to by the parties.
 
Following the merger, our employees’ pre-merger service with us and our subsidiaries will be treated as service with Gaz Métro or one of its subsidiaries for all purposes under the benefit plans of Gaz Métro and its subsidiaries, except for purposes of benefit accrual under certain defined benefit pension plans or unless that recognition of service results in duplication of benefits.  Gaz Métro has further agreed to waive any pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods under any welfare benefit plan maintained by Gaz Métro or one of its subsidiaries in which such employees may be eligible to participate (other than limitations or waiting periods that would not have been waived under the comparable benefit plan of Central Vermont prior to the effective time of the merger).  Any co-payments, deductibles and similar expenses incurred by our employees during the calendar year in which the closing occurs will be taken into account for purposes of satisfying applicable deductible and co-payment limitations under the relevant benefit plans in which the employees participate from and after the effective time of the merger.
 
 
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Prior to the effective time of the merger, we are permitted to implement a retention plan for the benefit of our employees, in an aggregate amount not to exceed $3,000,000.  Up to 50% of such retention plan amount will be payable to eligible employees prior to the effective time of the merger, and the remaining portion will be payable within six months after the effective time of the merger.  We are required to consult with, and obtain the consent of, Gaz Métro regarding payments of the retention plan amount, and there is no requirement that we distribute the entire retention plan amount.
 
Post-Merger Operations
 
Pursuant to the merger agreement, Gaz Métro has agreed to (i) maintain two head offices:  a headquarters for Operations and Energy Innovation in Rutland, Vermont, and a headquarters for Corporate Services and Northern Operations in Colchester, Vermont, (ii) cause the surviving corporation to make annual charitable contributions within the communities served by the surviving corporation consistent with the level of charitable contributions made by Central Vermont as of the effective date of the merger agreement, (iii) cause the surviving corporation to act as an owner of VELCO in accordance with the regulatory orders and other agreements related thereto, (iv) cause the surviving corporation to perform Central Vermont’s obligations under its agreement with Local Union No. 300, affiliated with the International Brotherhood of Electrical Workers, (v) cause the surviving corporation to maintain separate debt instruments and its own corporate and debt credit rating, (vi) cause the surviving corporation to continue to provide service consistent with the Service Quality and Reliability Performance, Monitoring and Reporting Plan adopted by Central Vermont, (vii) cause the surviving corporation to fulfill its obligations under Vermont’s sustainably priced energy enterprise development resources program, (viii) cause the surviving corporation not to guarantee or financially support Gaz Métro or its affiliates, unless approved by the VPSB, and to maintain books and records separate from its affiliates and (ix) cause the surviving corporation to use its reasonable best efforts, in coordination with, and subject to approvals of, local regulators, to implement the initiatives outlined in Gaz Métro’s press release dated June 23, 2011 announcing its acquisition proposal and the joint press release issued by Central Vermont and Gaz Métro on July 12, 2011 announcing the entry into the merger agreement, including the following initiatives:
 
                ·  
delivery of $144.0 million in nominal savings for customers of Central Vermont and GMP over 10 years;
 
                ·  
establishment of a public trust with $1.0 million in annual income to support a low-income rate plan through the contribution of an approximate 30% ownership interest in VELCO to a permanent trust under public direction;
 
                ·  
no layoffs at Central Vermont other than certain executive officers;
 
                ·  
employee attrition between Central Vermont and GMP to be managed so as to be proportionate between the two companies;
 
                ·  
no mandatory relocation of Central Vermont employees;
 
                ·  
creation of funds designed to help the continued revitalization of Rutland, Vermont and to support specific initiatives to advance green sector jobs and technologies; and
 
                ·  
development of a “solar city” program in Rutland, Vermont.
 
 
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Conditions to the Merger
 
Conditions to Each Party’s Obligations.  Each party’s obligations to effect the merger are subject to the satisfaction or waiver of the following conditions:
 
                ·  
receipt of the approval of the merger agreement from our common shareholders;
 
                ·  
the absence of any order, decree, judgment, injunction or other ruling or law which prevents or prohibits the consummation of the merger;
 
                ·  
expiration or early termination of the waiting period under the HSR Act;
 
                ·