<PAGE>
As filed with the Securities and Exchange Commission on September 10, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SOUTHERN UNION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 4923 75-0571592
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification Code
organization) Number)
504 Lavaca Street, Eighth Floor
Austin, Texas 78701
(512) 477-5842
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
DENNIS K. MORGAN, ESQ.
Senior Vice President-Legal and Secretary
Southern Union Company
504 Lavaca Street, Eighth Floor
Austin, Texas 78701
(512) 477-5852
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
STEPHEN A. BOUCHARD, ESQ. GARETT J. ALBERT, ESQ.
Fleischman and Walsh, L.L.P. Hughes Hubbard & Reed LLP
1400 Sixteenth Street, N.W. One Battery Park Plaza
Washington, D.C. 20036 New York, New York 10004
(202) 939-7900 (212) 837-6000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. The
issuance of securities shall occur when all other conditions to the
consummation of the transactions described in the proxy statement/prospectus
forming a part of this Registration Statement have been satisfied or waived.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed maximum
Title of each class of Amount offering price per Proposed maximum Amount of
securities to be to be share aggregate registration
registered registered(1) of common stock(2) offering price(2) fee(2)(3)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $1.00 par
value.................. 17,849,022 $31.2188 $338,904,975 $94,215.58
</TABLE>
- --------------------------------------------------------------------------------
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(1) The maximum number of shares of Southern Union common stock, $1.00 par
value, to be registered is based on the maximum number of shares to be
issued in connection with the transactions described herein.
(2) Calculated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as
amended, solely for the purpose of determining the registration fee and
based on the average of the high and low prices of common stock of
Pennsylvania Enterprises, Inc. as reported on the New York Stock Exchange
Composite Tape on September 2, 1999.
(3) Filing fee of $66,270.01 was paid to the Commission on July 26, 1999 in
connection with the filing of the preliminary proxy material of Southern
Union Company and Pennsylvania Enterprises, Inc. The balance of the filing
fee for this Registration Statement, $27,945.57, is delivered herewith.
---------------
This Registration Statement is hereby amended on such date or dates as may
be necessary to delay its effectiveness until the Registrant will file a
further amendment which specifically states that this Registration Statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement will become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Location or Caption in Proxy
Item of Form S-4 Statement/Prospectus
---------------- ----------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing Page of the Registration Statement;
Outside Front Cover Page of Outside Front Cover of Proxy
Prospectus............................ Statement/Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover of Proxy
Pages of Statement/Prospectus; Where You Can Find
Prospectus........................... More Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Facing Page of Registration Statement;
Fixed Charges and Other Information.. Outside Front Cover of Proxy
Statement/Prospectus; Summary; Risk Factors
and Other Considerations; Comparative
Dividends and Market Prices; Comparative
Per Share Data; The Merger; The Companies;
The PEI Special Meeting; The Southern Union
Annual Meeting
4. Terms of the Transaction.............. Summary; The Merger; The Merger Agreement;
Comparison of PEI and Southern Union
Stockholder Rights
5. Pro Forma Financial Information....... Unaudited Pro Forma Combined Condensed
Financial Statements
6. Material Contracts with the Company
Being Acquired........................ The Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............ Not Applicable
Interests of Named Experts and
8. Counsel............................... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants........................... Where You Can Find More Information
11. Incorporation of Certain Information
by Reference......................... Where You Can Find More Information
12. Information with Respect to S-2 or S-3
Registrants.......................... Not Applicable
13. Incorporation of Certain Information
by Reference.......................... Not Applicable
14. Information with Respect to
Registrants Other
Than S-2 or S-3 Registrants.......... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3
Companies............................ Where You Can Find More Information
16. Information with Respect to S-2 or S-3
Companies............................ Not Applicable
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K--(Continued)
<TABLE>
<CAPTION>
Location or Caption in Proxy
Item of Form S-4 Statement/Prospectus
---------------- ----------------------------
<S> <C> <C>
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies....... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited... Outside Front Cover Page of Proxy
Statement/Prospectus; Where You Can Find
More Information; The PEI Special Meeting;
The Southern Union Annual Meeting; The
Merger; Comparison of PEI and Southern
Union Stockholder Rights; Principal
Stockholders
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer.... Not Applicable
</TABLE>
2
<PAGE>
[PEI LOGO]
One PEI Center
Wilkes-Barre, Pennsylvania 18711-
0601
Telephone: (570) 829-8843
September , 1999
Dear Fellow Stockholder:
It is our pleasure to extend to you a cordial invitation to attend a Special
Meeting of Stockholders of Pennsylvania Enterprises, Inc.
You may have read that your Board of Directors and the Board of Directors of
Southern Union Company have agreed on a merger. The enclosed proxy statement
asks for your approval of that merger and provides you with detailed
information about it. Please read this entire document carefully. You may
obtain additional information about PEI and Southern Union from documents filed
with the Securities and Exchange Commission.
YOUR BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS IN THE BEST
INTEREST OF PEI'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER.
We are again offering you the option to vote by telephone or by the
traditional proxy card. Telephone voting is quick, easy, and immediate. This
method of voting is described on your proxy card.
Your vote is important. The merger cannot be completed without the approval
of a majority of the outstanding shares of PEI common stock. Whether or not you
expect to attend the Special Meeting, please vote by telephone or sign and date
the enclosed proxy and return it promptly by mail in the enclosed envelope
which requires no postage if mailed in the United States.
The Special Meeting will be held at The Plaza Hotel, Fifth Avenue at Central
Park South, New York, New York, beginning at 10:00 a.m. (Eastern Time), on
Tuesday, October 19, 1999. On behalf of your Board of Directors, thank you for
your continued support and interest in Pennsylvania Enterprises, Inc.
Sincerely,
Ronald W. Simms Thomas F. Karam
Chairman of the Board President and
Chief Executive Officer
<PAGE>
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Telephone: (570) 829-8843
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Pennsylvania Enterprises, Inc. will be held at The Plaza Hotel, Fifth Avenue at
Central Park South, New York, New York, on Tuesday, October 19, 1999, beginning
at 10:00 a.m. (Eastern Time), for the following purposes:
(1) To approve and adopt the Agreement of Merger between Southern Union
Company and PEI; and
(2) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on September 3, 1999,
as the record date for the determination of holders of PEI common stock
entitled to notice of and to vote at the meeting.
If you plan to attend the meeting and are a stockholder of record, please
mark your proxy card in the appropriate space, or if voting by telephone, so
indicate during the telephone voting process. An admission ticket will be
mailed to you prior to the meeting date. However, if your shares are not
registered in your own name, please advise the stockholder of record (your
bank, broker, etc.) that you wish to attend. That firm will provide you with
evidence of your ownership which will enable you to gain admittance to the
meeting.
Whether you plan to attend the meeting or not, please vote by telephone or
sign and date the enclosed proxy and return it promptly by mail in the enclosed
envelope. No postage is required if mailed in the United States.
By order of the Board of Directors,
Donna M. Abdalla
Secretary
Wilkes-Barre, Pennsylvania
September , 1999
IMPORTANT
Pennsylvania law requires that the holders of a majority of PEI's
outstanding common stock be present in person or by proxy at the Special
Meeting in order to constitute a quorum. Stockholders can help avoid the
necessity and expense of follow-up letters to assure that a quorum is
present at the Special Meeting by promptly returning the enclosed proxy or
voting by telephone. Broker non-votes, abstentions, and withhold authority
votes all count for the purpose of determining a quorum. In the absence of a
quorum, the Special Meeting will be adjourned until a time announced at such
meeting. At the adjourned meeting, the stockholders in attendance, although
less than a quorum, will nevertheless constitute a quorum to act on all the
matters included in this proxy statement, if the adjournment has been at
least fifteen days.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
WHERE YOU CAN FIND MORE INFORMATION....................................... 3
SUMMARY................................................................... 5
The Companies........................................................... 5
The Merger.............................................................. 5
The PEI Special Meeting................................................. 7
The Southern Union Annual Meeting....................................... 8
Summary of Other Selected Information................................... 8
Selected Historical Financial Information............................... 11
RISK FACTORS AND OTHER CONSIDERATIONS..................................... 15
The Amount of Consideration and the Portion Paid in Stock and Cash that
Stockholders Receive May Vary as a Result of Fluctuations in Southern
Union's Stock Price.................................................... 15
The Combined Company May Not Realize Benefits of Integrating Our
Companies.............................................................. 15
Approvals May Not be Obtained or May Contain Unacceptable Restrictions.. 15
Future Acquisitions May Not Achieve Favorable Financial Results, May
Dilute Your Percentage Ownership in Southern Union or Require
Substantial Expenditures............................................... 16
A Different Set of Factors and Conditions Affect Southern Union Stock
and Could Have a Negative Impact on Its Stock Price.................... 16
Competition Within the Natural Gas Industry is Intense.................. 16
The Terms of Merger-Related Financings May Adversely Affect the Combined
Company................................................................ 17
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE........................... 17
COMPARATIVE DIVIDENDS AND MARKET PRICES................................... 18
Southern Union.......................................................... 18
PEI..................................................................... 19
Historical Equivalent Per Share Market Values........................... 20
COMPARATIVE PER SHARE DATA................................................ 20
THE PEI SPECIAL MEETING................................................... 22
Purpose, Time and Place................................................. 22
Record Date; Voting Power; Vote Required................................ 22
Share Ownership of Management........................................... 22
Voting of Proxies....................................................... 22
Revocability of Proxies................................................. 22
Solicitation of Proxies................................................. 23
THE SOUTHERN UNION ANNUAL MEETING......................................... 23
Proposals to be Voted Upon.............................................. 23
Date, Place and Time; Record Date....................................... 25
Lindemann Proxy; Management Vote........................................ 25
Quorum; Required Vote................................................... 25
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE MERGER................................................................ 26
PEI Background of the Merger............................................ 26
PEI Reasons for the Merger; Recommendation of PEI's Board of Directors.. 28
Opinion of PEI's Financial Advisor...................................... 29
Southern Union Background of the Merger................................. 32
Southern Union Reasons for the Merger................................... 34
Recommendation of the Southern Union Board.............................. 35
Opinion of Southern Union's Financial Advisor........................... 36
Potential Conflicts and Interests of Certain Persons in the Merger...... 39
Significant U.S. Federal Income Tax Consequences of the Mergers......... 41
Regulatory Matters...................................................... 43
Management and Other Information........................................ 44
Accounting Treatment.................................................... 44
Listing of Southern Union Common Stock.................................. 44
Federal Securities Law Consequences..................................... 44
Rights of Dissenting Stockholders of PEI................................ 45
Merger-Related Financing................................................ 48
THE MERGER AGREEMENT...................................................... 49
Structure of the Merger................................................. 49
Closing; Effective Time................................................. 49
Subsidiary Mergers...................................................... 49
Merger Consideration.................................................... 49
Exchange of PEI Common Stock Certificates for Merger Consideration...... 50
Representations and Warranties.......................................... 51
Covenants and Other Agreements.......................................... 52
No Solicitation by PEI.................................................. 55
Conditions to the Completion of the Merger.............................. 57
Indemnification and Insurance for PEI Officers and Directors............ 58
Amendments.............................................................. 58
Termination of the Merger Agreement..................................... 58
Termination Fees and Expenses........................................... 59
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 61
THE COMPANIES............................................................. 65
Southern Union.......................................................... 65
PEI..................................................................... 70
DESCRIPTION OF SOUTHERN UNION CAPITAL STOCK............................... 72
General................................................................. 72
Proposed Changes to Southern Union's Capitalization..................... 72
Southern Union Common Stock............................................. 72
Southern Union Cumulative Preferred Stock............................... 73
Transfer Agent and Registrar............................................ 75
COMPARISON OF PEI AND SOUTHERN UNION STOCKHOLDER RIGHTS................... 76
PRINCIPAL STOCKHOLDERS.................................................... 86
Beneficial Owners of More Than 5% of Southern Union's Outstanding
Securities............................................................. 86
Southern Union Management Ownership..................................... 88
Beneficial Owners of More Than 5% of PEI's Common Stock................. 89
PEI Management Ownership................................................ 90
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
LEGAL MATTERS.............................................................. 92
EXPERTS.................................................................... 92
OTHER BUSINESS............................................................. 92
</TABLE>
APPENDICES
APPENDIX A Agreement of Merger
APPENDIX B Opinion of Legg Mason Wood Walker, Incorporated
APPENDIX C Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
APPENDIX D Dissenters Rights Provisions of the Pennsylvania Business
Corporation Law of 1988, as amended
v
<PAGE>
[Logo] PEI
The accompanying proxy, to be mailed to PEI stockholders together with the
Notice of Special Meeting and this proxy statement/prospectus on or about
September , 1999, is solicited by PEI in connection with the Special Meeting
to be held on October 19, 1999.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will happen to PEI as a result of the merger?
A: If the merger is completed, PEI will merge into Southern Union, PEI's
utility operations will become a division of Southern Union, and PEI's non-
regulated subsidiaries will become subsidiaries of Southern Union.
Immediately after that merger is completed, Honesdale Gas Company, a
wholly-owned subsidiary of PG Energy Inc., a subsidiary of PEI, will be
merged into PG Energy and then PG Energy will be merged into Southern
Union.
Q:What do I need to do now?
A: You should carefully read and consider the information contained in this
document. You should vote by telephone or complete and sign your proxy and
return it in the enclosed return envelope as soon as possible so that your
shares may be represented at the PEI special meeting. Failing to vote in
person or by telephone or proxy will have the same effect as a vote against
the merger agreement.
Q: What is the required vote to approve and adopt the merger agreement?
A: The merger agreement must be approved and adopted by the holders of a
majority of shares of PEI common stock entitled to vote at the PEI special
meeting. The merger agreement must also be approved and adopted by the
holders of a majority of shares of Southern Union common stock entitled to
vote at the Southern Union Annual Meeting of Stockholders to be held on
October 19, 1999. In addition, the issuance of shares of Southern Union
common stock pursuant to the merger agreement must be approved by a
majority of the votes cast on this proposal at the Southern Union meeting,
provided that the total vote cast represents a majority of the shares of
Southern Union common stock outstanding and entitled to vote at the
meeting.
Q:Who is entitled to vote?
A: Stockholders as of the close of business on the record date, September 3,
1999 are entitled to vote at the PEI special meeting.
Q: Can I change my vote after I have voted by telephone or mailed in my signed
proxy card?
A: You may change your vote at any time before the vote takes place at the PEI
special meeting. To do so, you can attend the PEI special meeting and vote
in person.
If you voted by telephone, the latest telephone voting instructions will
supersede any previous telephone instructions.
Or, if you voted by proxy, you can complete a new proxy card or send a
written notice stating you would like to revoke your proxy. These should be
sent to: PEI, One PEI Center, Wilkes-Barre, Pennsylvania 18711-0601,
Attention: Secretary. This notice must reach the Secretary before the proxy
is voted.
Q: My shares are held in "street name." Will my broker vote my shares on the
merger?
A: A broker will vote your shares on the merger agreement only if you provide
your broker with instructions on how to vote. You should follow the
directions provided by your broker(s) regarding how to instruct brokers to
vote the shares.
Q:Am I entitled to dissenters rights?
A: Yes, if you meet the requirements of Pennsylvania law.
Q:Should I send in my certificates now?
A: No. After the merger is completed, Southern Union will send written
instructions to you for exchanging your stock certificates. You should not
send in your stock certificates with your proxy.
1
<PAGE>
Q: Who can help answer my questions?
A: If you have any questions about the merger or if you need additional copies
of this document or the enclosed proxy, you should contact PEI's Investor
Relations Department at (570) 829-8843, or D. F. King & Co. Inc., 77 Water
Street, New York, New York 10005, telephone toll free 1-800-949-2583.
Q: When is the merger expected to be completed?
A: PEI and Southern Union are working as quickly as possible and hope to
complete the merger in the last quarter of 1999.
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Any reports,
statements or other information that the companies have filed may be read and
copied at the SEC's public reference rooms at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Please call the SEC at 1-800-732-0330 for further information on the
public reference rooms. Southern Union's and PEI's SEC filings should also be
available to the public from commercial retrieval services and at the Internet
web site maintained by the SEC at http://www.sec.gov.
In addition, materials and information concerning Southern Union and PEI can
be inspected at the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor,
New York, New York 10005, where Southern Union common stock and PEI common
stock are listed.
The SEC allows us to "incorporate by reference" information into this proxy
statement/prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement/ prospectus, except for any additional information superseded by
information contained directly in this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents set forth below
that were previously filed with the SEC by Southern Union (SEC File No. 1-6407)
and PEI (SEC File No. 0-7812). These documents contain important information
about Southern Union and PEI and their financial condition.
Regarding Southern Union
. Southern Union's Annual Report on Form 10-K for the fiscal year ended
June 30, 1999.
Regarding PEI
. PEI's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and the amendment thereto.
. PEI's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
. PEI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
Southern Union and PEI may be required by the SEC to file other documents
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 between the time this proxy statement/prospectus is sent and the date the
PEI special meeting is held. These other documents will be deemed to be
incorporated by reference in this proxy statement/prospectus and to be a part
of it from the date they are filed with the SEC.
PEI may have sent you some of the documents regarding PEI that are
incorporated by reference, but you can obtain any of them through PEI, the SEC
or the SEC's Internet web site as previously described. Likewise, you can
obtain the document regarding Southern Union that is incorporated by reference
through Southern Union, the SEC or the SEC's Internet web site as previously
described. Documents incorporated by reference as exhibits to this proxy
statement/prospectus are available from Southern Union and PEI without charge.
You may obtain documents incorporated by reference in this proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
SOUTHERN UNION PEI
Attention: George Yankowski Attention: Richard N. Marshall
Director--Investor Relations Treasurer and Assistant Secretary
504 Lavaca Street, Eighth Floor One PEI Center
Austin, Texas 78701 Wilkes-Barre, Pennsylvania 18711-
(512) 477-5852 0601
(570) 829-8843
3
<PAGE>
If you would like to request documents from Southern Union or PEI, please do
so promptly in order to receive them before the PEI special meeting.
All information contained in or incorporated by reference in this proxy
statement/prospectus with respect to Southern Union has been provided by
Southern Union. All information contained in or incorporated by reference in
this proxy statement/prospectus with respect to PEI has been provided by PEI.
Neither Southern Union nor PEI assumes any responsibility for the accuracy or
completeness of the information provided by the other party.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the merger agreement.
Neither Southern Union nor PEI has authorized anyone to provide you with
information that is different from what is contained in this proxy
statement/prospectus. This proxy statement/prospectus is dated September ,
1999. You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this proxy statement/prospectus to stockholders nor the
completion of the merger shall create any implication to the contrary.
4
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger and for a more complete description
of the legal terms of the merger, you should read carefully this entire
document and the other documents we have referred you to. See "Where You Can
Find More Information" on page 3. We have included page references in
parentheses to direct you to a more complete description of the topics
presented in this summary. ("We" and "our" as used in this document refer to
Southern Union and PEI.)
The Companies
Southern Union (see page 65)
Southern Union is a publicly owned international energy company
headquartered in Austin, Texas, that primarily engages in the distribution of
natural gas and is one of the fifteen largest distributors in the nation.
Southern Union serves more than 1 million customers through its three natural
gas divisions in Texas, Missouri and Florida, its propane distribution
subsidiaries, and its equity ownership in a natural gas distribution company
serving Piedras-Negras, Mexico. Through its subsidiaries, Southern Union also
markets natural gas to end users and operates natural gas pipeline systems.
PEI (see page 70)
PEI is a publicly owned holding company headquartered in Wilkes-Barre,
Pennsylvania, that is primarily engaged in the distribution of natural gas. PEI
has both regulated and non-regulated subsidiaries. Through its regulated
subsidiaries, PEI provides natural gas to more than 152,000 customers in
northeastern and central Pennsylvania. Through its non-regulated subsidiaries,
PEI markets natural gas, propane, electricity, fuel oil and other energy-
related products and services to end-users and generates and sells electricity
on a wholesale basis. PEI's non-regulated subsidiaries also provide pipeline
construction, maintenance and rehabilitation services for utilities, primarily
natural gas distribution companies, and one of the subsidiaries is currently
developing an industrial park on land it owns.
The Merger
Summary (see page 49)
We are asking you to approve and adopt the merger agreement that provides
for the merger of PEI into Southern Union. PEI's utility operations will become
a division of Southern Union, and PEI's non-regulated subsidiaries will become
subsidiaries of Southern Union. When we speak about the "merger" and the
"merger agreement" in this proxy statement/prospectus, we mean the merger of
PEI into Southern Union and the agreement that sets forth the details of that
merger.
There are two other mergers that are part of the Southern Union/PEI
transaction. Immediately after the Southern Union/PEI merger is completed,
Honesdale Gas Company, a wholly-owned subsidiary of PG Energy Inc., a
subsidiary of PEI, will be merged into PG Energy and then PG Energy will be
merged into Southern Union. We call these mergers the "subsidiary mergers." The
merger and the subsidiary mergers are sometimes referred to as the "mergers."
The merger agreement is attached at the back of this proxy
statement/prospectus as Appendix A. We encourage you to read the merger
agreement since it is the legal document that governs the merger.
The merger will become effective following the approval of the merger
agreement by the stockholders of Southern Union and PEI and the satisfaction or
waiver of all other conditions to the merger. These include approval of the
public utility commissions of Pennsylvania, Missouri, and Florida and the
Federal Energy Regulatory Commission.
5
<PAGE>
What Holders of PEI Common Stock Will Receive in the Merger (see page 49)
In the merger, each share of PEI common stock you own will be converted into
that number of whole shares of Southern Union common stock having a value of
$32.00, plus $3.00 in cash, except as described below. The exact number of
shares of Southern Union common stock and the amount of cash you will receive
for each share of PEI common stock that you own will depend on the average
price of Southern Union common stock on the New York Stock Exchange for the ten
trading day period beginning on the twelfth trading day and ending on the third
trading day before the closing of the merger (counting from and including the
trading day immediately preceding the closing).
If the average price of Southern Union's common stock during this ten
trading day period is:
. Above $22.70625, the number of shares of Southern Union common stock
will be fixed at 1.40930 for each share of PEI common stock and PEI
stockholders will also receive $3 in cash per share.
. Between $19.4625 and $22.70625, the number of shares of Southern Union
common stock will be adjusted so that each share of PEI's common stock
will be exchanged for Southern Union common stock having a value of $32
per share, plus $3 per share in cash.
. Below $19.4625 but not less than $17.30, the number of shares of
Southern Union common stock will be fixed at 1.64419 for each share of
PEI common stock. The amount of the cash consideration will be increased
so that PEI stockholders will receive cash sufficient to maintain the
aggregate value of $35 per share. Excluding any cash payments made to
you instead of issuing Southern Union fractional shares, the maximum
amount of cash payable to you in connection with the merger is $6.55 per
share of PEI common stock.
. Below $17.30, PEI has the option to terminate the merger agreement. If
PEI does not terminate the merger agreement, you will receive 1.64419
shares of Southern Union common stock plus $6.55 in cash per share of
PEI common stock.
Certain Federal Income Tax Consequences (see page 41)
A PEI stockholder will generally recognize capital gain for U.S. federal
income tax purposes with respect to the Southern Union common stock and cash
received in the merger in an amount equal to the lesser of (i) the amount of
cash received and the (ii) excess of the amount of cash and the fair market
value of Southern Union common stock received in the merger over the tax basis
of the PEI common stock surrendered. No loss will be recognized by PEI
stockholders.
The mergers will not result in the recognition of gain or loss to Southern
Union, PEI or the PEI subsidiaries that are parties to the mergers.
Since the tax consequences of the merger may vary depending upon the
particular circumstances of each PEI stockholder, stockholders should consult
their own tax advisors as to the federal (and any state, local or foreign) tax
consequences of the merger in light of their particular circumstances.
Recommendation to PEI Common Stockholders (see page 28)
The PEI board of directors believes that the merger is in the best interest
of PEI stockholders and recommends that holders of PEI common stock vote "FOR"
the approval and adoption of the merger agreement. The reasons for the board's
recommendation are set forth on pages 28 to 29.
6
<PAGE>
Fairness Opinion of PEI's Financial Advisor (see page 29)
In deciding to approve the merger, the PEI board of directors considered an
opinion from its financial advisor Legg Mason Wood Walker, Incorporated to the
effect that, as of the date of the merger agreement, the consideration to be
received by PEI stockholders was fair to the stockholders from a financial
point of view. This opinion is attached as Appendix B to this proxy
statement/prospectus. We encourage you to read this opinion.
Recommendation to Southern Union Stockholders (see page 35)
The Southern Union board of directors believes that the merger is in the
best interests of Southern Union stockholders and unanimously recommends that
holders of Southern Union common stock vote "FOR" approval and adoption of the
merger agreement and the issuance of shares of Southern Union common stock in
the merger. The reasons for the board's recommendation are set forth on pages
34 to 35.
Fairness Opinion of Southern Union's Financial Advisor (see page 36)
In deciding to approve the merger, the Southern Union board of directors
considered an opinion from its financial advisor, Donaldson, Lufkin & Jenrette
Securities Corporation, to the effect that the merger consideration to be paid
by Southern Union pursuant to the merger agreement was fair to Southern Union,
from a financial point of view. This opinion is attached as Appendix C to this
proxy statement/prospectus. We encourage you to read this opinion.
The PEI Special Meeting
The PEI special meeting will be held at 10:00 a.m. (Eastern Time) on
Tuesday, October 19, 1999 at The Plaza Hotel, Fifth Avenue at Central Park
South, New York, New York. At the meeting, holders of PEI common stock will be
asked to approve and adopt the merger agreement.
PEI Record Date; Voting Rights (see page 22)
If you owned shares of PEI common stock as of the close of business on
September 3, 1999, you are entitled to vote on the merger agreement.
On that date, there were 10,855,815 shares of PEI common stock outstanding.
Holders of PEI common stock will have one vote at the PEI special meeting for
each share of PEI common stock they own on that date.
At the close of business on September 3, 1999, directors and officers of PEI
beneficially owned and were entitled to vote approximately 1,455,921 shares of
PEI common stock, which represented approximately 13.41% of the shares of PEI
common stock outstanding on that date. Each of them has indicated his or her
present intention to vote, or cause to be voted, the PEI common stock owned by
him or her for the proposal to approve and adopt the merger agreement.
Quorum; Required Vote (see page 22)
A majority of the shares of PEI common stock outstanding and entitled to
vote on the PEI record date must be present in person or by proxy at the PEI
special meeting or voted by telephone in order for a quorum to be present.
If you hold your shares of PEI common stock through a broker or nominee, you
must instruct your broker on how you would like to vote or these shares will
not be voted, although they will be counted as present. Similarly, a properly
executed proxy marked "ABSTAIN" will be counted as present but will not be
counted as a vote cast. Accordingly, abstentions and broker non-votes will have
the effect of a vote "AGAINST" the approval and adoption of the merger
agreement.
7
<PAGE>
The Southern Union Annual Meeting
Date and Purpose (see page 23)
The Southern Union annual meeting will be held at 2:00 p.m. (Eastern Time)
on October 19, 1999 at The Plaza Hotel, Fifth Avenue at Central Park South, New
York, New York. At the Southern Union annual meeting, holders of Southern Union
common stock will be asked to approve and adopt the merger agreement, the
issuance of shares of Southern Union common stock pursuant to the merger
agreement and other matters.
Southern Union Record Date; Voting Rights (see page 25)
If a Southern Union stockholder owned shares of Southern Union common stock
as of the close of business on September 3, 1999, such Southern Union
stockholder will be entitled to vote on the approval and adoption of the merger
agreement and the stock issuance.
On that date, there were 31,235,697 shares of Southern Union common stock
outstanding. Holders of Southern Union common stock will have one vote on the
merger agreement and stock issuance at the Southern Union annual meeting for
each share of Southern Union common stock they own on that date.
George L. Lindemann, the Chairman of the Southern Union board and Southern
Union's Chief Executive Officer, and four other members of Mr. Lindemann's
family granted PEI an irrevocable proxy to vote the shares of Southern Union
common stock they own for the approval and adoption by the stockholders of
Southern Union of the merger agreement and the completion of the transactions
contemplated by the merger agreement. As of September 3, 1999, the shares of
Southern Union common stock beneficially owned by Mr. Lindemann and the members
of his family who granted a proxy to PEI represented approximately 40% of the
outstanding shares of Southern Union common stock entitled to vote on these
matters. Other directors and officers beneficially owned approximately
2,493,546 shares of Southern Union common stock, or approximately 8% of the
shares of Southern Union common stock outstanding on September 3, 1999. These
persons have indicated that they intend to vote their shares of Southern Union
common stock for approval and adoption of the merger agreement and the stock
issuance.
Quorum; Required Vote (see page 25)
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum for the adoption of proposals at the Southern Union annual
meeting. If a Southern Union stockholder submits a properly executed proxy
card, then such stockholder will be considered part of the quorum. If a
Southern Union stockholder is present or represented by a proxy at the Southern
Union annual meeting and the stockholder abstains, the stockholder's abstention
will have the same effect as a vote AGAINST the proposals to approve and adopt
the merger agreement and the stock issuance. Abstentions may have the effect of
a vote AGAINST the approval and adoption of the merger agreement. Broker non-
votes will be counted as part of the voting power present at the Southern Union
annual meeting.
Summary of Other Selected Information
Potential Conflicts and Interests of Officers and Directors in the Merger (see
page 39)
PEI officers and the PEI board have interests in the merger that may be
different from, or in addition to, the interest of PEI stockholders generally
and represent conflicts of interest. For example, the merger will constitute a
"change in control" of PEI and this will entitle certain officers of PEI to
receive severance benefits if the officer is terminated without cause or
terminates his or her own employment as a result of certain adverse actions by
Southern Union. In addition, Thomas F. Karam, President and Chief Executive
Officer, has an employment agreement with PEI that provides for severance
benefits. He may agree to forego these benefits and enter into an employment
agreement with Southern Union.
8
<PAGE>
Officers and directors hold options to purchase PEI common stock, and
directors hold stock units in a deferred compensation plan. These options will
become immediately exercisable and the stock units will become immediately
payable in cash upon PEI stockholder approval of the merger agreement.
Southern Union has agreed to elect three members of the PEI board (to be
selected before the completion of the merger) to serve on the Southern Union
board for at least three years.
For six years after the merger, Southern Union has also agreed to indemnify,
and use its reasonable best efforts to provide liability insurance for present
and former officers and directors of PEI against acts and omissions occurring
before the merger under certain circumstances.
The PEI board was aware of these interests and considered them in approving
the merger agreement.
Regulatory Approvals (see page 43)
Approvals from the public utility commissions of Pennsylvania, Missouri and
Florida and from the Federal Energy Regulatory Commission, as well as the
expiration or earlier termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, are required in order to
complete the merger. Southern Union and PEI were granted early termination of
the Hart-Scott-Rodino waiting period on August 20, 1999. As of the date of this
proxy statement/prospectus, none of the other required regulatory approvals
have been obtained.
Conditions to the Merger (see page 57)
Completion of the merger depends on the satisfaction of certain conditions,
including:
. Approval by Southern Union and PEI stockholders.
. All required governmental approvals obtained without material adverse
conditions.
. No court or administrative order issued to prevent the merger.
. Effectiveness of the registration statement in which this proxy
statement/prospectus is included.
. Listing on the NYSE of the Southern Union common stock being issued in
the merger to PEI stockholders.
. The receipt of certain third-party consents and approvals.
Amendment of the Merger Agreement (see page 58)
Southern Union and PEI may amend any of the terms of the merger agreement.
Termination of the Merger Agreement and Termination Fees (see page 58 and page
59)
PEI and Southern Union may terminate the merger agreement by mutual written
consent without completing the merger. The merger agreement may also be
terminated by either PEI or Southern Union if the merger is not completed by
June 7, 2000 (which date may be extended to December 7, 2000 to obtain
governmental approvals), by PEI if the average trading price of Southern Union
common stock used to determine the number of shares of Southern Union common
stock to be received by PEI stockholders in the merger is lower than $17.30, or
by either or both parties in certain other circumstances.
Also, the merger agreement may be terminated by PEI if it signs an agreement
for a business combination with another party under certain circumstances or by
Southern Union if the PEI board fails to recommend approval of the merger
agreement to the PEI stockholders or PEI fails to cause its utility subsidiary
to redeem or repurchase all of its outstanding shares of preferred stock. In
either of these events, PEI may be required to pay Southern Union a termination
fee of $10 million.
9
<PAGE>
Comparative Stockholder Rights (see page 76)
When the merger is completed, holders of PEI common stock who do not
exercise their statutory dissenters rights will be stockholders of Southern
Union, and their rights will be governed by Delaware law and Southern Union's
restated certificate of incorporation and bylaws (instead of Pennsylvania law
and PEI's restated articles of incorporation and bylaws). Certain differences
between the rights of holders of Southern Union common stock and those of
holders of PEI common stock are summarized on pages 76 to 85.
Accounting Treatment (see page 44)
The merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles.
Statutory Dissenters Rights (see page 45)
Holders of PEI common stock who refrain from voting in favor of the merger
and comply with all of the provisions of the Pennsylvania Business Corporation
Law with respect to dissenters rights will be entitled to dissent from the
merger and demand payment of the "fair value" of their shares as provided by
Pennsylvania law. Holders of PEI common stock who do not follow the
requirements of Pennsylvania law with respect to dissenters rights will only be
entitled to receive the merger consideration.
Comparative Per Share Common Stock Market Price Information (see page 20)
Southern Union and PEI common stock are both listed on the NYSE. On May 5,
1999, the day on which the PEI board authorized PEI's representatives to
negotiate a merger agreement with Southern Union based on its indication of
interest, Southern Union common stock closed at $22.25 and PEI common stock
closed at $25.625. On June 4, 1999, the last full trading day prior to the
public announcement of the merger, Southern Union common stock closed at
$21.625 and PEI common stock closed at $29.6875. On September 3, 1999, the day
used to determine the exchange ratio for the Unaudited Pro Forma Combined
Condensed Financial Statements and the related notes thereto included under
"Unaudited Pro Forma Combined Condensed Financial Statements," Southern Union
common stock closed at $21.375 and PEI common stock closed at $31.375. Southern
Union's common stock prices reflect the historical trading prices on the
respective date and are not restated to give effect to any stock dividends
declared.
Listing of Southern Union Common Stock (see page 44)
Southern Union will list the shares of its common stock to be issued in the
merger on the NYSE.
10
<PAGE>
Selected Historical Financial Information
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma combined condensed financial data. The
financial data should be read in conjunction with the documents incorporated by
reference and the historical financial statements and the related notes of
Southern Union and PEI, incorporated by reference, and in conjunction with the
Unaudited Pro Forma Combined Condensed Financial Statements and the related
notes thereto included under "Unaudited Pro Forma Combined Condensed Financial
Statements."
Selected Historical Consolidated Financial Information of Southern Union
The following table shows selected historical financial data for Southern
Union as of and for the years ended June 30, 1999, 1998, 1997, 1996 and 1995.
The selected historical financial data for each year has been derived from
Southern Union's audited historical financial statements for that year. The
information should be read in connection with, and is qualified in its entirety
by reference to, Southern Union's financial statements and notes thereto
incorporated by reference. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------
1999(a)(b) 1998(a)(b) 1997(a) 1996(a) 1995
---------- ---------- -------- -------- --------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total operating revenues..... $ 605,231 $ 669,304 $717,031 $620,391 $479,983
Earnings from continuing
operations (c).............. 10,445 12,229 19,032 20,839 16,069
Diluted earnings per share
(d)......................... 0.32 0.39 0.62 0.68 0.54
Total assets................. 1,087,348 1,047,764 990,403 964,460 992,597
Common stockholders' equity.. 301,058 296,834 267,462 245,915 225,664
Short-term debt and capital
lease obligation............ 2,066 1,777 687 615 770
Long-term debt and capital
lease obligation, excluding
current portion............. 390,931 406,407 386,157 385,394 462,503
Company obligated mandatorily
redeemable preferred
securities of subsidiary
trust....................... 100,000 100,000 100,000 100,000 100,000
</TABLE>
- --------
(a) Certain Texas and Oklahoma Panhandle distribution operations and Western
Gas Interstate, exclusive of the Del Norte interconnect, were sold on May
1, 1996.
(b) On December 31, 1997, Southern Union acquired Atlantic Utilities
Corporation and subsidiaries for shares of Southern Union common stock
valued at $18,041,000 and cash of $4,436,000.
(c) As of June 30, 1998, Missouri Gas Energy (a division of Southern Union)
wrote off $8,163,000 pre-tax in previously recorded regulatory assets as a
result of announced rate orders and court rulings.
(d) Earnings per share for all periods presented were computed based on the
weighted average number of shares of Southern Union common stock and
Southern Union common stock equivalents outstanding during the year
adjusted for (i) the 5% stock dividends distributed on August 6, 1999,
December 9, 1998, December 10, 1997, December 10, 1996 and November 27,
1995, and (ii) the 50% stock dividend distributed on July 13, 1998 and the
33 1/3% stock dividend distributed on March 11, 1996.
11
<PAGE>
Selected Historical Consolidated Financial Information of PEI
The following table shows selected historical financial data for PEI as of
and for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 and as of
and for the six months ended June 30, 1999 and 1998. The selected historical
financial data for each year has been derived from PEI's audited historical
financial statements for that year. The selected historical financial data for
the six months ended June 30, 1999 and 1998 has been derived from PEI's
unaudited interim financial statements. The information should be read in
connection with, and is qualified in its entirety by reference to, PEI's
financial statements and notes thereto incorporated by reference. See "Where
You Can Find More Information."
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------ -----------------------
1999 1998
1998 1997 1996(1) 1995(1) 1994(1) (unaudited) (unaudited)
-------- -------- -------- -------- -------- ----------- -----------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Operating revenues..... $207,332 $228,046 $184,480 $161,935 $177,097 $150,959 $112,760
Operating expenses
(2)................... 189,133 206,491 166,220 140,984 156,465 136,832 102,655
-------- -------- -------- -------- -------- -------- --------
Operating income....... $ 18,199 $ 21,555 $ 18,260 $ 20,951 $ 20,632 $ 14,127 $ 10,105
======== ======== ======== ======== ======== ======== ========
Income (loss) from:
Continuing operations
(3)................... $ 8,701 $ 13,142 $ 9,794 $ 5,884 $ 6,952 $ 8,661 $ 5,790
Discontinued operations
(2)................... -- -- (363) (3,834) 10,504 -- --
-------- -------- -------- -------- -------- -------- --------
Income before
subsidiary's preferred
stock dividends and
extraordinary loss.... 8,701 13,142 9,431 2,050 17,456 8,661 5,790
Subsidiary's preferred
stock dividends (3)... (1,191) (1,312) (1,730) (2,763) (4,639) (104) (642)
Extraordinary loss
(2)................... -- -- (1,117) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 7,510 $ 11,830 $ 6,584 $ (713) $ 12,817 $ 8,557 $ 5,148
======== ======== ======== ======== ======== ======== ========
COMMON STOCK
INFORMATION:
Weighted basic average
number of shares
outstanding in
thousands (4)......... 9,997 9,661 10,222 11,459 10,913 10,709 9,827
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss)
per share of common
stock: (4)
Continuing operations
(3)................... $ .75 $ 1.22 $ .79 $ .27 $ .21 $ .80 $ .52
Discontinued operations
(2)................... -- -- (.04) (.33) .96 -- --
Discount (premium) on
repurchase/redemption
of subsidiary's
preferred stock....... (.10) .08 (.13) -- (.09) -- (.10)
Extraordinary loss
(2)................... -- -- (.11) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) per
share of common
stock................. $ .65 $ 1.30 $ .51 $ (.06) $ 1.08 $ .80 $ .52
======== ======== ======== ======== ======== ======== ========
Weighted diluted
average number of
shares outstanding in
thousands (4)......... 10,074 9,736 10,243 11,464 10,915 10,799 9,917
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss)
per share of common
stock: (4)
Continuing operations
(3)................... $ .75 $ 1.22 $ .79 $ .27 $ .21 $ .79 $ .52
Discontinued operations
(2)................... -- -- (.04) (.33) .96 -- --
Discount (premium) on
repurchase/redemption
of subsidiary's
preferred stock....... (.10) .08 (.13) -- (.09) -- --
Extraordinary loss
(2)................... -- -- (.11) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) per
share of common
stock................. $ .65 $ 1.30 $ .51 $ (.06) $ 1.08 $ .79 $ .52
======== ======== ======== ======== ======== ======== ========
Cash dividends per
share of common
stock (4)............. $ 1.20 $ 1.19 $ 1.10 $ 1.10 $ 1.10 $ .60 $ .60
======== ======== ======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- -----------------------
1999 1998
1998 1997 1996 1995 1994 (unaudited) (unaudited)
-------- -------- -------- -------- -------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION AT END
OF PERIOD:
Common shareholders'
investment............ $132,326 $122,105 $117,651 $162,739 $172,012 $143,900 $126,786
Preferred stock of PG
Energy:
Not subject to
mandatory redemption,
net................... 4,831 15,864 18,851 33,615 33,615 4,745 15,864
Subject to mandatory
redemption............ 240 640 739 1,680 1,760 160 560
Long-term debt......... 98,000 127,000 75,000 106,706 220,705 95,000 109,000
-------- -------- -------- -------- -------- -------- --------
Total capitalization... $235,397 $265,609 $212,241 $304,740 $428,092 $243,805 $252,210
======== ======== ======== ======== ======== ======== ========
TOTAL ASSETS AT END OF
PERIOD:
Continuing operations.. $426,202 $388,830 $366,810 $319,968 $321,236 $408,588 $381,999
Discontinued
operations, net (5)... -- -- -- 204,250 203,196 -- --
-------- -------- -------- -------- -------- -------- --------
Total.................. $426,202 $388,830 $366,810 $524,218 $524,432 $408,588 $381,999
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) The discontinued operations represent the water utility operations of PG
Energy which were sold to Pennsylvania-American Water Company on February
16, 1996.
(2) Including provision for income taxes.
(3) None of PEI's interest charges and none of PG Energy's preferred stock
dividends was allocated to the discontinued operations through the February
16, 1996 date of disposition. Prior to that time interest charges relating
to indebtedness of PG Energy were allocated to the discontinued operations
based on the relationship of the gross water utility plant of the
discontinued operations to the total of PG Energy's gross gas and water
utility plant. This was the same method as was utilized by PG Energy and
the Pennsylvania Public Utility Commission in establishing the revenue
requirements of its utility operations.
(4) Reflects a two-for-one stock split of PEI common stock effective March 20,
1997, as more fully discussed in Note 4 of the Notes to the 1998
Consolidated Financial Statements of PEI incorporated by reference.
(5) Net of (i) liabilities assumed by Pennsylvania-American Water Company, (ii)
estimated liability for income taxes on sale of discontinued operations,
(iii) with respect to the year ended December 31, 1995, the anticipated
income from the discontinued operations during the phase-out period for
financial statement purposes of April 1, 1995, through February 15, 1996,
and (iv) with respect to the years 1994 and 1993, other net assets of the
discontinued operations (which were written off as of March 31, 1995).
13
<PAGE>
Selected Unaudited Pro Forma Combined Condensed Financial Data
The following selected unaudited pro forma combined condensed financial data
presents the combined financial data of Southern Union and PEI, including their
respective subsidiaries, after giving effect to the merger, assuming the merger
had been effective for the period indicated and assuming the purchase method of
accounting. The selected unaudited pro forma combined condensed financial data
as of and for the year ended June 30, 1999 were derived from and should be read
in conjunction with the Unaudited Pro Forma Combined Condensed Balance Sheet
and the Unaudited Pro Forma Combined Condensed Statement of Operations,
including the notes thereto, which are included in this proxy
statement/prospectus on pages 61 to 64, and other filings with the SEC by each
of Southern Union and PEI. The selected unaudited pro forma combined condensed
financial data should also be read in conjunction with the historical financial
statements of both Southern Union and PEI which are incorporated by reference.
See "Where You Can Find More Information." The selected unaudited pro forma
combined condensed financial data is presented for purposes of illustration
only in accordance with the assumptions stated in the notes to the financial
information set forth below and is not necessarily indicative of the operating
results or the financial position that would have occurred if the merger had
been consummated for the period presented nor is it necessarily indicative of
the future operating results or financial position of the combined enterprise.
The selected unaudited pro forma combined condensed financial data does not
contain any adjustments to reflect cost savings or other synergies anticipated
as a result of the merger.
<TABLE>
<CAPTION>
Year Ended
June 30, 1999
-------------------------
(dollars in thousands,
except per share amounts)
<S> <C>
Total operating revenues............................ $ 838,836
Earnings from continuing operations (a)(b)(c)....... 12,550
Diluted earnings per share (d)(e)................... 0.25
Total assets........................................ 1,749,868
Common stockholders' equity (e)..................... 648,444
Short-term debt and capital lease obligation
(b)(f)............................................. 2,066
Long-term debt and capital lease obligation,
excluding current portion (b)...................... 594,029
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust..................... 100,000
</TABLE>
- --------
(a) As of June 30, 1999, Southern Union incurred pre-tax costs of $3,839,000
associated with various acquisition efforts unrelated to the merger.
(b) As a result of the merger, long-term debt at an estimated annual interest
rate of 7.5%, which Southern Union believes would be obtained based on
current market rates, would be issued. The long-term debt is assumed to be
utilized: to finance the cash portion of the purchase of PEI common stock
and settlement of PEI stock options; to refinance certain current debt of
PEI; to pay for certain acquisition costs of $5 million related to change
of control agreements, the funding of PEI's Director Retirement Plan,
Director Deferred Compensation Plan and supplemental retirement benefits
and the exercise of certain parachute option payments for certain PEI
executives; and payment of various professional fees estimated to total $4
million.
(c) As a result of the merger, the outstanding PG Energy preferred stock will
be repurchased prior to closing the merger.
(d) Earnings per share were computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period adjusted for the Southern Union common stock to be issued in the
merger, the 5% stock dividends distributed on August 6, 1999 and December
9, 1998, and the 50% stock dividend distributed on July 13, 1998.
(e) Reflects the issuance of Southern Union common stock to PEI stockholders at
an exchange ratio of 1.5548 based on an average trading price of $20.58125
for Southern Union common stock at the average closing price per share for
the ten trading day period ending on the third trading day before September
3, 1999. All PEI stock options are assumed to be settled in cash based on
the difference between the total merger consideration per share of $35.00
and the exercise price of such stock options.
(f) Represents Southern Union's historical short-term debt and capital lease
obligation as PEI short-term debt is expected to be refinanced upon or soon
after the completion of the merger.
14
<PAGE>
RISK FACTORS AND OTHER CONSIDERATIONS
You should consider carefully all the information contained in this proxy
statement/prospectus, including the following matters:
The Amount of Consideration and the Portion Paid in Stock and Cash that
Stockholders Receive May Vary as a Result of Fluctuations in Southern Union's
Stock Price
The exchange ratio used to determine the stock portion of the merger
consideration will be adjusted, and the amount of the cash portion of the
merger consideration may be adjusted, based on the average of the closing
prices of Southern Union common stock on the NYSE for a period of ten
consecutive trading days ending on the third trading day before the merger is
completed. The adjustments are designed to ensure that the aggregate value
based on this average price of the Southern Union shares and cash to be
exchanged for each share of PEI common stock you own will be at least $35 per
share (except as explained in the second paragraph below) unless PEI decides to
complete the merger if the average price is below $17.30 a share. However, you
should be aware of three risks associated with this method of adjusting the
merger consideration:
. First, there may be a significant time delay after you vote at the PEI
special meeting until the merger is completed. During that time, the
market value of Southern Union common stock may fluctuate significantly.
At the time you vote on the merger, you will not know the exact number
of shares of Southern Union common stock or the amount of cash that you
will receive when the merger is completed.
. Second, the number of shares of Southern Union common stock you will
receive will be based on the closing prices of Southern Union common
stock from the twelfth to the third trading day before the merger is
completed. The actual market value of the shares when received by you
will depend on the market value of a share of Southern Union common
stock on that date, which may be less than the value used to determine
the number of shares you will receive.
. Third, the amount of cash payable to you as part of the merger
consideration can vary from $3.00 to $6.55 for each share of PEI common
stock you own depending on the market prices of Southern Union common
stock during the ten trading day period. This does not include any cash
payment you may receive instead of a Southern Union fractional share.
The cash portion of the merger consideration may be taxable.
You are urged to obtain current market quotations for Southern Union common
stock and PEI common stock.
The Combined Company May Not Realize Benefits of Integrating Our Companies
The combined company will need to combine and integrate the operations of
our separate companies into one company. Because of the size and complexity of
each of our companies, this will be a difficult process. The combined company
could encounter difficulties in the integration process, such as the loss of
key employees, customers or suppliers.
If the combined company cannot integrate Southern Union's business and PEI's
business successfully, the combined company may fail to realize the benefits
that Southern Union's and PEI's management expect to realize from the merger.
Approvals May Not be Obtained or May Contain Unacceptable Restrictions
The consummation of the merger is conditioned upon receiving approval from
various governmental regulatory authorities. It is possible that some required
approvals and consents will not be obtained or that they will be obtainable
only with restrictions on the combined company that will not be acceptable or
would
15
<PAGE>
adversely affect the value of the combined company. See "The Merger--Regulatory
Matters." Required approvals include:
. approval of the merger and the subsidiary mergers by the Pennsylvania
Public Utility Commission and the Missouri Public Service Commission;
. approval by the Florida Public Service Commission of any Southern Union
securities issued and long-term debt assumed by Southern Union in
connection with the mergers; and
. approval by the Federal Energy Regulatory Commission of the change in
control of PEI's subsidiaries engaged in certain electric operations.
In addition, other filings with, notifications to and authorizations and
approvals of various government agencies and third-party consents with respect
to the merger must be made or received before the completion of the merger. PEI
and Southern Union are seeking to obtain all required approvals and consents,
most of which will not be obtained prior to the PEI special meeting.
Future Acquisitions May Not Achieve Favorable Financial Results, May Dilute
Your Percentage Ownership in Southern Union or Require Substantial Expenditures
Southern Union's strategic plan is to increase the scale of its operations
and the size of its customer base by pursuing and consummating future business
combination transactions. The combined company may not be able to consummate
future acquisitions on favorable terms. In addition, future acquisitions may
not achieve favorable financial results.
Future acquisitions may involve the issuance of shares of Southern Union
common stock, which could have a dilutive effect on the then current
stockholders of Southern Union. Southern Union may not choose or be able to
acquire companies or assets associated with the energy industry using its
equity as currency. The combined company's leverage might be increased to
finance an acquisition or the operations of the combined company. Furthermore,
acquisitions may require substantial financial expenditures that will need to
be financed through cash flow from operations or future debt and equity
offerings by the combined company. Southern Union may not be able to generate
sufficient cash flow from operations or obtain debt or equity financing
sufficient to fund future acquisitions or the expenditures required because of
the acquisitions.
A Different Set of Factors and Conditions Affect Southern Union Stock and Could
Have a Negative Impact on Its Stock Price
Upon completion of the merger, you will become a holder of Southern Union
common stock. Southern Union's business and markets are different from that of
PEI. For example, PEI, through two of its subsidiaries, markets, generates and
sells electricity. Southern Union is not currently engaged in the electricity
business. Also, the natural gas business of PEI depends in part on weather and
economic conditions in the northeast. Southern Union's gas business depends in
part on weather and economic conditions in Texas, Missouri and Florida.
There is a risk that various factors, conditions and developments which
would not affect the price of PEI's stock could negatively affect the price of
Southern Union's stock. See "Forward-Looking Statements May Prove Inaccurate"
for a summary of many of the key factors that might affect Southern Union and
the price at which Southern Union common stock may trade from time to time. See
"Comparative Per Share Data."
Competition Within the Natural Gas Industry is Intense
As a result of the deregulation of the utility industry, the natural gas
distribution business has become highly competitive. In a deregulated
environment, formerly regulated utility companies that are not responsive to a
competitive energy marketplace suffer erosion in market share, revenues and
profits as competitors gain access to their service territories.
16
<PAGE>
Although the merger will result in a larger combined company with a more
diverse customer base, several of the combined company's competitors will still
have substantially larger financial resources, staffs and facilities than the
combined company. There is a risk that the intense competition for natural gas
customers may in the future reduce the combined company's earnings from retail
natural gas service and have an adverse affect on the stability of the combined
company's utility earnings generally.
The Terms of Merger-Related Financings May Adversely Affect the Combined
Company
Southern Union's management currently anticipates that substantially all of
the approximately $35 million to $55 million (assuming the cash portion of the
merger consideration is only $3 per share) necessary to fund the cash portion
of the merger consideration payable to PEI stockholders and other merger-
related transaction costs will be financed through external sources. Additional
financing may be required if the average of the closing prices of Southern
Union common stock on the NYSE for a period of ten consecutive trading days
ending on the third trading day before the merger is completed is below
$19.4625, which would cause the cash portion of the merger consideration to be
increased. See "The Merger Agreement--Merger Consideration." In addition,
Southern Union anticipates refinancing substantially all of the current portion
of outstanding debt of PEI and its subsidiaries and the preferred stock of a
PEI subsidiary in connection with or soon after the completion of the merger.
The terms of such financing or refinancing arrangements may contain covenants
that could adversely affect the financial condition and flexibility of the
combined company.
Sources of financing may include commercial and investment banks,
institutional lenders and investors, and the public securities markets.
Southern Union's management believes that Southern Union will have access to
many sources and types of short-term and long-term capital financing.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Southern Union and PEI.
Also, when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. You should note that
many factors, some of which are discussed elsewhere in this document and in the
documents that we incorporate by reference, could affect the future financial
results of Southern Union or PEI and could cause those results to differ
materially from those expressed in our forward-looking statements contained or
incorporated by reference in this document. The factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements include the following:
. the timing and extent of changes in commodity prices;
. gas sales volumes;
. weather conditions and other natural phenomena in our service
territories;
. the achievement of operating efficiencies and the purchase and
implementation of new technologies for attaining such efficiencies;
. impact of relations with labor unions of bargaining-unit employees;
. the receipt of timely and adequate rate relief;
. the outcome of pending and future litigation;
. governmental regulations and proceedings affecting the companies,
including the restructuring of the natural gas industry in Pennsylvania,
Texas, Missouri and Florida;
. the impact of any year 2000 disruption; and
17
<PAGE>
. the nature and impact of any extraordinary transactions such as any
acquisition or divestiture of a business unit or any assets.
These are representative of the factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions, and general economic conditions,
including interest rate fluctuations, federal, state and local laws and
regulations affecting the retail gas industry or the energy industry generally,
and other factors.
COMPARATIVE DIVIDENDS AND MARKET PRICES
Southern Union
Southern Union common stock is listed and principally traded on the NYSE
under the symbol "SUG." The table below sets forth the high and low sales
prices (adjusted for any stock dividends and stock splits) of Southern Union
common stock for the calendar periods indicated as reported in The Wall Street
Journal as New York Stock Exchange Composite Transactions. The last day of
Southern Union's fiscal year is June 30. Southern Union does not pay its
stockholders a cash dividend. It distributes an annual 5% stock dividend that
can be sold through its Dividend Sale Plan.
<TABLE>
<CAPTION>
Price Range
-------------
High Low
------ ------
<S> <C> <C>
1996
----
First quarter................................................ $12.27 $ 9.20
Second quarter............................................... 13.99 11.11
Third quarter................................................ 15.22 11.04
Fourth quarter............................................... 14.33 12.10
1997
----
First quarter................................................ $14.03 $12.23
Second quarter............................................... 14.54 12.66
Third quarter................................................ 14.11 12.53
Fourth quarter............................................... 15.61 13.10
1998
----
First quarter................................................ $14.97 $13.84
Second quarter............................................... 19.73 14.43
Third quarter................................................ 20.30 14.17
Fourth quarter............................................... 23.33 17.63
1999
----
First quarter................................................ $23.21 $16.55
Second quarter............................................... 21.79 17.62
</TABLE>
18
<PAGE>
PEI
PEI common stock is listed and principally traded on the NYSE under the
symbol "PNT." The table below sets forth the dividends declared and the high
and low sales price of PEI common stock for the calendar period indicated as
reported in The Wall Street Journal as New York Stock Exchange Composite
Transactions. The last day of PEI's fiscal year is December 31.
<TABLE>
<CAPTION>
Price Range
------------- Cash
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
1996
----
First quarter (1)................................ $20.00 $18.31 $0.28
Second quarter (1)............................... 21.31 18.81 0.28
Third quarter (1)................................ 21.44 19.88 0.28
Fourth quarter (1)............................... 22.94 20.50 0.28
1997
----
First quarter (1)................................ $24.06 $21.38 $0.29
Second quarter................................... 27.75 21.25 0.30
Third quarter.................................... 30.50 25.25 0.30
Fourth quarter................................... 32.75 24.25 0.30
1998
----
First quarter.................................... $26.56 $23.13 $0.30
Second quarter................................... 29.00 22.81 0.30
Third quarter.................................... 27.69 21.13 0.30
Fourth quarter................................... 25.94 21.69 0.30
1999
----
First quarter.................................... $26.00 $20.25 $0.30
Second quarter................................... 31.25 23.69 0.30
</TABLE>
- --------
(1) After restatement for the two-for-one split of PEI common stock effective
March 20, 1997.
19
<PAGE>
Historical Equivalent Per Share Market Values
The following table sets forth the market value of Southern Union common
stock (on an historical basis) and the market value of PEI common stock (on an
historical and equivalent per share basis) as of May 5, 1999, the day the PEI
board authorized PEI's representatives to negotiate a merger agreement with
Southern Union based on its indication of interest; as of June 4, 1999, the
last business day preceding the day when Southern Union and PEI entered into
the merger agreement; and as of September 3, 1999, the day used to determine
the exchange ratio for the Unaudited Pro Forma Combined Condensed Financial
Statements. The equivalent per share values were based on an exchange ratio
valuing Southern Union common stock at the average closing price per share for
the ten trading day period ending on the third trading day before each
respective date.
<TABLE>
<CAPTION>
Southern Union PEI
-------------------------- --------------------------
Equivalent
per Share
Date High Low Closing High Low Closing Value
---- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
May 5, 1999 $22.2500 $21.7500 $22.2500 $26.0000 $25.5625 $25.6250 $32.3177
June 4, 1999 21.6250 21.2500 21.6250 30.0625 29.2500 29.6875 31.2768
September 3,
1999 21.5000 21.0000 21.3750 31.5000 31.3750 31.3750 33.2341
</TABLE>
You are encouraged to obtain current market quotations for Southern Union
common stock and PEI common stock.
COMPARATIVE PER SHARE DATA
The following tables set forth certain unaudited historical per share data
of Southern Union and PEI and the combined per share data on an unaudited pro
forma basis after giving effect to the merger assuming the merger had been in
effect for the period indicated, using the purchase method of accounting for
business combinations and assuming an exchange ratio of 1.5548 shares of
Southern Union common stock for each share of PEI common stock and an average
trading price of $20.58125 for Southern Union common stock at the average
closing price per share for the ten trading day period ending on the third
trading day before September 3, 1999. This data should be read in conjunction
with the selected financial data and the Unaudited Pro Forma Combined Condensed
Financial Statements and notes thereto included elsewhere in this proxy
statement/prospectus and the separate historical financial statements of
Southern Union and PEI incorporated by reference. The unaudited pro forma
combined financial data are not necessarily indicative of the operating results
or financial position that would have occurred if the merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
the combined enterprise.
<TABLE>
<CAPTION>
Year Ended
June 30, 1999
---------------
<S> <C>
SOUTHERN UNION--HISTORICAL
Earnings per common share:
Basic...................................................... $ 0.34
Diluted.................................................... 0.32
Cash dividends declared per share (a)........................ --
Book value per share at period end........................... 9.74
<CAPTION>
12 Months Ended
June 30, 1999
---------------
<S> <C>
PEI--HISTORICAL
Earnings per common share:
Basic...................................................... $ 0.95
Diluted.................................................... 0.94
Cash dividends declared per share............................ 1.20
Book value per share at period end........................... 13.26
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended
June 30, 1999
-------------
<S> <C>
SOUTHERN UNION/PEI--PRO FORMA (b)
Earnings per common share:
Basic........................................................ $ 0.26
Diluted...................................................... 0.25
Cash dividends declared per share (a).......................... --
Book value per share at period end............................. 13.57
PEI--EQUIVALENT PRO FORMA
Per share data imputed to existing stockholders (c) (d):
Earnings per common share:
Basic...................................................... $ 0.40
Diluted.................................................... 0.39
Cash dividends declared per share............................ --
Book value per share at period end........................... 21.09
</TABLE>
- --------
(a) Southern Union for the last six years has distributed and anticipates it
will continue to distribute an annual 5% stock dividend.
(b) See "Unaudited Pro Forma Combined Condensed Financial Statements."
(c) Equivalent pro forma share data is calculated by multiplying the respective
unaudited pro forma combined data by an assumed exchange ratio of 1.5548
shares of Southern Union common stock for each share of PEI common stock.
The assumed exchange ratio is based on an average trading price of
$20.58125 for Southern Union common stock, which is the average closing
price per share for the ten trading day period ending on the third trading
day before September 3, 1999.
(d) Pro forma combined cash dividends declared per share represents the
historical dividend policy of Southern Union, which is to distribute an
annual 5% stock dividend.
21
<PAGE>
THE PEI SPECIAL MEETING
Purpose, Time and Place
The PEI special meeting will be held at The Plaza Hotel, Fifth Avenue at
Central Park South, New York, New York, on Tuesday, October 19, 1999, at 10:00
a.m. (Eastern Time), for the following purposes:
(1) To approve and adopt the merger agreement; and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Record Date; Voting Power; Vote Required
The PEI board has fixed the close of business on September 3, 1999 as the
record date for the determination of holders of PEI common stock entitled to
notice of and to vote at the meeting. PEI common stock, of which there were
10,855,815 shares outstanding and entitled to vote on September 3, 1999,
constitutes the only class of securities of PEI entitled to vote at the PEI
special meeting. A majority of the shares of PEI common stock issued and
outstanding and entitled to vote on the record date must be present in person
or by proxy at the PEI special meeting or voted by telephone in order for a
quorum to be present for purposes of transacting business at the PEI special
meeting. In the event that a quorum is not present at the PEI special meeting,
it is expected that the meeting will be adjourned or postponed to solicit
additional proxies. Holders of record of PEI common stock on the record date
are each entitled to one vote per share on the approval and adoption of the
merger agreement at the PEI special meeting. The approval and adoption requires
the affirmative vote of a majority of the shares of PEI common stock
outstanding on the record date.
Share Ownership of Management
At the close of business on September 3, 1999, directors and officers of PEI
beneficially owned and were entitled to vote approximately 1,455,921 shares of
PEI common stock, which represented approximately 13.41% of the shares of PEI
common stock outstanding on that date. Each of those directors and officers has
indicated his or her present intention to vote, or cause to be voted, the PEI
common stock owned by him or her "FOR" the proposal to approve and adopt the
merger agreement at the PEI special meeting. See "Principal Stockholders--
Beneficial Owners of More Than 5% of PEI's Common Stock" and "--PEI Management
Ownership" for additional information.
Voting of Proxies
All holders of PEI common stock who are entitled to vote and are represented
at the PEI special meeting by properly executed proxies received prior to or at
such meeting and not duly and timely revoked will have their shares voted at
the meeting in accordance with the instructions indicated on the proxies. If no
instructions are indicated, the proxies will be voted "FOR" approval and
adoption of the merger agreement.
If any other matters are properly presented at the PEI special meeting for
consideration, the persons named in the enclosed form of proxy, and acting
thereunder, will have discretion to vote on such matters in accordance with
their best judgment (unless authorization to use such discretion is withheld).
PEI is not aware of any matters expected to be presented at the PEI special
meeting other than as described in the Notice of Special Meeting.
Revocability of Proxies
Pennsylvania law provides that a proxy, unless coupled with an interest (for
example, a vote pooling or similar arrangement among holders of PEI common
stock, or between PEI and holders of PEI common stock, or an unrevoked proxy in
favor of an existing or potential creditor of a holder of PEI common stock), is
revocable at will by a holder of PEI common stock, notwithstanding any other
agreement or provision in the
22
<PAGE>
proxy to the contrary. A holder of PEI common stock may revoke a proxy by
giving written notice of revocation to the secretary of PEI at PEI's address
set forth on page 3 of this proxy statement/prospectus at any time before the
proxy is voted. Such revocation shall be effective upon receipt of the written
notice by the secretary of PEI. If voting by telephone, the latest telephone
voting instructions will supersede any previous telephone instructions.
Solicitation of Proxies
PEI will bear the costs of this solicitation of proxies. In addition to
solicitation by mail, arrangements may be made with brokerage houses and other
custodians, nominees and fiduciaries to send material to their principals, and
PEI may reimburse them for their expenses in so doing. To the extent necessary
in order to ensure a sufficient presence of holders of PEI common stock to
constitute a quorum, officers and other employees of PEI and its principal
subsidiary, PG Energy, or designated agents may, without additional
remuneration, in person or by telephone or telegram, request the return of
proxies. In addition, PEI has retained D. F. King & Co., Inc. for assistance in
the solicitation of proxies. For its services, D. F. King will receive a fee
estimated at $7,500 plus reimbursement for reasonable and customary out-of-
pocket expenses.
THE SOUTHERN UNION ANNUAL MEETING
Delaware law requires Southern Union to obtain stockholder approval of the
merger agreement because the aggregate number of shares of Southern Union
common stock to be issued pursuant to the merger agreement will be greater than
20% of the total number of shares of Southern Union common stock issued and
outstanding immediately prior to the completion of the merger. The rules of the
NYSE also require Southern Union stockholders to approve the issuance of
shares. Southern Union stockholders will be asked to approve the merger
agreement, the issuance of shares of Southern Union common stock pursuant to
the merger agreement and other matters at Southern Union's 1999 annual meeting
of stockholders to be held on October 19, 1999. Southern Union anticipates that
the mailing of proxy materials to its stockholders entitled to notice and to
vote at the Southern Union annual meeting will begin on or about September 16,
1999.
This section of the proxy statement/prospectus describes certain aspects of
the Southern Union annual meeting. This description does not purport to be
complete and it may not include all the information that may interest you. A
complete description of the Southern Union annual meeting is contained in
Southern Union's definitive proxy statement on Schedule 14A for the 1999 annual
meeting of stockholders dated September , 1999, a copy of which has been
filed with the SEC. The summary of the Southern Union proxy statement set forth
in this proxy statement/prospectus is qualified in its entirety by reference to
the full text of the Southern Union proxy statement. For more information on
how you can obtain a copy of the Southern Union proxy statement, see "Where You
Can Find More Information."
Proposals to be Voted Upon
The Merger Agreement and the Stock Issuance. In connection with the merger,
Southern Union stockholders will be asked to approve (i) the merger agreement
and (ii) the issuance of shares of Southern Union common stock (the "stock
issuance") pursuant to the merger agreement.
The Southern Union board, by unanimous vote, has approved the merger
agreement and the stock issuance because it believes (i) that the merger will
help position Southern Union to become one of the premier natural gas
distribution companies in the nation, (ii) that the merger would enhance the
competitive position of Southern Union in an industry recently subjected to
deregulation and consolidation by increasing its financial flexibility and
providing strategic growth opportunities that will benefit Southern Union, its
stockholders, customers and employees and (iii) for the other specific
financial and strategic reasons described in "The Merger--Southern Union
Reasons for the Merger."
23
<PAGE>
The Southern Union board recommends that Southern Union stockholders vote
"FOR" approval of the merger agreement and the stock issuance.
Changes to Capitalization. Southern Union stockholders will be asked to
approve amendments to Southern Union's restated certificate of incorporation,
which will change Southern Union's capitalization. These amendments are as
follows:
(i) to increase the number of authorized shares of Southern Union common
stock from 50,000,000 to 200,000,000;
(ii) to repeal the rights, powers, privileges and preferences of
Southern Union cumulative preferred stock; and
(iii) to grant the Southern Union board the authority to issue 6,000,000
shares of preferred stock in series as the Southern Union board
deems appropriate and to establish from time to time the number of
shares to be included in each such series and to fix the
designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions
thereof.
The purpose of these amendments is to ensure that Southern Union will have
available for issuance that number of shares of Southern Union common stock
which PEI stockholders will be entitled to receive upon completion of the
merger and to enhance Southern Union's ability to raise capital through the
sale or placement of Southern Union's securities and pursue opportunities for
future acquisitions and business combinations.
The Southern Union board recommends that Southern Union stockholders vote
"FOR" the proposed amendments to Southern Union's restated certificate of
incorporation, which will change Southern Union's capitalization.
Increase Maximum Number of Directors. Southern Union stockholders will be
asked to approve an amendment to Southern Union's restated certificate of
incorporation to increase the maximum number of directors from twelve to
fifteen.
To satisfy its obligations under the merger agreement, Southern Union has
decided to increase the maximum number of directors that may serve on the
Southern Union board. Southern Union's restated certificate of incorporation
provides that no more than 12 persons may constitute the Southern Union board.
Ten persons currently serve as directors on the Southern Union board. Under
the merger agreement, Southern Union has agreed to nominate and recommend for
election to the Southern Union board three individuals to be selected prior to
the consummation of the merger by Southern Union from the PEI board. If this
proposed amendment is approved by Southern Union stockholders, Southern Union
anticipates that the Southern Union board will consist only of thirteen
directors after the consummation of the merger even though fifteen directors
may be permitted.
The Southern Union board recommends that Southern Union stockholders vote
"FOR" the proposed amendment to Southern Union's restated certificate of
incorporation, which will increase the number of directors that may serve on
the Southern Union board.
Re-Election of Directors. Southern Union stockholders will be asked to re-
elect three persons to serve as the Class III directors until Southern Union's
2002 annual meeting of stockholders or until their successors are duly elected
and qualified. The nominees for re-election are George L. Lindemann, Peter H.
Kelley and Dan K. Wassong.
The Southern Union board recommends that Southern Union stockholders vote
"FOR" these directors.
Proposal of Change to the 1992 Plan. Southern Union stockholders will be
asked to approve an amendment to the Southern Union Company 1992 Long-Term
Stock Incentive Plan, as amended (the "1992 Plan"), to increase by 3,000,000
the number of shares of Southern Union common stock available for awards under
the 1992 Plan.
24
<PAGE>
As of September 3, 1999, awards covering a total of 2,763,551 shares of
Southern Union common stock have been granted out of 3,653,343 available under
the 1992 Plan. The proposed increase in the number of shares available for
awards will enable Southern Union to continue granting a variety of long-term
incentive awards to officers and key employees of Southern Union and its
subsidiaries, including those that join Southern Union as a result of the
merger. The Southern Union board believes that the use of such long-term
incentives is a key component to Southern Union's ability to attract and retain
talented people to manage Southern Union and aligns the interests of management
and Southern Union stockholders by focusing the attention of management and
other employees on the long-term improvement of Southern Union stockholder
value.
The Southern Union board recommends that Southern Union stockholders vote
"FOR" the proposed change to the 1992 Plan.
Other Business. Southern Union stockholders may also be asked to approve and
take action on any other business as may properly come before the Southern
Union annual meeting, or any adjournment or adjournments thereof. The Southern
Union board does not know, as of the date of the mailing of this proxy
statement/prospectus, of any other business to be brought before the Southern
Union annual meeting.
Date, Place and Time; Record Date
The Southern Union annual meeting is scheduled to be held on October 19,
1999 at 2:00 p.m. (Eastern Time) at The Plaza Hotel, Fifth Avenue at Central
Park South, New York, New York. Holders of record of shares of Southern Union
common stock at the close of business on September 3, 1999, the Southern Union
record date, will be entitled to receive notice of and vote at the Southern
Union annual meeting.
Lindemann Proxy; Management Vote
George L. Lindemann, the Chairman of the Southern Union board and Southern
Union's Chief Executive Officer, and four other members of Mr. Lindemann's
family granted PEI an irrevocable proxy to vote the shares of Southern Union
common stock they own for the approval and adoption by the stockholders of
Southern Union of the merger agreement and the consummation of the transactions
contemplated thereby and to prevent any action that would prevent or hinder in
any material respect such approval or consummation. See "The Merger Agreement--
Covenants and Other Agreements--The Lindemann Proxy." As of the Southern Union
record date, the shares of Southern Union common stock owned by Mr. Lindemann
and the members of his family who granted a proxy to PEI to vote their shares
of Southern Union common stock and subject to this proxy represented
approximately 39% of the outstanding shares of Southern Union common stock
entitled to vote on these matters. The other directors and executive officers
of Southern Union have indicated that they intend to vote their shares of
Southern Union common stock in favor of approval of the merger agreement, the
stock issuance and the other proposals. As of September 3, 1999, these persons
and their affiliates owned beneficially an aggregate of 2,493,546 shares of
Southern Union common stock, or approximately 8% of the shares of Southern
Union common stock outstanding.
Quorum; Required Vote
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum for the adoption of proposals at the Southern Union annual
meeting. If a Southern Union stockholder submits a properly executed proxy
card, then such stockholder will be considered part of the quorum. If a
Southern Union stockholder is present or represented by a proxy at the Southern
Union annual meeting and the stockholder abstains, the stockholder's abstention
will have the same effect as a vote AGAINST the proposals to approve and adopt
the merger agreement and the stock issuance. Abstentions may have the effect of
a vote AGAINST the approval and adoption of the merger agreement. Broker non-
votes will be counted as part of the voting power present at the Southern Union
annual meeting.
25
<PAGE>
THE MERGER
This section of the proxy statement/prospectus, as well as the next section
entitled "The Merger Agreement," describe certain aspects of the proposed
merger. These sections highlight key information about the merger and the
merger agreement but they may not include all the information that you would
like to know. The merger agreement is attached as Appendix A to this proxy
statement/prospectus. We urge you to read the merger agreement in its entirety.
PEI Background of the Merger
As part of its long-term planning, the PEI board has periodically reviewed
and evaluated various strategic options and alternatives available to maximize
the economic return of its stockholders. The PEI board has recognized the need
for PEI to be larger in order to respond to the demands of a deregulated energy
market and to compete with the larger companies being formed in the
consolidation of the energy industry. From time to time, the PEI board has
considered acquisitions and has entered into marketing alliances. But these
actions have not been sufficient to give PEI the necessary size and scope. As
an alternative, the PEI board authorized the exploration of a strategic stock-
for-stock merger with companies chosen because of the strengths they would
bring to the relationship.
In late September 1998, John E. Brennan, Vice Chairman of the Southern Union
board, and Thomas F. Karam, the President and Chief Executive Officer of PEI at
a coincidental meeting discussed, in general terms, their respective companies
and whether it would be appropriate to initiate further discussions between
representatives of Southern Union and PEI regarding a possible business
combination. To follow-up this conversation, on October 5, 1998, Southern Union
sent Mr. Karam copies of Southern Union's recently released 1998 Summary Annual
Report to Stockholders, Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and Proxy Statement for Southern Union's 1998 annual meeting of
stockholders.
On March 1, 1999, following general conversations between Ronald W. Simms,
the Chairman of the PEI board, Mr. Karam and Mr. Brennan, about the energy
industry and the philosophies of their two companies, Mr. Karam met with George
L. Lindemann, the Chairman of the Southern Union board and Southern Union's
Chief Executive Officer, and Mr. Brennan to discuss the possibility of a
strategic relationship between PEI and Southern Union and to arrange for a
meeting between Messrs. Simms and Karam and Southern Union management in
Austin, Texas. A meeting was held from March 3-4, 1999 at which Southern Union
officers and division heads made a detailed presentation about Southern Union.
Contemporaneously with the discussions between Southern Union and PEI,
Messrs. Simms and Karam held meetings and discussions with five other companies
they had identified as possible strategic stock-for-stock merger partners.
These meetings were similar to the meetings with Southern Union.
On March 19, 1999, Mr. Karam and Mr. Brennan had a general conversation
about the financial terms of a merger.
On March 24, 1999, at a meeting of the PEI board, Messrs. Simms and Karam
described the preliminary discussions they had with possible partners in a
strategic stock-for-stock merger. They stated that they believed that a
strategic merger with a larger company should, among other things, help PEI to
provide all energy alternatives to the consumer, to diversify geographically,
to grow aggressively where advisable and to be better able to take advantage of
opportunities in the energy industry. In addition, a strategic relationship
should not require PEI to significantly reduce employees or other assets in
northeastern Pennsylvania and should help improve service to its customers. It
was the sense of the meeting that Mr. Simms and Mr. Karam should continue these
discussions.
On April 8, 1999, Messrs. Simms and Karam met with Messrs. Lindemann and
Brennan to discuss more specifically a possible strategic relationship. Mr.
Lindemann expressed a desire to proceed and make an indication of interest.
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On April 12, 1999, representatives of Southern Union visited PEI's
facilities to conduct a limited business investigation of PEI and to discuss
the details of a merger with Mr. Karam.
At the PEI board meeting on April 14, 1999, Messrs. Simms and Karam updated
the PEI board on their discussions. They noted the changing competitive
landscape in the energy industry where critical mass and complete energy
solutions are necessary; the increasing merger activity and formation of larger
companies against which PEI must compete; and the capital limitations of PEI.
They reviewed PEI's experience with possible acquisitions and marketing
alliances.
The PEI board discussed generally different methods of valuing PEI and
compared various financial measurements and ratios of PEI with those of
comparable publicly-traded companies. They also reviewed multiples and premiums
in recent gas utility mergers.
PEI's special counsel, Hughes Hubbard & Reed LLP, reviewed the board's
fiduciary duties and the standards of conduct it should follow in considering
whether to proceed with discussions of a strategic stock-for-stock merger and
whether to accept a merger proposal.
The PEI board then appointed Messrs. Simms and Karam as a Special Committee
of the board to continue discussions concerning a possible strategic stock-for-
stock merger.
Following the April 14 board meeting, each of the companies was contacted
and asked to make a firm indication of interest by May 1, if they desired to do
so.
On April 19 and 20, 1999, representatives of Southern Union visited PEI to
discuss a proposed transaction with the Special Committee and to continue their
limited business investigation of PEI.
By May 1, three of the companies had made an indication of interest. Each
company was informed that the indications would be evaluated by the PEI board
at its May 5 meeting and that shortly thereafter the Special Committee would
contact them.
At the PEI board meeting on May 5, 1999, the Special Committee updated the
PEI board on their discussions with possible merger partners and reviewed the
indications of interest. The Southern Union indication of interest was the
highest. The Special Committee analyzed Southern Union's indication of interest
and compared it with recent gas utility deals in the northeast and mid-
Atlantic. The Special Committee and the PEI board then discussed Southern
Union, including its financial condition, an assessment of its management and
operations and the ability of Southern Union to consummate a merger. The PEI
board also considered the Southern Union common stock dividend, the possible
effect of Southern Union's bid for Southwest Gas Corporation on a merger with
Southern Union and the effect of a merger on PEI's employees and customers. The
Special Committee was authorized to negotiate a merger agreement with Southern
Union, subject to PEI board approval.
On May 6, 1999, the Special Committee called Southern Union to express a
desire to enter into more substantive discussions and to negotiate a merger
agreement.
Over the course of the next several weeks, the Special Committee and its
legal advisors discussed the major terms of the merger with Southern Union.
On May 24, 1999, the Special Committee again updated the board on the merger
discussions. Representatives of Southern Union made a presentation to the PEI
board on Southern Union, including its business plan and historical and pro
forma financial information, and responded to questions from the PEI board.
PEI's special counsel reviewed the major issues relating to the merger
agreement for the PEI board.
From May 25 to June 7, 1999, representatives of PEI and Southern Union and
their financial, accounting and legal advisors had numerous communications,
including meetings to conduct additional investigation of the other party's
business and negotiate the terms of the merger agreement.
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At 7:00 a.m. on June 7, 1999, the PEI board met to consider the merger
agreement. PEI's special counsel analyzed the important provisions of the
agreement and discussed the mergers.
The PEI board discussed with counsel a table showing how the merger
consideration would be calculated at various trading levels of Southern Union
common stock, the treatment of PEI benefit plans, the "fiduciary out," the
covenants of Southern Union and the conditions to the closing.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), PEI's financial
advisors, discussed the terms of the transaction between Southern Union and PEI
with the PEI board and rendered a written opinion that, as of the date of the
merger agreement and the meeting and based upon and subject to certain matters
stated in its opinion, the consideration to be received by the stockholders of
PEI in the merger was fair to such stockholders from a financial point of view.
At 9:15 a.m. at the PEI board's request, the NYSE agreed not to open trading
in the stock of PEI while the PEI board and its advisors continued discussions
of the merger. Likewise, at Southern Union's request, the NYSE agreed not to
open trading in the stock of Southern Union while the PEI board continued its
discussions.
The Special Committee then recommended approval of the merger, and the PEI
board, after further discussion and for the reasons set forth below under "--
PEI Reasons for the Merger; Recommendation of PEI's Board of Directors,"
unanimously approved the merger agreement. Representatives of Southern Union
were invited into the meeting and the merger agreement was executed. The merger
was publicly announced and the stocks of the two companies were permitted to
open for trading.
PEI Reasons for the Merger; Recommendation of PEI's Board of Directors
Recognizing the need for PEI to be larger in order to respond to the demands
of a deregulated energy market and to compete with the larger companies being
formed in the consolidation of the energy industry, the PEI board has
considered acquisitions and considered and entered into marketing alliances.
But these actions have not been sufficient to give PEI the necessary size and
scope. As an alternative, the PEI board authorized the exploration of a
strategic stock-for-stock merger. The PEI board believes that the merger with
Southern Union should, among other things, help PEI to provide all energy
alternatives to the consumer, to diversify geographically, to grow aggressively
where advisable and to be better able to take advantage of opportunities in the
energy industry. In addition, this strategic relationship should not require
PEI to significantly reduce employees or other assets in northeastern
Pennsylvania and should help improve service to its customers.
In reaching its decision to approve the merger and the merger agreement and
to recommend that PEI stockholders adopt the merger agreement, the PEI board
consulted with PEI management and its financial and legal advisors and
considered a number of factors, including, without limitation, the following
material factors:
. the belief that the merger with Southern Union will result in a combined
entity with sufficient size and scope to compete effectively in the
deregulated energy market;
. the merger consideration negotiated with Southern Union, including the
collar provision designed to protect PEI stockholders with respect to
the value of the consideration to be received by them in the merger, and
the implied premium that the merger consideration represents over the
recent market price of PEI common stock;
. the written opinion of Legg Mason, a copy of which is attached as
Appendix B to this proxy statement/prospectus, that, subject to the
assumptions and limitations contained in that opinion, the consideration
to be received in the merger by the stockholders of PEI is fair, from a
financial point of view, to the stockholders and the financial
presentation made by Legg Mason to the PEI board in connection with
delivering this opinion;
. the benefits to PEI's employees and the communities served by PEI,
including the retention of local operations and provisions of Southern
Union's benefit plans;
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. the terms and conditions of the merger agreement, including (1)
reciprocal representations and warranties, (2) the closing conditions,
(3) the ability of PEI, under certain circumstances, to provide
information to, and enter into negotiations with, third parties with
respect to certain unsolicited offers to acquire PEI, and to terminate
the merger agreement in order to enter into an agreement with a person
making an unsolicited offer which is more favorable to PEI stockholders
from a financial point of view than the merger after paying a
termination fee to Southern Union and giving Southern Union the
opportunity to match any offer made by such a third party and (4) the
ability of PEI to terminate the merger agreement if the average trading
price of Southern Union common stock for the valuation period ending
shortly before the closing falls below $17.30 (see "The Merger Agreement");
. the structure of the transaction, which is intended to qualify as a
"reorganization" for United States federal income tax purposes, so that
the stockholders of PEI, as such, will recognize gain only to the extent
they receive cash in exchange for their shares of PEI common stock;
. information concerning the business, financial condition, results of
operations and prospects, including, but not limited to, the potential
for growth, development and profitability of Southern Union;
. the projected pro forma ownership of Southern Union by the stockholders
of PEI implied by the exchange ratio;
. the historical market prices and trading information with respect to PEI
common stock and Southern Union common stock; and
. the likelihood that the merger would be consummated.
During its deliberations regarding the merger and the merger agreement, the
PEI board also analyzed certain risks associated with the merger, including the
integration of the two companies and the risk of obtaining the necessary
regulatory approvals for the merger. After reviewing these matters, the PEI
board determined that the benefits of the merger outweighed any risks entailed
in these matters.
At its meeting on June 7, 1999, the PEI board unanimously approved the terms
of the merger agreement and the related transactions, determined that the terms
of the merger are in the best interests of PEI and PEI's stockholders and
recommended approval and adoption of the merger agreement by PEI's
stockholders.
This discussion of the information and factors considered by the PEI board
in making their decision is not intended to be exhaustive but is believed to
include all material factors considered in connection with the PEI board's
evaluation of the merger. The PEI board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. In addition, individual members of
the PEI board may have given different weight to different factors. Based on
the total mix of information available to them, all directors determined to
approve and recommend the merger to PEI stockholders.
In considering the recommendation of the PEI board with respect to the
merger agreement, PEI stockholders should be aware that certain members of the
PEI board and PEI employees have interests in the merger that are different
than, or in addition to, the interests of stockholders of PEI generally. The
PEI board was aware of these interests and considered them, among other
matters, in approving the merger agreement. See "The Merger--Potential
Conflicts and Interests of Certain Persons in the Merger."
Opinion of PEI's Financial Advisor
Legg Mason rendered its oral and written opinion to the PEI board at their
meeting on June 7, 1999, that, as of that date, and subject to certain
assumptions, factors and limitations set forth in such opinion as described
below, the merger consideration to be received by PEI stockholders was fair to
stockholders from a financial point of view.
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The full text of the written opinion of Legg Mason dated June 7, 1999, which
sets forth the assumptions made, matters considered, scope and limitations on
the review undertaken, and procedures followed by Legg Mason in connection with
the opinion, is attached as Appendix B to this proxy statement/prospectus.
Stockholders are urged to read this opinion in its entirety. Legg Mason's
opinion is directed only to the consideration to be received by stockholders
pursuant to the merger agreement and does not constitute a recommendation to
any stockholder as to how such stockholder should vote at the PEI special
meeting. Legg Mason's opinion will not be updated prior to or at the closing of
the merger. The summary of the opinion of Legg Mason set forth in this proxy
statement/prospectus is qualified in its entirety by reference to the full text
of such opinion. In connection with this engagement, PEI did not request Legg
Mason, and Legg Mason did not assist PEI, to determine the exchange ratio
provided for in the merger agreement. The exchange ratio was determined through
arm's-length negotiations between PEI and Southern Union.
In connection with its opinion, Legg Mason reviewed, among other things, (a)
the merger agreement and certain related documents, (b) the audited
consolidated financial statements of PEI as of and for the years ended December
31, 1998, 1997, 1996 and 1995, (c) the unaudited financial statements of PEI as
of and for the three-month period ended March 31, 1999, (d) the audited
consolidated financial statements of Southern Union as of and for the years
ended June 30, 1998, 1997, 1996 and 1995 and (e) the unaudited financial
statements of Southern Union as of and for the nine-month period ended March
31, 1999. Legg Mason also had discussions with members of the senior management
of PEI and Southern Union regarding the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, Legg Mason reviewed the reported price and trading activity for the
shares of PEI common stock and the shares of Southern Union common stock,
compared certain financial and stock market data for PEI and Southern Union
with similar information for certain other publicly-traded companies, analyzed
publicly available information concerning the terms of certain selected
business combinations in the gas distribution utility industry, and performed
such other studies and analyses as Legg Mason considered necessary or
appropriate.
Legg Mason relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by them for
purposes of their opinion. Legg Mason did not make an independent evaluation or
appraisal of the assets and liabilities of PEI or Southern Union or any of
their subsidiaries and they were not furnished with any such evaluation or
appraisal.
The following is a summary of the financial analyses Legg Mason utilized in
connection with providing its written opinion to the PEI board.
Stock Trading History. Legg Mason examined the history of the trading price
and volume for the shares of PEI common stock. This examination showed that
during the four-month period from February 4, 1999 to June 4, 1999, the trading
price of PEI common stock ranged from $20.75 per share to $29.69 per share.
This examination also showed that over the period from June 4, 1997 to June 4,
1999, the trading price of PEI common stock ranged from $20.75 per share to
$31.94 per share. This range may be compared to the merger consideration. Legg
Mason also examined the history of the trading price and volume for the shares
of Southern Union common stock (not adjusted for the 5% Southern Union stock
dividend distributed on August 6, 1999). This examination showed that during
the four-month period from February 4, 1999 to June 4, 1999, the trading price
of Southern Union common stock ranged from $17.94 per share to $22.81 per
share. The closing price of Southern Union common stock on June 4, 1999 was
$21.625 per share, which was used as the basis for the exchange rate in the
merger agreement. In addition, this examination showed that over the period
from June 4, 1997 to June 4, 1999, the trading price of Southern Union common
stock ranged from $13.16 per share to $24.38 per share.
Comparison of Selected Peer Companies. Legg Mason compared selected
historical stock market and balance sheet data and financial ratios for PEI to
the corresponding data and ratios of the following companies: Colonial Gas
Company, Connecticut Energy Corp., CTG Resources, Inc., Laclede Gas Company,
North Carolina Natural Gas Corp., NUI Corp., Providence Energy Corp., South
Jersey Industries, Inc. and Yankee Energy System, Inc. The multiples of PEI
were calculated using a price of $29.69 per share for PEI common
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stock, the closing price as of June 4, 1999. Such data and ratios included,
among other things, equity value as a multiple of latest twelve months ("LTM")
earnings per share ("EPS"), projected 1999 earnings per share, projected 2000
earnings per share and stockholders' equity; total market capitalization as a
multiple of LTM revenues, of LTM earnings before interest, taxes, depreciation
and amortization ("EBITDA") and of LTM earnings before interest and taxes
("EBIT"). Projected earnings per share data was provided by First Call
Analysts' Research and FactSet Data Systems. EBITDA (which is not a measure of
financial performance under generally accepted accounting principles) is used
by investment banking firms as one measure of a company's financial
performance. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles), as an indicator of a company's performance or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) or as a measure of liquidity.
An analysis of equity value as a multiple of LTM earnings per share for the
selected peer companies yielded a range of 15.2x to 26.7x with a median of
19.2x as compared to 27.0x for PEI or 31.9x under the terms of the contemplated
transaction. An analysis of equity value as a multiple of projected 1999 EPS
yielded a range of 14.4x to 21.6x with a median of 17.2x as compared to 22.0x
for PEI or 25.9x under the terms of the contemplated transaction. An analysis
of equity value as a multiple of projected 2000 EPS yielded a range of 12.4x to
19.1x with a median of 15.4x as compared with 20.5x for PEI or 24.1x under the
terms of the contemplated transaction. An analysis of total market
capitalization as a multiple of LTM EBITDA yielded a range of 6.2x to 9.6x with
a median of 7.6x as compared to 11.8x for PEI or 13.3x under the terms of the
contemplated transaction. An analysis of total market capitalization as a
multiple of LTM EBIT yielded a range of 8.7x to 14.1x with a median of 11.5x as
compared to 16.2x for PEI or 18.2x under the terms of the contemplated
transaction.
Selected Transactions Analysis. Using publicly available information, Legg
Mason analyzed the purchase price and implied transaction value multiples paid
or announced to be paid in the following selected merger and acquisition
transactions in the gas distribution utility industry: Eastern
Enterprises/Colonial Gas Co.; Energy East Corp./Connecticut Energy Corp.;
Carolina Power and Light/North Carolina Natural Gas; Dominion Resources,
Inc./Consolidated Natural Gas; NiSource Inc./Bay State Gas; Eastern
Enterprises/Essex County Gas Co.; and Atmos Energy Corp./United Cities Gas Co.
(the "Selected Transactions"). Such analysis indicated that for the Selected
Transactions, (i) total transaction value as a multiple of LTM revenue ranged
from 1.7x to 3.2x with a mean of 2.4x compared to 2.3x for the contemplated
transaction, (ii) total transaction value as a multiple of LTM EBITDA ranged
from 7.5x to 13.9x with a mean of 9.8x, as compared to 13.3x for the
contemplated transaction, (iii) equity value as a multiple of LTM net income
ranged from 20.0x to 26.4x with a mean of 21.8x, as compared to 31.9x for the
contemplated transaction, and (iv) equity value as a multiple of stockholders'
equity ranged from 1.9x to 2.9x with a median of 2.4x as compared to 2.6x for
the contemplated transaction.
No company, transaction, or business used in the comparison with comparable
companies or selected transactions analysis as a comparison is identical to PEI
or the merger. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical. Instead, it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the acquisition, public trading or other values
of the comparable companies, selected transactions or the company or
transaction to which they are being compared.
Discounted Cash Flow Analysis. Legg Mason performed a discounted cash flow
analysis of PEI. Legg Mason calculated a net present value of estimated free
cash flows for the years 2000 through 2004 using discount rates ranging from
6.2% to 8.2%. Legg Mason calculated PEI's terminal values in the year 2004
based on multiples ranging from 10.4x EBIT to 12.7x EBIT. These terminal values
were then discounted to present value using discount rates from 6.2% to 8.2%.
Using the foregoing terminal values and discounted cash flows for PEI, the
equity value ranged from $19.12 to $29.88, as compared to the equity value
implied by the exchange ratio of $35.00 per share.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to practical analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Legg Mason's opinion. In arriving at its fairness
determination, Legg Mason considered the results of all such analyses. The
analyses were prepared solely for purposes of Legg Mason providing its opinion
to the PEI board as to the fairness of the merger consideration pursuant to
the merger agreement to the holders of shares of PEI common stock and do not
purport to be appraisals that necessarily reflect the prices at which assets,
businesses or securities actually may be sold. Analyses based on forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties, none of PEI,
Southern Union, Legg Mason or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, Legg Mason's opinion to the PEI board was one of the
many factors taken into consideration by the PEI board in making its
determination to approve the merger agreement. The foregoing summary does not
purport to be a complete description of the analyses performed by Legg Mason
and is qualified by reference to the written opinion of Legg Mason set forth
in Appendix B hereto.
Legg Mason, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. PEI selected Legg
Mason as its financial adviser because Legg Mason is a nationally recognized
investment banking firm that has substantial experience in transactions
similar to the merger.
Legg Mason has previously rendered certain investment banking and financial
advisory services to PEI.
Legg Mason provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of PEI and/or Southern Union for its own account and for the
accounts of customers.
Pursuant to an engagement letter dated May 27, 1999, PEI engaged Legg Mason
to act as its financial advisor in connection with the possible merger of PEI
and Southern Union. Pursuant to the terms of the engagement letter, PEI agreed
to pay Legg Mason $25,000 upon execution of the engagement letter and $450,000
upon delivery of a written fairness opinion to the board. PEI has agreed to
reimburse Legg Mason for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Legg Mason against certain liabilities,
including certain liabilities under federal securities laws.
Southern Union Background of the Merger
Since 1990 when a new group of stockholders acquired Southern Union and the
Lindemann-led management team took office, Southern Union has carefully
monitored developments in the natural gas utility industry and periodically
evaluated Southern Union's long-term position and strategic alternatives in
view of the trend toward deregulation and consolidation in the gas
distribution industry. Since then, the Southern Union board has consistently
supported a strategy to build stockholder value. As a result, Southern Union's
management has explored and developed strategic plans to respond to the
evolving competitive environment. Southern Union's management has concluded
that Southern Union's competitive position and growth prospects in this new
environment would be significantly enhanced by, among other things, increasing
the scale of its operations and the size of its customer base. To achieve this
strategic goal, Southern Union has, among other things, analyzed, pursued and
attempted to consummate possible business combinations with other natural gas
distribution companies.
In late September 1998, Messrs. Brennan and Karam at a coincidental meeting
discussed, in general terms, their respective companies and whether it would
be appropriate to initiate further discussions between
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representatives of Southern Union and PEI regarding a possible business
combination. To follow-up this conversation, on October 5, 1998, Southern Union
sent Mr. Karam copies of Southern Union's recently released 1998 Summary Annual
Report to Stockholders, Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 and Proxy Statement for Southern Union's 1998 annual meeting of
stockholders.
On March 1, 1999, following general conversations between Mr. Simms, Mr.
Karam and Mr. Brennan, about the energy industry and the philosophies of their
two companies, Mr. Karam met with Mr. Lindemann and Mr. Brennan to discuss the
possibility of a strategic relationship between PEI and Southern Union and to
arrange for a meeting between Messrs. Simms and Karam and Southern Union
management in Austin, Texas.
On March 3, 1999, Mr. Brennan, Peter H. Kelley, the President and Chief
Operating Officer of Southern Union, and Ronald J. Endres, the Executive Vice
President and Chief Financial Officer of Southern Union, met with Messrs. Simms
and Karam. At this meeting, the Southern Union and PEI participants discussed
the possibility of a business combination between Southern Union and PEI. On
March 4, the parties continued their discussions and throughout the day were
joined by various members of Southern Union's senior management team who
described various aspects of business and operations of Southern Union,
particularly its natural gas distribution divisions in Texas, Missouri and
Florida, to PEI's representatives. At the conclusion of the March 4th meeting,
Southern Union's representatives indicated their desire to submit a proposal to
acquire PEI through a merger or other business combination. Mr. Karam, on
behalf of PEI, indicated that PEI would evaluate a Southern Union proposal.
On March 19, 1999, Mr. Karam and Mr. Brennan had a general conversation
about the financial terms of a merger.
On April 8, 1999, Messrs. Simms and Karam met with Messrs. Lindemann and
Brennan to discuss more specifically a possible strategic relationship. Mr.
Lindemann expressed a desire to proceed and make an indication of interest.
On April 12, 1999, representatives of Southern Union visited PEI's
facilities to conduct a limited business investigation of PEI and to discuss
the details of a merger with Mr. Karam.
On April 19 and 20, 1999, representatives of Southern Union visited PEI to
discuss the proposed transaction with Messrs. Simms and Karam and to continue
their business investigation of PEI.
On May 10, 1999, PEI and Southern Union entered into a Confidentiality
Agreement. Shortly thereafter, Southern Union submitted an oral proposal to
acquire PEI at a price of $35.00 a share, consisting of shares of Southern
Union common stock valued at $32.00 plus $3.00 in cash, with a collar on the
share exchange ratios to be determined prior to the execution of a definitive
merger agreement.
During the next ten days, Southern Union discussed the major terms of the
merger with Messrs. Simms and Karam and PEI's legal advisors.
On May 20, 1999, the Southern Union board met, with all members
participating by telephone, except for Frank W. Denius, who did not participate
in the meeting. Also participating were Mr. Endres and Southern Union's outside
legal counsel, Fleischman and Walsh, L.L.P. At the meeting, Southern Union's
management and counsel reported on the status of the discussions with PEI and
provided the Southern Union board with an overview of transaction issues. The
Southern Union board discussed elements of a potential combination with PEI and
authorized management to continue the discussions.
On May 24, 1999, representatives of Southern Union made a presentation to
the PEI board on Southern Union, including its business plan and historical pro
forma financial information, and responded to questions from the PEI board.
Messrs. Lindemann, Kelley and Endres met with Messrs. Simms and Karam on May
25, 1999 to negotiate certain financial terms of the merger agreement. They
agreed on a collar which fixed the exchange ratio if
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Southern Union's average trading price as of the closing date was more than
105% of the closing price of a share of Southern Union common stock on the
trading day immediately preceding the date the merger agreement was executed or
less than 90% of the closing price of a share of Southern Union common stock on
the trading day immediately preceding the date the merger agreement was
executed. They also agreed that the cash portion of the merger consideration
would be more than $3.00 per share if as of the closing date the average
trading price of a share of Southern Union common stock was below 90% of the
closing price of a share of Southern Union common stock on the trading day
immediately preceding the date the merger agreement was executed.
On May 26, 1999, counsel for both parties met for the first time to begin
negotiating the terms of the merger agreement, drafts of which had been
exchanged by counsel during the previous two weeks. Over the next twelve days,
counsel for both parties exchanged additional drafts of the merger agreement
and negotiated its final terms.
On June 4, 1999, the Southern Union board met with senior members of
Southern Union's management, representatives of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), the company retained by Southern Union to
render an opinion as to the fairness to Southern Union from a financial point
of view of the consideration to be paid by Southern Union in connection with
the merger, and its outside legal counsel, Fleischman and Walsh, L.L.P. At the
meeting, Southern Union's management reported on the understandings that had
been reached with respect to the principal remaining open issues relating to
the merger, the results of their financial analysis of PEI and the anticipated
results of Southern Union's completion of its due diligence review of PEI and
its subsidiaries and made a presentation on the principal reasons for the
merger. Southern Union's outside legal counsel described the provisions of the
merger agreement and the responsibilities of the directors with respect to
their decision on the merger agreement, and DLJ rendered its oral opinion as to
the fairness of the transaction from a financial point of view to Southern
Union. The Southern Union board discussed and then unanimously approved the
merger agreement and unanimously voted to recommend its approval to Southern
Union stockholders.
The next business day, Monday, June 7, 1999, the PEI board met to consider
the merger agreement. At the request of Southern Union, the NYSE agreed not to
open trading in the stock of Southern Union while the PEI board and its
advisors continued discussions of the merger. Likewise, at the request of the
PEI board, the NYSE agreed not to open trading in the stock of PEI while the
PEI board continued its discussions. After the PEI board approved the merger
agreement, the merger agreement was signed by both companies, the merger was
publicly announced and the stocks of Southern Union and PEI were permitted to
open for trading.
Southern Union Reasons for the Merger
The board of directors and management of Southern Union believe that the
merger will help position Southern Union to become one of the premier natural
gas distribution companies in the nation. In addition, the merger will enhance
the competitive position of Southern Union in an industry recently subjected to
deregulation and consolidation by increasing its financial flexibility and
providing strategic growth opportunities that will benefit Southern Union, its
stockholders, customers and employees. Southern Union's management believes
that some of the specific financial and strategic reasons that make the merger
desirable are as follows:
. Market Diversification in an Attractive Region. The merger allows
Southern Union to further diversify its service territory. By operating
in diverse geographic areas, Southern Union's earnings will be less
susceptible to weather and economic conditions in any one region.
. Increase Market Float of Southern Union's Equity. Certain members of Mr.
Lindemann's family collectively own approximately 39%, certain members
of the Bass family collectively own approximately 9%, and officers and
directors of Southern Union (other than members of Mr. Lindemann's
family) own approximately 5% of the 31,235,697 shares of Southern Union
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common stock outstanding on September 3, 1999. As a result of the
merger, Southern Union will issue to PEI stockholders between
approximately 15.3 million and 17.8 million shares of Southern Union
common stock. The issuance of these shares will mean that Southern
Union's market float (excluding the shares held by members of Mr.
Lindemann's family and other insiders, and certain members of the Bass
family) will more than double upon completion of the merger. This
relatively large issuance of common stock may increase the investment
community's research coverage of Southern Union (currently two analysts)
and possibly increase the liquidity of Southern Union common stock.
. Entry Into the Electricity Industry. In the fourth quarter of 1997, PG
Energy Services Inc., a subsidiary of PEI, began marketing electricity
and related products and services under the name PG Energy PowerPlus (a
trademark of PG Energy Services Inc.), principally in northeastern and
central Pennsylvania. In addition, another subsidiary of PEI, PEI Power
Corporation, began generating and selling electricity in July 1998, upon
completion of modifications to its cogeneration facility that enable it
to burn both natural gas and methane. Southern Union is not currently
engaged in the business of selling, marketing and generating
electricity. As a result of the merger, Southern Union will have the
opportunity to expand into a new energy market. If these electricity
ventures are successful, Southern Union could transfer this experience
to its other markets. See "Risk Factors and Other Considerations--A
Different Set of Factors and Conditions Affect Southern Union Stock and
Could Have a Negative Impact on Its Stock Price."
. Southern Union's Ability to Make Other Acquisitions. The increased size,
reduced leverage and increased debt capacity resulting from the merger
may increase Southern Union's financing capacity so as to improve
Southern Union's prospects for completing other significant
acquisitions. Increased market float may increase the opportunity for
Southern Union to use its stock to acquire attractive assets. Shares of
Southern Union common stock have historically traded at multiples in
excess of comparable companies.
Recommendation of the Southern Union Board
At a special meeting held on June 4, 1999, the Southern Union board
unanimously approved the merger agreement and the merger. Accordingly,
Southern Union's board of directors recommends that Southern Union
stockholders vote "FOR" the approval of the merger agreement and stock
issuance. In determining to approve, and recommend that Southern Union
stockholders approve, the merger agreement and related transactions, and in
reaching its determination that the merger is in the best interest of Southern
Union, its stockholders, customers and employees, the Southern Union board
consulted with and relied upon information and reports prepared or presented
by Southern Union's management and Southern Union's legal and financial
advisors. The following are the material factors considered by the Southern
Union board, some of which contained both positive and negative elements:
. the factors described under "--Southern Union Reasons for the Merger";
. the terms of the merger agreement described under "The Merger
Agreement";
. the likelihood of receipt of timely and satisfactory regulatory
approvals for the mergers;
. the risk of fluctuations in the price of Southern Union common stock
prior to the consummation of the merger, including the potential effects
of the public announcement of the merger on the trading price of
Southern Union common stock;
. the risk that the merger would not be consummated;
. the substantial management time and effort that will be required to
consummate the merger and integrate the operations of the two companies,
and the risks inherent in such integration;
. other matters described under "Risk Factors and Other Considerations"
and "Forward-Looking Statements May Prove Inaccurate";
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. the results of Southern Union's business investigation of PEI and its
subsidiaries; and
. the opinion of DLJ that as of the date of DLJ's fairness opinion and
subject to the considerations described therein, the financial terms of
the merger are fair, from a financial point of view, to Southern Union
(see "The Merger--Opinion of Southern Union's Financial Advisor").
The foregoing discussion of the information and factors considered by the
Southern Union board is not intended to be all-inclusive. In view of the wide
variety of factors considered in connection with its evaluation of the proposed
merger, the Southern Union board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the foregoing
factors. Rather, the Southern Union board based its recommendation on the
totality of the information presented to and considered by it.
Opinion of Southern Union's Financial Advisor
Southern Union retained DLJ to render its opinion to the Southern Union
board as to the fairness to Southern Union, from a financial point of view, of
the merger consideration to be paid by Southern Union to the PEI stockholders
pursuant to the merger agreement.
On June 6, 1999, DLJ delivered an oral opinion to the Southern Union board,
subsequently confirmed in writing as of the same date, to the effect that as of
the date of such opinion, and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the merger
consideration to be paid by Southern Union pursuant to the merger agreement was
fair to Southern Union from a financial point of view. As described above under
"--Southern Union Reasons for the Merger," the DLJ opinion was only one of many
factors taken into consideration by the Southern Union board in making its
determination to approve the merger agreement.
The full text of the DLJ opinion is attached to this proxy
statement/prospectus as Appendix C. You are urged to read the DLJ opinion in
its entirety for the assumptions made, procedures followed, other matters
considered and limits of the review undertaken in arriving at such opinion. The
DLJ opinion was prepared for the Southern Union board and is directed only to
the fairness to Southern Union, from a financial point of view, of the merger
consideration. The DLJ opinion does not:
. address the relative merits of the merger and the other business
strategies considered by Southern Union and does not address the
underlying decision to proceed with the merger;
. constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to the merger and related
transactions; or
. constitute an opinion as to the price at which Southern Union common
stock will actually trade at any time.
DLJ was not engaged by Southern Union to act as its financial advisor, or as
an advisor to or agent of Southern Union stockholders or any other person, in
connection with the merger. Accordingly, DLJ was not requested to, and did not,
advise Southern Union with respect to the structure, relative merits or terms
of the merger (other than with respect to the fairness opinion summarized
herein), nor was DLJ requested, and DLJ did not attempt, to identify potential
alternative transactions. The merger consideration was determined in arms-
length negotiations between Southern Union and PEI, in which negotiations DLJ
did not participate or advise Southern Union.
In arriving at its opinion, DLJ reviewed, among other things, the June 6,
1999 draft of the merger agreement. DLJ also reviewed certain financial and
other information that was publicly available or furnished to it by Southern
Union, including information provided during discussions with Southern Union
management. Included in the information provided to DLJ were certain financial
projections of Southern Union prepared by the management of Southern Union,
certain financial projections of PEI prepared by the managements of PEI and
Southern Union, and certain pro forma financial projections of Southern Union
and PEI prepared by the
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management of Southern Union. In addition, DLJ compared certain financial and
securities data of Southern Union and PEI with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of Southern Union common stock and PEI common stock,
reviewed prices and premiums paid in certain other business combinations and
conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering its opinion. Southern Union did
not impose any restrictions or limitations upon DLJ regarding the
investigations made or the procedures followed by DLJ.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to it from public sources, that was provided to it by Southern Union and PEI or
their respective representatives, or that was otherwise reviewed by it. DLJ
also assumed that the financial projections and estimates of operating
synergies were reasonably prepared on bases reflecting the best currently
available estimates as to the future operating and financial performance of
Southern Union and PEI, respectively. DLJ has not assumed any responsibility
for making any independent evaluation or appraisal of the assets or liabilities
of Southern Union or PEI, nor did DLJ independently verify the information
reviewed by it. DLJ relied on the advice of counsel to Southern Union as to
certain legal matters.
DLJ performed each of the analyses summarized below in order to provide a
different perspective on the merger and add to the total mix of information
available. However, although the separate analyses are summarized below, DLJ
believes that its analyses must be considered as a whole. Selecting portions of
the analyses or of the summary set forth below, without considering the
analyses as a whole, could create an incomplete or misleading view of the
processes underlying the DLJ opinion. In arriving at its opinion, DLJ
considered the results of each of these analyses together, in their totality
and in light of each of the other analyses. DLJ did not attempt to assign
specific weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all of the
factors and analyses considered in arriving at its opinion.
Analyses relating to the value of businesses or securities are not
appraisals and do not reflect the prices at which the businesses or securities
can actually be sold. Stockholders should understand that no company or
transaction used in DLJ's analyses as a comparison is directly comparable to
Southern Union, PEI or the merger. It should also be understood that analyses
based upon projections or forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by those analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties, none of Southern Union, PEI or DLJ or any
other person assumes responsibility if future results are different from those
forecast.
The DLJ opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of its opinion. It should be understood that, although
subsequent developments may affect its opinion, DLJ does not have any
obligation to update, revise or reaffirm its opinion as a result of changes in
such conditions or otherwise.
Set forth below is a description of the material elements of DLJ's
presentation to the Southern Union board on June 6, 1999 in connection with the
preparation of the DLJ opinion. Unless otherwise indicated, all analyses
summarized below are based on the closing price of Southern Union common stock
on June 4, 1999 of $21.6250 per share and the closing price per share of PEI
common stock on that date of $29.6875. Assuming the average trading price of
Southern Union common stock as of the date of the consummation of the merger
will be equal to the closing price for the Southern Union common stock on June
4, 1999, the exchange ratio pursuant to the merger agreement would equal 1.48
(i.e., 32.000/21.625 = 1.48). If the average trading price of Southern Union
common stock as of the date of the consummation of the merger is $19.46 (i.e.,
the high end of the Collar) or less, the exchange ratio pursuant to the merger
agreement would equal 1.64 (i.e., 32.0000/19.4625 = 1.64). It should be
understood that DLJ makes no prediction, and there can be no assurance, as to
what the average trading price or the exchange ratio will actually be.
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Discounted Cash Flow Analysis. DLJ performed a discounted cash flow analysis
for the period from calendar year 1999 to calendar year 2003 on the projected,
stand-alone operating free cash flows of Southern Union and PEI, assuming the
merger had not occurred. Operating free cash flows were calculated as the
after-tax operating earnings of Southern Union and PEI, before any cost
savings, plus depreciation and amortization, deferred taxes and net changes in
working capital and other assets, minus projected capital expenditures. These
operating free cash flows estimates were based upon projections provided by
management of Southern Union. DLJ calculated terminal values for both Southern
Union and PEI by applying a range of estimated EBITDA multiples of 7.5x to 9.5x
in 2003. The operating free cash flows and terminal values were then discounted
to the present year using a range of discount rates of 7.5% to 9.5%. These
discount rates represent an estimated range of the weighted average cost of
capital of Southern Union and PEI.
DLJ analyzed the results of its discounted cash flow analysis and calculated
implied exchange ratios, adjusting for the cash to be paid to PEI's
stockholders upon consummation of the merger. This analysis produced a range of
implied exchange ratios from 1.45x to 1.71x. Such implied exchange ratios are
comparable to the exchange ratio at June 4, 1999 of 1.48x (or 1.64x at the high
end of the collar).
Relative Contribution Analysis. DLJ analyzed the relative contributions of
Southern Union and PEI to the projected net income and cash net income (net
income plus goodwill amortization) of the combined company for the calendar
years 1999 through 2003, calculated both before and after allocating any
potential cost savings. Net income and cash net income estimates for these
future periods were based upon projections provided by management of Southern
Union.
Southern Union's net income and cash net income, assuming no potential cost
savings, as a percentage of the combined company ranged from 64.4% to 71.3% and
from 66.4% to 72.5%, respectively. Such net income and cash net income
contributions, after adjusting for the cash to be paid to PEI's stockholders
upon consummation of the merger, would imply a range of exchange ratios from
1.04x to 1.43x and from 0.98x to 1.31x, respectively.
Southern Union's net income and cash net income, assuming savings from the
elimination of duplicative public company cost, as a percentage of the combined
company ranged from 56.1% to 63.9% and from 58.3% to 65.4%, respectively. Such
net income and cash net income contributions, after adjusting for the cash to
be paid to PEI's stockholders upon consummation of the merger, would imply a
range of exchange ratios from 1.47x to 2.03x and from 1.37x to 1.86x,
respectively. Such implied exchange ratios are comparable to an exchange ratio
of 1.48x (or 1.64x at the high end of the collar).
The results of the relative contribution analysis are not necessarily
indicative of the relative contributions that Southern Union and PEI may
actually make to the combined company.
Historical Exchange Ratio Analysis. DLJ analyzed the closing prices of
Southern Union common stock and PEI common stock over the three year period
prior to June 4, 1999 and calculated implied exchange ratios, adjusting for the
cash to be paid to PEI's stockholders upon consummation of the merger. This
analysis produced a range of implied exchange ratios from 0.84x to 1.94x. In
addition, DLJ calculated the average implied exchange ratio, as adjusted for
the cash to be paid to PEI's stockholders upon consummation of the merger, over
the three year period prior to June 4, 1999 to be 1.33x. Such implied exchange
ratios are comparable to an exchange ratio of 1.48x (or 1.64x at the high end
of the collar).
Combined Company Merger Analysis. DLJ prepared analyses of the financial
impact of the merger on the combined company using earnings estimates for
Southern Union and PEI provided by Southern Union management for the period
from fiscal 1999 through 2003. These analyses assumed cost savings resulting
from the elimination of duplicative public company cost. Based on an exchange
ratio of 1.48x, this analysis indicated that the merger is expected to have a
neutral impact on the combined company's earnings per share in 1999 and 2000,
and a marginally dilutive impact on EPS from 2001 to 2003 within a range of
0.5% to 2.7% below Southern Union's stand-alone EPS estimates. (Assuming an
exchange ratio of 1.64x at the high end of the
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collar, this analysis indicated combined company EPS figures for the period
from 1999 to 2003 which are within a range of 6.6% to 9.5% below Southern
Union's stand-alone EPS estimates).
DLJ also prepared analyses of the financial impact of the merger on the
combined company using estimates of cash earnings per share (i.e., generally,
net income plus goodwill amortization, divided by the total number of shares
outstanding) ("Cash EPS") for Southern Union and PEI provided by Southern Union
management for the period from fiscal 1999 through 2003. These analyses assumed
the elimination of duplicative public company cost resulting from the merger.
Based on an exchange ratio of 1.48x, this analysis indicated that the merger is
expected to be accretive to Cash EPS from 1999 to 2003 within a range of 5.3%
to 10.6% above Southern Union's stand-alone Cash EPS estimates. (Assuming an
exchange ratio of 1.64x at the high end of the collar, this analysis indicated
combined company Cash EPS that is marginally accretive to Cash EPS from 1999 to
2001, within a range of 1.4% to 3.1% above Southern Union's stand-alone Cash
EPS estimates, and marginally dilutive to Cash EPS in 2002 and 2003, within a
range of 0.7% to 1.6% below Southern Union's stand-alone Cash EPS estimates.)
Engagement Letter. Pursuant to an engagement letter dated June 4, 1999,
Southern Union agreed to pay DLJ a fee of $750,000 upon DLJ's delivery of its
opinion. No part of DLJ's fee is contingent upon consummation of the merger.
Southern Union also agreed to reimburse DLJ for all of its out-of-pocket
expenses (including fees and expenses of counsel retained by DLJ), and to
indemnify DLJ and certain related persons and entities against certain
liabilities (including liabilities under the federal securities laws), arising
out of DLJ's engagement.
DLJ has performed investment banking and other services for Southern Union
in the past and has been paid for such services, including, during the last two
years, receipt of a $500,000 retainer for certain services performed in
connection with Southern Union's efforts to acquire Southwest Gas Corporation.
In the ordinary course of business, DLJ may actively trade the securities of
both Southern Union and PEI for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
Potential Conflicts and Interests of Certain Persons in the Merger
In considering the recommendation of the PEI board with respect to the
merger, PEI stockholders should be aware that members of PEI's management and
the PEI board have the following interests in the merger that may be different
from, or in addition to, the interests of PEI stockholders generally and
represent conflicts of interest. The PEI board was aware of these interests and
considered them in approving the merger agreement.
Change in Control Agreements. PEI has severance agreements containing change
in control provisions with Vincent A. Bonaddio, Harry E. Dowling, John F. Kell,
Jr. and Donna M. Abdalla. These agreements were entered into prior to 1999 and
before PEI began to explore the possibility of a strategic stock-for-stock
merger.
These agreements provide that, if during a period of 36 months (the
"Employment Period") following a "Change in Control" of PEI (as defined in the
agreements and which will be deemed to have occurred for purposes hereof at the
effective time), the officer is terminated without cause or terminates his or
her own employment as a result of certain adverse actions by PEI or its
successors, as more fully set forth in such agreements, such officer shall
receive a lump sum severance amount and continuation of certain welfare plan
benefits. The lump sum severance payment is an amount equal to two times the
highest annual (or annualized) compensation paid to the executive during the
three-year period ending before the date of termination. The maximum value of
the severance payments which may become payable to these four executive
officers in the aggregate under the terms of their agreements is approximately
$999,500.
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In addition, if an executive is terminated during the applicable Employment
Period, the executive will also be provided with continued life insurance,
hospitalization and medical plans providing benefits which are substantially
comparable to those provided to the executive under benefit plans of PEI in
effect immediately prior to the change in control of PEI until the earlier of
the third anniversary of the change in control or such time as the executive
has obtained new employment and is covered by equivalent benefits.
The additional lump sum and welfare benefits payable to an individual in
event of such a termination are limited to the amounts that may be paid without
causing the payments to constitute excess parachute payments within the meaning
of Section 280G of the Internal Revenue Code.
In addition, Mr. Karam has an employment agreement with PEI that provides
for severance benefits. He may agree to forego these benefits and enter into an
employment agreement with Southern Union.
Stock Options. Officers of PEI hold options granted under the 1992 Stock
Option Plan. In the event of a "Change of Control" (as defined in this plan),
all outstanding options become fully exercisable and vested. The approval by
the PEI stockholders of the merger agreement would be a "Change of Control" for
these purposes.
Officers and directors of PEI hold options granted under the Stock Incentive
Plan. Most of these options are subject to the achievement of specified
financial and operational goals for PEI. If these goals are not met, the
options will be forfeited. However, in the event of a "Change of Control" (as
defined in this plan), all outstanding options not previously forfeited will
become fully exercisable and vested. The approval by the PEI stockholders of
the merger agreement would be a "Change of Control" for these purposes.
As of September 3, 1999, there were outstanding options held by directors
and officers to purchase 513,350 shares of PEI common stock. To the extent not
currently exercisable, all of these options would become exercisable as of the
date of PEI stockholder approval of the merger agreement.
Deferred Compensation Plan. PEI's Directors Deferred Compensation Plan
permits outside directors to defer director's fees in the form of stock units.
Settlement of the stock units credited to a director's account is made as of
the first business day following the director's termination of service as a
director. In the event of a "Change of Control" (as defined in this plan), all
stock units credited to a director's account will be settled as of the date of
the Change of Control for cash equal to the highest price of PEI common stock
in any transaction reported on the NYSE, or paid or offered in any transaction
related to a Change of Control, at any time during the 90-day period ending
with the Change of Control. The approval by the PEI stockholders of the merger
agreement would be a "Change of Control" for these purposes.
As of September 3, 1999, an aggregate of 15,816 stock units were
outstanding.
Director Retirement Plan. PEI's Director Retirement Plan provides retirement
benefits to members of PEI's board and PG Energy's board who are not employees
of PEI or any subsidiary of PEI. Upon a "Change of Control" (as defined in this
plan), eligible directors and former directors who have retired with an
entitlement to benefits under this plan (of which there are none) will receive
lump sum cash payments based upon years of service. The approval by the PEI
stockholders of the merger agreement would be a "Change of Control" for these
purposes. Approximately $500,000 will be payable under this plan if the PEI
stockholders approve the merger agreement.
Defense, Indemnification and Insurance for PEI Officers and Directors. For a
period of six years after the effective time, Southern Union has agreed to
indemnify and hold harmless the present and former officers and directors of
PEI and its Subsidiaries in respect of acts or omissions occurring prior to the
effective time to the extent provided under PEI's restated articles of
incorporation and bylaws in effect on the date hereof; provided, however, that
if any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of such claims shall continue until the
final disposition of any and all such claims. For six years after the effective
time, Southern Union will use its reasonable best efforts to provide officers'
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and directors' liability insurance in respect of acts or omissions occurring
prior to the effective time covering each such person currently covered by
PEI's officers' and directors' liability insurance policy on terms with respect
to coverage and amount no less favorable than those of such policy in effect on
the date hereof; provided that in satisfying this obligation, if the annual
premiums of such insurance coverage exceed 200% of the previous year's
premiums, Southern Union will be obligated to obtain a policy with the best
coverage available, in the reasonable judgment of Southern Union's board, for a
cost not exceeding such amount. See "The Merger Agreement--Indemnification and
Insurance for PEI Officers and Directors."
Election of PEI Representatives to the Southern Union Board. The merger
agreement provides that following the effective time, Southern Union will elect
three members of the PEI board (selected prior to the effective time), to serve
on the Southern Union board for a term of at least three years from the
effective time. See "The Merger Agreement--Covenants and Other Agreements--
Certain Other Covenants and Agreements."
Significant U.S. Federal Income Tax Consequences of the Mergers
The following discussion is intended only as a summary of the material U.S.
federal income tax consequences of the merger to Southern Union, PEI and PEI
stockholders and does not purport to be a complete analysis or description of
all potential tax effects of the merger. The discussion assumes that holders of
PEI common stock hold such stock as "capital assets" within the meaning of
Section 1221 of the Internal Revenue Code. In addition, the discussion does not
address all of the tax consequences that may be relevant to particular
taxpayers in light of their personal circumstances or to taxpayers subject to
special tax rules (for example, insurance companies, financial institutions,
dealers in securities, tax-exempt organizations, banks, foreign taxpayers and
taxpayers holding common stock as parts of straddles). No information is
provided with respect to the tax consequences, if any, of the merger under
applicable foreign, state, local or other tax laws.
The discussion is based upon the provisions of the Internal Revenue Code,
applicable Treasury regulations thereunder, IRS rulings and judicial decisions,
as in effect as of the date of this proxy statement/prospectus. There can be no
assurance that future legislative, administrative or judicial changes or
interpretations will not affect the accuracy of the statements or conclusions
set forth herein. Any such change could apply retroactively and could affect
the accuracy of such discussion.
Each stockholder of PEI is urged to consult such stockholder's own tax
advisor as to the specific tax consequences to such stockholder of the merger
under U.S. federal, state, local or any other applicable tax laws.
This summary does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to a decision whether to approve
the merger. This summary is provided for general information purposes only and
does not constitute legal or tax advice.
Tax Opinions. The obligation of Southern Union to consummate the merger is
conditioned on its receipt on the closing date of an opinion from Roberts &
Holland LLP, tax counsel to Southern Union, that the merger will qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code and
the subsidiary mergers will each constitute a tax-free liquidation under
Section 332 of the Internal Revenue Code or a tax-free reorganization under
Section 368(a) of the Internal Revenue Code (the "Southern Union Tax Opinion").
The obligation of PEI to consummate the merger is conditioned on its receipt on
the closing date of an opinion from Hughes Hubbard & Reed LLP, PEI's special
counsel, that the merger will qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code (the "PEI Tax Opinion").
Each of the Southern Union Tax Opinion and the PEI Tax Opinion will be based
on certain representations contained in letters from Southern Union, PEI and
others delivered for the purpose of the opinions and will be subject to certain
limitations and qualifications similar to those set forth in this discussion of
significant U.S. federal income tax consequences of the mergers. Each of the
Southern Union Tax Opinion and the PEI Tax Opinion will be based on certain
assumptions, including that the mergers will be consummated exactly as
described in this proxy statement/prospectus and in the merger agreement.
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An opinion of counsel represents only counsel's best judgment and has no
binding effect or official status of any kind; and no assurance can be given
that contrary positions will not be taken by the IRS or by a court considering
the issues. Neither Southern Union nor PEI has requested or intends to request
a ruling from the IRS with regard to any of the federal income tax consequences
of the mergers.
The discussions below of "Consequences to PEI Stockholders" and
"Consequences to Southern Union and PEI" assume that the merger will qualify as
a tax-free reorganization under Section 368(a) of the Internal Revenue Code and
the subsidiary mergers will each constitute a tax-free liquidation under
Section 332 of the Internal Revenue Code or a tax-free reorganization under
Section 368(a) of the Internal Revenue Code.
Consequences to PEI Stockholders. A PEI stockholder will generally recognize
gain, but not loss, for U.S. federal income tax purposes with respect to the
receipt of Southern Union common stock and cash in exchange for PEI common
stock pursuant to the merger. The amount of gain, if any, recognized by a PEI
stockholder will be equal to the lesser of (i) the amount of gain realized
(i.e., the excess of the amount of cash, including cash received in lieu of
fractional shares, and the fair market value of Southern Union common stock
received in the merger over the tax basis of the PEI common stock surrendered)
and (ii) the amount of cash, including cash received in lieu of fractional
shares, received in the merger. In the case of a PEI stockholder that owns more
than one "block" of PEI common stock, the amount of gain recognized should be
calculated separately with respect to each "block" surrendered in the merger.
For purposes of such calculation, the aggregate amount of cash and Southern
Union common stock received by the PEI stockholder will be allocated
proportionally among the "blocks" of PEI common stock surrendered in exchange
therefor pursuant to the merger. The aggregate tax basis of the Southern Union
common stock received by a PEI stockholder will be the same as the aggregate
tax basis of the PEI common stock surrendered in exchange therefor pursuant to
the merger, decreased by the total amount of cash received and increased by the
amount of gain recognized. The holding period of the Southern Union common
stock will include the holding period of the PEI common stock surrendered in
exchange therefor.
Any gain recognized by a PEI stockholder will be capital gain, and will be
long-term capital gain if the holding period for the PEI common stock
surrendered is more than one year, unless the receipt of cash has "the effect
of the distribution of a dividend" within the meaning of Section 356 of the
Internal Revenue Code. If the receipt of cash has such an effect, the
recognized gain will be taxed as ordinary income to the extent of the PEI
stockholder's ratable share of PEI's undistributed earnings and profits, and
any remaining gain will be taxed as capital gain.
In determining whether cash received in a reorganization has the effect of a
dividend distribution, principles similar to those governing redemptions under
Section 302 of the Internal Revenue Code apply. In applying those principles,
PEI stockholders will be treated as if they had received solely Southern Union
common stock in the merger (instead of the combination of shares of Southern
Union common stock and cash actually received) and Southern Union had then
redeemed for cash a portion of the Southern Union common stock the PEI
stockholders would be treated as having received. Generally, under Section 302
of the Internal Revenue Code, amounts distributed in redemption of a
stockholder's stock will not be taxed as a dividend if (a) the distribution is
"substantially disproportionate" with respect to the stockholder, or (b) the
distribution is "not essentially equivalent to a dividend" with respect to the
stockholder. In applying these tests, sales or acquisitions of PEI common stock
or Southern Union common stock which occur contemporaneously with the merger
may be taken into account. A distribution in redemption is "substantially
disproportionate" with respect to a stockholder if the percentage of
outstanding voting shares of the issuing corporation owned by such stockholder
immediately after the redemption is less than 50% of the total outstanding and
less than 80% of the percentage of voting shares owned by such stockholder
immediately prior to the redemption. Whether a distribution in redemption is
"not essentially equivalent to a dividend" depends on whether, under the
particular stockholder's facts and circumstances, the redemption results in a
"meaningful reduction" of the stockholder's proportionate interest in the
issuer. The IRS has indicated in published rulings that even a small reduction
in the proportionate interest of a stockholder in a publicly held corporation
whose relative stock interest is minimal and who exercises no control or
management power over the affairs of the corporation may
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constitute such a "meaningful reduction." Because of the complexity of the test
under Section 302 of the Internal Revenue Code, PEI stockholders are urged to
consult their own tax advisors regarding the proper treatment of the gain
recognized by such stockholder in the merger.
Unless an exemption applies, the paying agent will be required to withhold
31% of any cash payments to which a PEI stockholder or other payee is entitled
pursuant to the merger, unless the stockholder or other payee provides his or
her tax identification number (social security number or employer
identification number) and certifies that such number is correct. Each PEI
stockholder and, if applicable, each other payee is required to complete and
sign the Form W-9 that will be included as part of the transmittal letter sent
to PEI stockholders by Southern Union to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to Southern
Union and the paying agent.
Consequences to Southern Union and PEI. No gain or loss will be recognized
by Southern Union, PEI, PG Energy or Honesdale by reason of the mergers.
Regulatory Matters
The following is a summary of the material regulatory requirements affecting
the merger. While there can be no guarantee if and when any of the consents or
approvals required for the mergers will be obtained or as to the conditions
that they may contain and even though Southern Union and PEI have not yet filed
for the required approvals from all of the agencies discussed, Southern Union's
and PEI's managements currently believe that the necessary approvals can be
obtained in the last quarter of 1999. See "Risk Factors and Other
Considerations--Approvals May Not Be Obtained or May Contain Unacceptable
Restrictions."
State Approvals and Related Matters. The utility operations of Southern
Union are subject to the regulatory jurisdiction of the Missouri Public Service
Commission ("MPSC"), the Florida Public Service Commission ("FPSC"), the
Railroad Commission of Texas ("RRC") and various municipalities in Texas where
Southern Union conducts business. The MPSC must approve the mergers. Southern
Union must also receive approval from the FPSC with respect to the securities
issued and long-term debt assumed by Southern Union in connection with the
mergers. No RRC or municipality approvals are required.
The utility operations of PEI's subsidiaries are subject to the regulatory
jurisdiction of the Pennsylvania Public Utility Commission ("PPUC"). The PPUC
must also approve the mergers.
Assuming the requisite regulatory approvals are obtained, the combined
company and its utility operations will remain subject to the regulatory
jurisdiction of the MPSC, FPSC, PPUC, RRC and various municipalities in Texas.
Federal Energy Regulatory Commission Approval. Certain of the electric
operations of certain of PEI's subsidiaries are subject to the regulatory
jurisdiction of the Federal Energy Regulatory Commission ("FERC"). The FERC
must approve the change in control of these subsidiaries. Assuming such
approvals are obtained, those subsidiaries and their electric operations will
remain subject to the regulatory jurisdiction of the FERC.
Antitrust Considerations. Under Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules promulgated thereunder by the Federal Trade Commission
(the "FTC"), the mergers may not be consummated until notifications have been
given and certain information has been furnished to the FTC and the U.S.
Department of Justice Antitrust Division ("Antitrust Division") and specified
waiting period requirements have been satisfied. The expiration or earlier
termination of the Hart-Scott-Rodino Act's waiting period does not preclude the
U.S. Department of Justice or the FTC from challenging the mergers on antitrust
grounds either before or after consummation of the mergers. Private parties and
state attorneys general may also bring legal action under federal or state
antitrust laws under certain circumstances. Southern Union and PEI filed
notification and report forms under the Hart-Scott-Rodino Act with the FTC and
the Antitrust Division on July 23, 1999 and August 5, 1999, respectively, and
were granted early termination of the Hart-Scott-Rodino Act's waiting period on
August 20, 1999.
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General. Southern Union and PEI's utility subsidiaries possess rights and
franchises, and environmental permits and licenses. Some of these may need to
be transferred, renewed or replaced as a result of the mergers. The companies
do not anticipate any difficulties at the present time in making or obtaining
such transfers, renewals or replacements.
Under the merger agreement, Southern Union and PEI have agreed to use their
reasonable best efforts to obtain all necessary material permits, licenses,
franchises and other governmental authorizations needed to consummate or effect
the transactions contemplated by the merger agreement. Various parties may seek
intervention in the proceedings associated with the regulatory approval process
in an attempt to oppose the merger or to have conditions imposed upon the
receipt of the necessary approvals. Although Southern Union and PEI believe
that they will receive the requisite regulatory approvals for the mergers, the
timing of their receipt cannot be determined. It is a condition to the
consummation of the mergers (subject to waiver by Southern Union and PEI) that
final non-appealable orders approving the mergers be obtained from the various
federal and state commissions described above. See "The Merger Agreement--
Conditions to the Completion of the Merger."
Management and Other Information
After the consummation of the merger, Southern Union will continue to be
managed by the same board of directors and officers of Southern Union as before
the merger except that Southern Union will elect to the Southern Union board
and thereafter nominate and recommend for reelection three individuals to be
selected prior to the effective time by Southern Union from the PEI board
immediately prior to the effective time. See "--Potential Conflicts and
Interests of Certain Persons in the Merger" and "The Merger Agreement--
Covenants and Other Agreements--Certain Other Covenants and Agreements."
Certain information relating to the management, executive compensation, voting
securities, certain relationships and related transactions and other related
matters pertaining to Southern Union and PEI is set forth in or incorporated by
reference in their respective Annual Reports on Form 10-K for the year ended
June 30, 1999 (Southern Union) and December 31, 1998 (PEI). Such Annual Reports
are incorporated by reference into this proxy statement/prospectus. See "Where
You Can Find More Information."
Accounting Treatment
The Unaudited Pro Forma Combined Condensed Financial Statements appearing
elsewhere in this proxy statement/prospectus are based upon certain
assumptions, as described in the pro forma combined condensed financial
statements, and are included for informational purposes only. The merger will
be accounted for under the purchase method of accounting, in accordance with
generally accepted accounting principles. Under the purchase method of
accounting, Southern Union's historical results for periods before the merger
will remain unchanged. On the closing date, the combined company will record
PEI's assets and liabilities of regulated entities at their historical cost
basis. PEI's assets and liabilities of non-regulated entities will be recorded
at fair value with any excess recorded as additional purchase cost assigned to
utility plant. See "Unaudited Pro Forma Combined Condensed Financial
Statements."
Listing of Southern Union Common Stock
It is a condition to the completion of the merger that the shares of
Southern Union common stock to be issued in connection with the merger be
approved for listing on the NYSE at or before the effective time. See "The
Merger Agreement--Conditions to the Completion of the Merger."
Federal Securities Law Consequences
All shares of Southern Union common stock received by PEI stockholders in
connection with the merger will be freely transferable, except that shares of
Southern Union common stock received by individuals and entities who are deemed
to be "affiliates" (as such term is defined under the Securities Act) of PEI
before the
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merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act (or Rule 144 under the
Securities Act, in the case of individuals and entities who become affiliates
of Southern Union) or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of Southern Union or PEI generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal stockholders of such party. The merger agreement
requires PEI to use commercially reasonable efforts to cause each of its
affiliates to execute and deliver to Southern Union a letter to the effect that
such affiliate will not offer or sell or otherwise dispose of Southern Union
common stock issued to such affiliate in or pursuant to the merger in violation
of the Securities Act or the rules and regulations adopted by the SEC
thereunder. See "The Merger Agreement--Covenants and Other Agreements--Certain
Other Covenants and Agreements." The delivery of such agreements is also a
condition to Southern Union's obligation to complete the merger. See "The
Merger Agreement--Conditions to the Completion of the Merger--Additional
Closing Conditions for Southern Union's Benefit."
This proxy statement/prospectus does not cover resales of Southern Union
common stock received by any person who may be deemed to be an affiliate of
PEI.
Rights of Dissenting Stockholders of PEI
For purposes of this section, the term "PEI" will be deemed to refer also to
the surviving corporation of the merger (Southern Union) with respect to
actions taken after the effective time.
Pursuant to the merger agreement and the Pennsylvania Business Corporation
Law of 1988, as amended ("PBCL"), the owners of PEI common stock will have
dissenters rights in connection with the merger under Sections 1571 through
1580 of Subchapter 15D of the PBCL ("Subchapter 15D"), a copy of which (as well
as a copy of Section 1930 of the PBCL) is included in this proxy
statement/prospectus as Appendix D, and may object to the merger agreement and
demand in writing that PEI pay the fair value of their PEI common stock.
If any holders of PEI common stock properly exercise dissenters rights of
appraisal in connection with the merger under Subchapter 15D (a "dissenting
stockholder"), any shares held by such holders will not be converted into the
right to receive the merger consideration, but instead will be converted into
the right to receive the "fair value" of such shares pursuant to Subchapter
15D. The following summary of the provisions of Subchapter 15D is not intended
to be a complete statement of such provisions and is qualified in its entirety
by reference to the full text of Subchapter 15D, a copy of which (as well as a
copy of Section 1930 of the PBCL) is attached to this proxy
statement/prospectus as Appendix D and incorporated herein by reference. PEI
will not give any notice of the following requirements other than as described
in this proxy statement/prospectus and as required by the PBCL.
General. Any holder of PEI common stock who has duly demanded the payment of
the fair value of his or her shares under Subchapter 15D will not, after the
effective time, be a stockholder of PEI for any purpose or be entitled to the
payment of dividends or other distributions on any such PEI common stock;
moreover, the PEI common stock of any dissenting stockholder will be converted
into the right to receive either the fair value of such PEI common stock,
determined in accordance with Subchapter 15D, or the right to receive the
merger consideration, if the dissenting stockholder effectively withdraws his
or her demand for dissenters rights of appraisal.
Stockholders of PEI should note that, unless all the required procedures for
claiming dissenters rights are followed with particularity, dissenters rights
will be lost. Voting against approval and adoption of the merger agreement,
whether in person or by proxy, is not sufficient notice to perfect dissenters
rights. A vote to approve the merger will effectively waive the dissenters
rights of appraisal of a holder of PEI common stock.
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Filing Notice of Intention to Demand Fair Value. Before any stockholder vote
is taken on the merger agreement, a dissenting stockholder must deliver to PEI
a written notice of his or her intention to demand the fair value of his or her
PEI common stock if the merger is effected. Such written notice may be sent to
PEI's Secretary at PEI's address set forth on page 3 of this proxy
statement/prospectus. Neither the return of a proxy by the dissenting
stockholder with instructions to vote the PEI common stock represented thereby
against the approval and adoption of the merger agreement nor a vote against
the approval and adoption of the merger agreement or an abstention from voting
on the approval and adoption of the merger agreement is sufficient to satisfy
the requirement of delivering a written notice to PEI. In addition, the
dissenting stockholder must not effect any change in the beneficial ownership
of his or her PEI common stock from the date of filing the notice with PEI
through the effective time, and the dissenting stockholder must not vote his or
her PEI common stock for which payment of fair value is sought in favor of the
approval and adoption of the merger agreement. The submission of a signed blank
proxy will serve to waive dissenters rights if not revoked, but a failure to
vote, a vote against or an abstention from voting on the approval and adoption
of the merger agreement will not waive such rights. Proper revocation of a
signed blank proxy or a signed proxy instructing a vote for approval and
adoption of the merger agreement will also preserve dissenters rights under the
PBCL. Failure by a dissenting stockholder to comply with any of the foregoing
will result in such dissenting stockholder's forfeiting any right to payment of
the fair value of such dissenting stockholder's PEI common stock.
Record and Beneficial Owners. A record holder of PEI common stock may assert
dissenters rights as to fewer than all the shares of PEI common stock of the
same class or series registered in his or her name only if he or she dissents
with respect to all the PEI common stock beneficially owned by any one person
and discloses the name and address of the person or persons on whose behalf he
or she dissents. A beneficial owner of PEI common stock who is not the record
holder may assert dissenters rights with respect to PEI common stock held on
his or her behalf if such dissenting stockholder submits to PEI the written
consent of the record holder not later than the time of assertion of dissenters
rights. The beneficial owner may not dissent with respect to less than all the
PEI common stock he or she owns, whether or not such PEI common stock is
registered in the beneficial owner's name.
Notice to Demand Payment. If the merger is approved by the requisite vote at
the PEI special meeting, PEI shall mail to all dissenting stockholders who gave
due notice of their intention to demand payment of fair value and who refrained
from voting in favor of the merger a notice stating where and when a demand for
payment must be sent, and stock certificates representing the PEI common stock
held by the dissenting stockholder must be deposited to obtain payment. The
notice shall be accompanied by a copy of Subchapter 15D and include a form for
demanding payment, which form shall have a request for certification of the
date that beneficial ownership of the PEI common stock was acquired by the
dissenting stockholder or the person on whose behalf the dissenting stockholder
dissents. The time set for the receipt of a demand and the dissenting
stockholder's stock certificates shall not be less than 30 days from the
mailing of the notice. Failure by a dissenting stockholder to timely demand
payment and deposit the stock certificates pursuant to such notice will cause
such dissenting stockholder to lose all right to receive payment of the fair
value of his or her PEI common stock. All mailings to PEI are at the risk of
the dissenting stockholder. However, PEI recommends that the notice of
intention to dissent, the demand form and the holder's stock certificates be
sent by certified mail. If the merger has not been effected within 60 days
after the date set for demanding payment and depositing stock certificates, PEI
shall return any stock certificates that have been deposited. PEI, however, may
at any later time send a new notice regarding demand for payment and deposit of
stock certificates with like effect.
Payment of Fair Value of PEI Common Stock. Promptly after the effective
time, or upon timely receipt of demand for payment if the merger has already
been effected, PEI shall either remit to dissenting stockholders who have made
demand and deposited their stock certificates the amount PEI estimates to be
the fair value of the PEI common stock or give written notice that no
remittance will be made under Section 1577 of the PBCL. Such remittance or
notice shall be accompanied by:
. PEI's closing balance sheet and statement of income for a fiscal year
ending not more than 16 months prior to the date of remittance or
notice, together with the latest available interim financial statements;
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. a statement of PEI's estimate of the fair value of the PEI common stock;
and
. a notice of the right of a dissenting stockholder to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.
If PEI does not remit the amount of its estimate of the fair value of the
PEI common stock, it will return all stock certificates that have been
deposited and may make a notation thereon that a demand for payment has been
made. If shares carrying such notation are thereafter transferred, each new
stock certificate issued therefor will bear a similar notation, together with
the name of the original dissenting holder or owner of such shares. A
transferee of such shares will not acquire by such transfer any rights in PEI
other than those which the original dissenter had after making demand for
payment of their fair value.
Estimate by Dissenting Stockholder of Fair Value of PEI Common Stock. If a
dissenting stockholder believes that the amount estimated or paid by PEI for
his or her PEI common stock is less than its fair value, the dissenting
stockholder may send to PEI his or her own estimate of the fair value, which
shall be deemed a demand for payment of the amount of the deficiency. If the
dissenting stockholder does not file his or her own estimate of the fair value
within 30 days after such remittance or notice has been mailed by PEI, the
dissenting stockholder will be entitled to no more than the amount estimated in
the notice or remitted by PEI.
Valuation Proceedings. Within 60 days after the latest of the effective
time, timely receipt of any demands for payment or timely receipt of any
dissenting stockholder estimates of fair value, if any demands for payment
remain unsettled, PEI may file in court an application for relief requesting
that the fair value of the PEI common stock be determined by the court. Each
dissenting stockholder whose demands have not been settled will be made a party
to the proceeding and will be entitled to recover the amount by which the fair
value of such dissenting stockholder's PEI common stock is found to exceed the
amount, if any, previously remitted. Such dissenting stockholder will also be
entitled to interest on such amount from the effective time until the date of
payment. There is no assurance, however, that PEI will file such an
application. If PEI fails to file an application within the 60-day period, any
dissenting stockholder who has not settled his or her claim may do so in PEI's
name within 30 days after the expiration of the 60-day period. If no dissenting
stockholder files an application within such 30-day period, each dissenting
stockholder who has not settled his or her claim will be paid no more than
PEI's estimate of the fair value of the PEI common stock and may bring an
action to recover any amount not previously remitted.
In determining the fair value of the PEI common stock, a court will take
into account all relevant factors, including proof of value by any techniques
or methods which are generally considered acceptable in the financial community
and otherwise admissible in court, but excluding any appreciation or
depreciation in the PEI common stock in anticipation of the merger. Some
factors which courts have previously used in determining fair value of stock
include: the net asset value, the investment value and the market value. A
court may determine that the fair value of the PEI common stock is more than,
less than or equal to the merger consideration.
Costs and Expenses of Valuation Proceedings. The costs and expenses of any
valuation proceeding, including the reasonable compensation and expenses of any
appraiser appointed by the court, will be determined by the court and assessed
against PEI, except that any part of such costs and expenses may be assessed as
the court deems appropriate against all or some of the dissenting stockholders
whose action in demanding supplemental payment is found by the court to be
dilatory, obdurate, arbitrary, vexatious or in bad faith. The court may also
assess the fees and expenses of counsel and experts for any or all of the
dissenting stockholders against PEI if it fails to comply substantially with
Subchapter 15D or acts in a dilatory, obdurate, arbitrary or vexatious manner
or in bad faith. The court can also assess any such fees or expenses incurred
by PEI against any dissenting stockholder if such dissenting stockholder is
found to have acted in a dilatory, obdurate, arbitrary or vexatious manner or
in bad faith. If the court finds that the services of counsel for any
dissenting stockholder were of substantial benefit to the other dissenting
stockholders and should not be assessed against PEI, it may award to such
counsel reasonable fees to be paid out of the amounts awarded to the dissenting
stockholders who were benefited.
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Under the PBCL, a stockholder of PEI has no right to obtain, in the absence
of fraud or fundamental unfairness, an injunction against the merger, nor any
right to valuation and payment of the fair value of the holder's shares because
of the merger, except to the extent provided by the dissenters rights
provisions of Subchapter 15D. The PBCL also provides that absent fraud or
fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive.
The foregoing description of the rights of dissenters under Subchapter 15D
should be read in conjunction with Appendix D to this proxy
statement/prospectus, and is qualified in its entirety by reference to the
provisions of Subchapter 15D.
Holders of PEI common stock who do not follow the requirements of Subchapter
15D will only be entitled to receive the merger consideration.
Merger-Related Financing
Before completion of the merger, Southern Union's management will evaluate
various sources and methods of financing the amount necessary to fund the cash
portion of the consideration to be paid to PEI stockholders under the merger
agreement and other merger-related transaction costs (in total, approximately
$35 million to $55 million, assuming the cash portion of the merger
consideration is only $3 per share). Additional financing may be required if
the average of the closing prices of Southern Union common stock on the NYSE
for a period of ten consecutive trading days ending on the third trading day
before the merger is completed is below $19.4625, which would cause the cash
portion of the merger consideration to be increased. See "The Merger
Agreement--Merger Consideration." Southern Union's management currently
anticipates that substantially all of these costs will be financed through
external sources. In addition, Southern Union anticipates refinancing
substantially all of the current portion of outstanding debt of PEI and its
subsidiaries and the preferred stock of PEI's subsidiaries in connection with
or soon after the consummation of the merger. Sources of financing that
Southern Union is considering include commercial and investment banks,
institutional lenders, institutional investors and public securities markets.
The methods of financing that Southern Union may consider include bank lines of
credit, debt and preferred securities of various maturities and terms. Southern
Union's management believes that Southern Union will have access to many
sources and types of short-term and long-term capital sources at reasonable
rates. See "Risk Factors and Other Considerations--The Terms of Merger-Related
Financings May Adversely Affect the Combined Company." As a result of this
financing and as shown in the Pro Forma Combined Condensed Financial
Statements, the consolidated capitalization of Southern Union after completion
of the merger will consist of approximately 49% common equity, 7% preferred
equity and 44% long-term debt.
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THE MERGER AGREEMENT
The description of the merger agreement set forth below highlights certain
important terms of the merger agreement. We have attached a copy of the merger
agreement as Appendix A to this proxy statement/prospectus and incorporated the
merger agreement into this proxy statement/prospectus by reference. The summary
of the merger agreement we provide below is qualified in its entirety by
reference to that agreement. We encourage you to read the merger agreement
because it is the legal document that governs the merger.
Structure of the Merger
Under the merger agreement, PEI will be merged with and into Southern Union.
After the merger, Southern Union will continue as the surviving corporation and
PEI will be a division of Southern Union. PEI's non-regulated subsidiaries will
become subsidiaries of Southern Union.
Closing; Effective Time
We will close the merger at 10:00 a.m., Eastern Time, within ten business
days after satisfaction or waiver of the conditions set forth in the merger
agreement, unless we agree on a later date (see "--Conditions to the Completion
of the Merger"). This date is referred to as the "closing date." On the closing
date, we will file articles of merger and a plan of merger with the Secretary
of State of the Commonwealth of Pennsylvania in accordance with the PBCL and a
certificate of merger with the Secretary of State of the State of Delaware in
accordance with the DGCL. The merger will become effective upon filing of these
documents. This moment is referred to as the "effective time."
Subsidiary Mergers
Immediately after the effective time, Southern Union will cause Honesdale
Gas Company ("Honesdale"), a wholly-owned subsidiary of PG Energy Inc., which
is a wholly-owned subsidiary of PEI ("PG Energy"), to merge with and into PG
Energy. Immediately after the consummation of the Honesdale merger, Southern
Union will cause PG Energy to merge with and into Southern Union. These mergers
are called the "subsidiary mergers," and the Southern Union/PEI merger and the
subsidiary mergers are sometimes called the "mergers."
Merger Consideration
In the merger, each share of PEI common stock you own will be converted into
that number of whole shares of Southern Union common stock having a value of
$32.00, plus $3.00 in cash, except as described below. The exact number of
shares of Southern Union common stock and the amount of cash you will receive
for each share of PEI common stock that you own will depend on the average
price of Southern Union common stock on the NYSE for the ten trading day period
beginning on the twelfth trading day before the closing date and ending on the
third trading day before the closing date (counting from and including the
trading day immediately preceding the closing date).
If the average price of Southern Union's common stock during this ten
trading day period is:
. Above $22.70625, the number of shares of Southern Union common stock
will be fixed at 1.40930 for each share of PEI common stock and PEI
stockholders will receive $3 in cash per share.
. Between $19.4625 and $22.70625, the number of shares of Southern Union
common stock will be adjusted so that each share of PEI's common stock
will be exchanged for Southern Union common stock having a value of $32
per share, plus $3 per share in cash.
. Below $19.4625 but not less than $17.30, the number of shares of
Southern Union common stock will be fixed at 1.64419 for each share of
PEI common stock. The amount of the cash consideration
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will be increased so that PEI stockholders will receive cash sufficient
to maintain the aggregate value of $35 per share. Excluding any cash
payments made to you instead of issuing Southern Union fractional
shares, the maximum amount of cash payable to you in connection with the
merger is $6.55 per share of PEI common stock.
. Below $17.30, PEI has the option to terminate the merger agreement. If
PEI does not terminate the merger agreement, you will receive 1.64419
shares of Southern Union common stock plus $6.55 in cash per share of
PEI common stock.
No fractional shares of Southern Union common stock will be issued in the
merger. Instead of fractional shares, you will receive cash in an amount equal
to the value of the fractional shares to which you would otherwise have been
entitled based on the closing price of a share of Southern Union common stock
on the NYSE on the trading day immediately prior to the closing date.
Exchange of PEI Common Stock Certificates for Merger Consideration
BankBoston, N.A. c/o EquiServe, L.P. will act as paying agent for you in
connection with the merger. At the effective time, Southern Union will deposit
in trust with the paying agent, the cash and Southern Union common stock
portions of the merger consideration. The paying agent will invest the cash
portion of the merger consideration in United States government-backed
obligations or in the highest quality commercial paper.
Within three business days following the effective time, the paying agent
will mail to you a letter of transmittal and instructions regarding the
surrender of your PEI common stock certificates for cancellation. Within three
business days after receiving your certificates together with the letter of
transmittal, duly executed, the paying agent will send you the Southern Union
common stock and the cash you will be entitled to receive.
If the merger consideration is to be paid to a person other than the person
in whose name the surrendered certificate is registered, the surrendered
certificate must be properly endorsed and the person requesting payment must
have paid any transfer and other taxes required in connection with payment of
the merger consideration to a person other than the registered holder of the
surrendered certificate or must establish to the satisfaction of Southern
Union that taxes do not apply.
If your certificates have been lost, stolen or destroyed, you must provide
the paying agent with an affidavit to that effect. In addition, you must give
the paying agent a bond in an amount as it may ordinarily require and you must
indemnify Southern Union against any claim that may be made against Southern
Union with respect to the certificate claimed to have been lost, stolen or
destroyed.
Eighteen months after the effective time, the paying agent will deliver to
Southern Union any funds that remain undistributed, and thereafter Southern
Union will act as paying agent. If you have not surrendered your certificates
to the paying agent by then, you will only be entitled to look to Southern
Union as a general creditor for payment of the merger consideration.
Southern Union will not be liable to you for merger consideration delivered
to a public official pursuant to applicable law. Seven years after the
effective time, any portion of the merger consideration that remains unclaimed
by PEI's stockholders will, to the extent permitted by applicable law, become
the property of Southern Union.
You should not send in your stock certificates until you receive a
transmittal letter.
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Representations and Warranties
The merger agreement contains certain substantially mutual representations
and warranties made by Southern Union and PEI to each other, relating to, among
other things:
. corporate organization, existence, qualification, standing and power;
. capitalization;
. subsidiaries and investments;
. authorization, execution, delivery, performance and enforceability of
the merger agreement, and absence of violations, breaches or defaults
under organizational documents, certain agreements and government orders
as a result of execution, delivery and performance of the merger
agreement;
. governmental approvals and authorizations necessary to complete the
merger;
. public utility holding company status and regulation as a public
utility;
. absence of violations of applicable legal requirements and material
compliance with governmental authorizations;
. legal proceedings;
. documents filed by each of Southern Union and PEI with the SEC;
. tax matters;
. intellectual property matters;
. title to assets;
. disclosure of indebtedness;
. condition of machinery and equipment;
. absence of defaults under material contracts;
. insurance policies;
. labor and employment matters;
. employee benefit matters;
. environmental matters;
. absence of material adverse changes since specified balance sheet dates;
. broker's or finder's fees;
. regulatory proceedings;
. rate proceedings;
. information provided for inclusion in this proxy statement/prospectus,
Southern Union's proxy statement and the registration statement; and
. required stockholder votes in connection with the merger.
In addition, PEI has made representations and warranties to Southern Union
relating to:
. not triggering any right or entitlement of the holders of PEI common
stock or other PEI securities under any rights or similar agreement to
which PEI or any of its subsidiaries is a party; and
. delivery of a fairness opinion of Legg Mason.
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Covenants and Other Agreements
Each of Southern Union and PEI has undertaken certain covenants and other
agreements in the merger agreement. The following summarizes the more
significant of these covenants:
Interim Operations. In the merger agreement, Southern Union and PEI have
agreed that, except as provided by the merger agreement or as consented to by
the other party, during the period from the date of the merger agreement until
the effective time, each of Southern Union and PEI and its subsidiaries will:
. not make or permit any material change in the general nature of its
business;
. maintain its ordinary course of business (for Southern Union, only with
respect to its present operations) in accordance with prudent business
judgment and consistent with past practice and policy, and maintain its
assets in good repair, order and condition, reasonable wear and tear
excepted, subject to retirements in the ordinary course of business;
. preserve its ongoing business and use reasonable efforts to maintain its
goodwill; and
. preserve its franchises, tariffs, certificates of public convenience and
necessity, licenses, authorizations and other governmental rights and
permits.
In addition, except as provided by the merger agreement or as consented to
by Southern Union, during the period from the date of the merger agreement
until the effective time, PEI and its subsidiaries will:
. not enter into any material transaction or contract other than in the
ordinary course of business;
. not purchase, sell, lease, dispose of or otherwise transfer or subject
to lien, any of its assets other than in the ordinary course of
business;
. not hire any new employee unless the employee is a bona fide replacement
for a presently-filled position;
. not file any material applications, petitions, motions, orders, briefs,
settlements or agreements in any material proceeding or related appeal
before a government body without, to the extent reasonably practicable,
consulting Southern Union;
. not engage in any new or modify any existing material intercompany
transactions, except in the ordinary course of business, involving any
subsidiary of PEI;
. not voluntarily change in any material respect or terminate any of PEI's
insurance policies unless equivalent coverage is obtained;
. not make any changes in financial policies or practices, or strategic or
operating policies or practices, except as required by law, rule or
regulation;
. comply in all material respects with all applicable legal requirements
and permits;
. not adopt, amend or assume an obligation to contribute to any of PEI's
employee benefit plans or collective bargaining agreements or enter into
any employment, severance or similar contract or amend any such existing
contracts to increase any amounts payable or benefits provided
thereunder;
. except in the ordinary course of business or in accordance with the
terms of any existing contract, employee benefit plan of PEI or
collective bargaining agreement, not grant any increase or change in
total compensation, benefits or pay any bonus to any employees;
. not grant or enter into any contract, written or oral, with respect to
continued employment for any employee, officer or director;
. not make any loan or advance to any officer, director, stockholder,
employee, individual or entity other than in the ordinary course of
business;
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. not terminate any existing, enter into any new, or renew, extend or
negotiate, any gas purchase, exchange, storage, supply or transportation
contract;
. not amend its organizational documents; and
. not assume any note, debenture or other evidence of indebtedness which
by its terms does not mature within two years.
PEI Special Meeting and Southern Union Annual Meeting; Solicitation of
Proxies. Southern Union and PEI have agreed:
. to use their reasonable best efforts to solicit from their respective
stockholders proxies in favor of the merger;
. to take all steps necessary to duly call, give notice of, convene and
hold meetings of their respective stockholders for the purpose of
securing the approval and adoption of the merger agreement and the
consummation of the transactions contemplated thereby by their
respective stockholders;
. to distribute proxy statements to their respective stockholders in
accordance with applicable federal and state law and their respective
organizational documents; and
. subject to the fiduciary duties of their respective boards of directors,
to recommend to their stockholders the approval of the merger agreement.
The Lindemann Proxy. In connection with Southern Union's covenant to use its
reasonable best efforts to solicit proxies in favor of the merger from its
stockholders, George L. Lindemann, the Chairman of Southern Union's board and
Southern Union's Chief Executive Officer, Dr. F.B. Lindemann, Adam M.
Lindemann, George Lindemann, Jr. and Sloan N. Lindemann (collectively, the
"Lindemann Family") executed and delivered to PEI an irrevocable proxy.
Pursuant to the terms of the proxy, PEI has the power to vote the shares of
Southern Union common stock held by the Lindemann Family for the purpose of
securing the approval and adoption by Southern Union stockholders of the merger
agreement and the consummation of the transactions contemplated thereby and to
prevent any action that would prevent or hinder such approval or consummation
in any material respect. As of the Southern Union record date, the shares of
Southern Union common stock owned by the Lindemann Family and subject to this
proxy represented approximately 39% of the outstanding shares of Southern Union
common stock entitled to vote on the approval and adoption of the merger
agreement and consummation of the transactions contemplated thereby.
Employees; Benefits. For employees (excluding unionized employees) of PEI
and its subsidiaries, Southern Union has agreed:
. to provide such employees who continue their service with Southern Union
with benefits no less favorable in the aggregate than the benefits
provided under PEI's benefit plans during the 12 months immediately
following the closing date;
. to recognize, for purposes of eligibility, vesting and benefit accrual
under all benefit plans provided to such employees after the effective
time, the tenure of employment, as recognized by PEI or any of its
subsidiaries as of the closing date;
. that all vacation time earned by such employees prior to the closing
date must be taken by the end of the calendar year of the closing date,
except where PEI or Southern Union requests that an employee forgo his
or her vacation for business-related reasons;
. to recognize, for purposes of awarding vacation time at the beginning of
each calendar year following the closing date, the tenure of employment,
as recognized by PEI or any of its subsidiaries as of the closing date;
and
. to permit each such employee to carry forward all days of sick leave
accrued prior to the closing date.
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Southern Union has also agreed to assume, at the effective time, all
collective bargaining agreements covering employees of PEI and its subsidiaries,
and to discharge when due any and all liabilities of PEI and its subsidiaries
under the collective bargaining agreements relating to periods after the
effective time.
Certain Other Covenants and Agreements. The merger agreement contains
certain mutual covenants and other agreements of the parties, including
covenants and other agreements relating to: access to offices, properties and
records, use of reasonable efforts to obtain all necessary consents, approvals
and waivers from governmental bodies and other third parties and further
assurances.
The merger agreement also contains additional covenants by PEI to, except as
provided in the merger agreement:
. permit Southern Union to insert preprinted single-page customer
education materials into billing documentation to be delivered to
customers affected by the merger agreement;
. not declare or pay or permit any of its subsidiaries to declare or pay
any dividends or make other distributions in respect of PEI's or its
subsidiaries' capital stock, except for regular dividends on PEI common
stock and PG Energy preferred stock;
. not issue or encumber or permit any of its subsidiaries to issue or
encumber any shares of its capital stock or securities convertible into
any such shares;
. not make any changes or permit any of its subsidiaries to make changes
in its or their accounting methods, principles or practices except as
required by law, rule, regulation or generally accepted accounting
principles;
. identify persons who are "affiliates" of PEI within the meaning of Rule
145 under the Securities Act and to use its reasonable efforts to
provide to Southern Union letters from such persons to the effect that
they will not dispose of their shares of Southern Union common stock
received in the merger except in accordance with the applicable
provisions of Rule 145 or in a transaction exempt from registration
under the Securities Act ("Rule 145 Letters");
. cooperate and cause its subsidiaries to cooperate with Southern Union's
requests with respect to the refinancing, repurchase, redemption or
repayment of PEI's or any of its subsidiaries' indebtedness or preferred
stock that may be required or that Southern Union may request prior to
the mergers; and
. except in certain instances, not initiate or encourage any inquiry or
proposal about mergers with other parties, sales of substantial assets,
sales of shares representing a majority or greater interest in PEI or
any of its subsidiaries or other business combinations or, except in
certain instances, negotiate, discuss, approve or recommend any such
alternative acquisition proposal (see "--No Solicitation by PEI").
The merger agreement also contains certain additional covenants of Southern
Union to, except as provided in the merger agreement:
. take all reasonable steps so that the acquisition of the merger
consideration by PEI's officers and directors and cash payments or
substitute Southern Union options issued in exchange for options to
purchase PEI securities will be exempt from Section 16(b) of the
Securities Exchange Act of 1934 by reason of Rule 16b-3 under the
Exchange Act;
. not take, or fail to take, any action before or after the effective time
that will adversely affect the qualification of the mergers as a
reorganization for federal income tax purposes;
. use its best efforts to obtain, prior to the effective date of the
registration statement, all necessary state securities laws or "blue
sky" permits and approvals and pay all related expenses;
. cause the shares of Southern Union's common stock required to be
reserved for issuance in connection with the merger to be listed on the
NYSE;
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. cause the election of three individuals to the Southern Union board to
be selected prior to the closing date by Southern Union from the PEI
board immediately prior to the effective time, and thereafter nominate
and recommend such individuals for reelection, if necessary, such that
each of them will have a term of at least three years from the closing
date (see "The Merger--Potential Conflicts and Interests of Certain
Persons in the Merger");
. give full consideration to using or retaining PEI's technology and
management systems for the PEI operations after the completion of the
merger;
. operate the utility operations of PEI and its subsidiaries in
Pennsylvania as a separate division of Southern Union headquartered in
Pennsylvania;
. maintain PEI's charitable contributions of at least the amount given
and/or committed in 1998 for at least the next three calendar years;
. upon the completion of the merger, assume all collective bargaining
agreements covering employees of PEI and any of its subsidiaries and
discharge when due any and all liabilities of PEI and any of its
subsidiaries under such collective bargaining agreements relating to
periods after the effective time; and
. except for an annual 5% stock dividend, not declare, prior to the
effective time, any stock dividend, stock split, reclassification,
recapitalization, combination or distribution of assets, securities or
other property to holders of, or affecting, Southern Union common stock.
No Solicitation by PEI
The merger agreement provides that PEI must terminate all existing
discussions or negotiations with third parties, if any, with respect to a
"Business Combination," which we define below, and that PEI may not, and may
not authorize or permit any of its or any of its subsidiaries' officers,
directors, agents, financial advisors, attorneys, accountants or other
representatives to, directly or indirectly:
. solicit, initiate or encourage submission of proposals or offers
relating to, or that could reasonably be expected to lead to, a Business
Combination; or
. participate in any negotiations or discussions regarding, furnish to any
person any information with respect to, or otherwise cooperate, assist,
participate in, facilitate or encourage any effort or attempt by any
other person to do or seek a Business Combination.
A "Business Combination" is, except as provided in the merger agreement:
. a merger, consolidation or other business combination, share exchange,
sale of shares of capital stock, tender offer or exchange offer or
similar transaction involving PEI or any of its subsidiaries;
. the acquisition in any manner, directly or indirectly, of a material
interest in any capital stock of, or a material equity interest in a
substantial portion of the assets of, PEI or any of its subsidiaries,
including any single or multi-step transaction or series of related
transactions that is structured to permit a third party to acquire
beneficial ownership of a majority or greater equity interest in PEI or
any of its subsidiaries; or
. the acquisition in any manner, directly or indirectly, of any material
portion of the business or assets (other than immaterial or
insubstantial assets or inventory in the ordinary course of business or
assets held for sale) of PEI or any of its subsidiaries.
Prior to receiving the approval of the merger by PEI stockholders, if the
PEI board receives an unsolicited written proposal from a third party with
respect to a Business Combination that the PEI board determines, in its good
faith judgment, after consulting with its financial advisor and outside
counsel, with customary qualifications, is a "Superior Proposal," which we
define below, PEI may:
. furnish information to, and negotiate, explore or otherwise engage in
substantive discussions with the third party that submitted the
unsolicited Superior Proposal if the PEI board determines, in its good
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faith judgment after consulting with its financial advisor and outside
counsel, that it is reasonably necessary to engage in such discussions
in order to comply with its fiduciary duties under applicable law; and
. take and disclose to PEI's stockholders a position with respect to
another Business Combination proposal, or amend or withdraw such
position, pursuant to Rule 14d-9 and 14e-2 under the Exchange Act, or
make such disclosure to PEI's stockholders which in the good faith
judgment of the PEI board is required by applicable law, based on the
advice of its outside counsel.
A proposed Business Combination is a "Superior Proposal" if it involves at
least 50% of the shares of capital stock or a material portion of the assets
of PEI and the PEI board determines, after consulting with PEI's financial
advisor and outside counsel, that:
. the proposal is financially superior to the merger; and
. it appears that the party making the proposal is reasonably likely to
have the funds necessary to consummate the Business Combination.
The merger agreement also prohibits the PEI board from withdrawing or
modifying, or proposing publicly to withdraw or modify, in a manner adverse to
Southern Union, its approval or recommendation of the merger agreement or the
merger; approving or recommending, or proposing publicly to approve or
recommend, a Business Combination; or causing PEI to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any Business Combination unless the following conditions
are satisfied:
. the PEI board determines, in its good faith judgment, after consulting
with its financial advisor and outside counsel, that an unsolicited
proposal regarding a Business Combination is a Superior Proposal; and
. the PEI board determines, in its good faith judgment, after consulting
with its financial advisor and outside counsel, that the failure to
either withdraw or modify its approval or recommendation of the merger
agreement or the merger, approve or recommend a Business Combination, or
cause PEI to enter into any agreement related to any Business
Combination would create a reasonable possibility of a breach of the
fiduciary duties of the PEI board under applicable law.
PEI must promptly notify Southern Union of the receipt of any alternative
acquisition proposal regarding a Business Combination, the material terms and
conditions of any such proposal, the identity of the person or entity making
the proposal and the status and details of any such request or proposal within
one business day of PEI's receipt of any such proposal. PEI is required to use
all reasonable efforts to keep Southern Union informed of the status and
details of any such inquiry, offer or proposal and provide Southern Union two
days' advance notice of the first delivery of non-public information to any
such person or entity. If any such inquiry, offer or proposal is in writing,
PEI has agreed to promptly deliver to Southern Union a copy of such inquiry,
offer or proposal. If PEI decides to accept such Business Combination proposal
and enter into a definitive agreement with respect to such proposal, PEI must
give Southern Union five business days' notice of its intent to enter into a
definitive agreement. In addition, during this five-day period, PEI must give
Southern Union an opportunity to adjust the terms of the merger agreement so
that the parties can proceed with the merger and negotiate in good faith with
Southern Union with respect to any such adjustments. Concurrently with the
termination of the merger agreement in connection with a Business Combination,
PEI must also pay the required termination fee (see "--Termination of the
Merger Agreement" and "--Termination Fees and Expenses--PEI Termination Fee").
Prior to furnishing any non-public information to, entering into
negotiations with or accepting a Superior Proposal from a third party, PEI
will provide written notice to Southern Union to the effect that it is
furnishing information to or entering into discussions or negotiations with
such third party and receive from such third party an executed confidentiality
agreement containing substantially the same terms and conditions as the
confidentiality agreement between PEI and Southern Union.
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Conditions to the Completion of the Merger
Mutual Closing Conditions. The obligations of Southern Union and PEI to
complete the merger are subject to the satisfaction or, to the extent legally
permissible and permitted by the merger agreement, waiver of the following
conditions:
. accuracy as of the closing date of the representations and warranties
made by the other party to the extent specified in the merger agreement;
. performance in all material respects by the other party of the
obligations required to be performed by it at or before the closing
date;
. all governmental approvals required in order to complete the merger
having been obtained without conditions that would be reasonably likely
to be materially adverse to PEI's or Southern Union's businesses,
operations, properties, financial condition, or results of operations;
. no court, administrative agency, governmental body or arbitrator having
issued an order to restrain, enjoin or otherwise prevent the
consummation of the merger agreement or the mergers;
. approval by the Southern Union and PEI stockholders;
. Southern Union's registration statement on Form S-4, which includes
portions of this proxy statement/prospectus, being effective and not
subject to any stop order by the SEC; and
. authorization for listing on the NYSE of the shares of Southern Union
common stock to be issued in the merger.
Additional Closing Conditions for Southern Union's Benefit. Southern Union's
obligation to complete the merger is subject to the following additional
conditions:
. receipt of third party consents required to consummate the mergers,
other than any consents which, if not obtained, are not, individually or
in the aggregate, reasonably likely to result in a material adverse
effect on the business, operations, properties, financial condition or
results of operations of PEI and its subsidiaries after the closing;
. receipt of all consents and approvals required, under the terms of any
note, bond or indenture to which PEI or any of its subsidiaries is a
party;
. if requested by Southern Union, the resignation of each director of PEI
or a subsidiary of PEI of his or her position as a director of PEI or a
subsidiary of PEI effective as of the closing date;
. the receipt by Southern Union on the closing date of an opinion of
counsel to the effect that the merger will constitute a "reorganization"
within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code,
that the Honesdale merger and PG Energy merger will each constitute
"reorganizations" within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code or "liquidations" within the meaning of Section
332 of the Internal Revenue Code, and that no gain or loss will be
recognized by Southern Union, PEI or any of PEI's subsidiaries with
respect to the mergers;
. the redemption or purchase by PEI or repurchase by PG Energy of all of
the outstanding shares of each series of the cumulative preferred stock,
par value $100.00 per share, of PG Energy;
. the demand for payment of dissenters' rights by PEI stockholders with
respect to the merger does not equal or exceed seven percent of the
outstanding shares of PEI common stock entitled to vote on the merger;
and
. each of the individuals and entities who are "affiliates" of PEI within
the meaning of Rule 145 have delivered to Southern Union a Rule 145
Letter.
Additional Closing Condition for PEI's Benefit. PEI's obligation to complete
the merger is subject to the additional condition that on the closing date, PEI
shall have received an opinion of counsel to the effect that the
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merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and that no
gain or loss will be recognized for federal income tax purposes by the
stockholders of PEI upon their receipt of the merger consideration, except that
any realized gain will be recognized to the extent of the amount of cash
received.
Indemnification and Insurance for PEI Officers and Directors
For six years after the completion of the merger, Southern Union will
indemnify and hold harmless the present and former officers and directors of
PEI and its subsidiaries in respect of acts or omissions which occurred prior
to the effective time. In addition, for six years after the effective time,
Southern Union will use its reasonable best efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring prior
to the effective time covering each such person covered by PEI's officers' and
directors' liability insurance policy on the date of the merger agreement on
terms with respect to coverage and amount no less favorable than those of such
policy in effect on the date of the merger agreement. However, if the annual
premiums of such insurance coverage exceed 200% of the previous year's
premiums, Southern Union will be obligated to obtain a policy with the best
coverage available for a cost not exceeding such amount. See "The Merger--
Potential Conflicts and Interests of Certain Persons in the Merger."
Amendments
PEI and Southern Union may amend in writing any of the terms of the merger
agreement.
Termination of the Merger Agreement
The merger agreement may be terminated at any time before the closing:
. by mutual written consent of Southern Union and PEI;
. by either PEI or Southern Union:
(1)if a court issues a non-appealable order that prohibits the
consummation of the mergers; or
(2)at any time after 5:00 p.m., Eastern Time on June 7, 2000, if the
closing of the merger has not occurred and the party asserting its
right to terminate is not in material breach of its representations,
warranties, covenants or agreements contained in the merger agreement;
however, this date will be extended to December 7, 2000, if even though
all other conditions to the closing of the merger have been fulfilled
or are capable of being fulfilled (i) all approvals, consents, opinions
or rulings of all government agencies required in order to consummate
the mergers have not been obtained by final order in such form as is,
and with no conditions that are, individually or in the aggregate,
reasonably likely to have a material adverse effect on the business,
operations, properties, financial condition or results of operations of
the combined company or, in the case of a termination by Southern
Union, PEI, (ii) the applicable waiting period under the Hart-Scott-
Rodino Act relating to the mergers has not expired or been terminated
or (iii) any approval or authorization of any federal, state or local
governmental agency required in connection with the consummation of the
mergers has not been obtained or become a final order;
. by Southern Union:
(1)if there is a breach of any representation, warranty, covenant or
agreement of PEI, which breach cannot be cured and would make PEI's
representations and warranties materially inaccurate;
(2)if the holders of a majority of the outstanding shares of PEI common
stock do not approve the merger agreement and the merger and there has
not been a material misrepresentation or a material breach by Southern
Union of any of its covenants, warranties or agreements contained in
the merger agreement;
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(3)if the PEI board or any committee thereof (i) withdraws or modifies,
or proposes publicly to withdraw or modify, in a manner adverse to
Southern Union, its approval or recommendation of the merger agreement
or the merger, (ii) approves or recommends, or proposes publicly to
approve or recommend, a Business Combination, (iii) causes PEI to enter
into a definitive agreement related to any Business Combination, (iv)
resolves to take any of the foregoing actions or (v) fails by the
effective time to cause PG Energy to redeem or repurchase all of the
outstanding shares of PG Energy preferred stock; or
(4)if a third party, including a group (as defined under the Exchange
Act), acquires securities representing greater than 50% of the voting
power of the outstanding voting securities of PEI; and
. by PEI:
(1)if there is a breach of any representation, warranty, covenant or
agreement of Southern Union, which breach cannot be cured and would
make Southern Union's representations and warranties materially
inaccurate;
(2)if (i) PEI gives Southern Union at least five business days' notice
of its intent to enter into a definitive agreement with respect to a
Business Combination proposal, and during this five-day period gives
Southern Union an opportunity to adjust the terms of the merger
agreement so that the parties can proceed with the merger and negotiate
in good faith with Southern Union with respect to any such adjustments,
(ii) PEI has paid the required termination fees and (iii) PEI has
entered into a definitive agreement with respect to a Business
Combination proposal;
(3)if the holders of a majority of the outstanding shares of PEI common
stock do not approve the merger agreement or if the holders of a
majority of the outstanding shares of Southern Union common stock do
not approve the merger agreement and there has not been a material
misrepresentation or a material breach by PEI of any of its covenants,
warranties or agreements contained in the merger agreement; or
(4)if the average trading price of Southern Union common stock as of
the closing date is lower than $17.3000. For this purpose, "average
trading price" means the average of the reported closing prices of
Southern Union common stock on the NYSE for the ten consecutive trading
days ending on the third trading day before the closing date (counting
from and including the trading day immediately before the closing
date). The closing price for each day in question will be the last sale
price, regular way, or, if no sale takes place on that day, the average
of the closing bid and asked prices, regular way.
If the merger agreement is validly terminated, no provision of the merger
agreement will survive (except for the provisions relating to expenses,
termination fees and miscellaneous provisions of general application) and
termination shall be without any liability on the part of any party, unless
such party is negligent or in willful breach of any provision of the merger
agreement.
Termination Fees and Expenses
Payment of the Merger Expenses Generally. Each of PEI and Southern Union
will pay all costs and expenses of its performance of and compliance with the
merger agreement except as expressly provided in the merger agreement and as
follows:
. PEI will pay the costs and expenses (including legal fees and expenses)
in connection with any action, including the filing of any lawsuit or
other legal action, taken by Southern Union to collect the termination
fee payable to Southern Union under the merger agreement, together with
interest on the amount of any portion of the unpaid termination fee. Any
such interest will be calculated using an annual percentage rate of
interest equal to the prime rate published in The Wall Street Journal on
the date (or preceding business day if such date is not a business day)
such fee was required to be paid, compounded on a daily basis using a
360-day year;
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. PEI will pay all fees and expenses of counsel for PEI;
. Southern Union will pay all real estate transfer taxes and real estate
recording fees, if any, including expenses of counsel associated with
real estate title, transfer and recording issues in connection with the
mergers, and all filing and application fees paid to federal, state or
local government agencies in connection with the mergers; and
. Southern Union and PEI will each pay half of the combined costs of
printing and mailing to PEI's stockholders this proxy
statement/prospectus.
PEI Termination Fee. PEI has agreed to pay Southern Union $10 million in
cash if:
. PEI provides Southern Union at least five business days' notice of its
intent to terminate the merger agreement and has entered into a
definitive agreement with respect to a Business Combination proposal;
. Southern Union terminates the merger agreement because the PEI board or
any committee thereof has (i) withdrawn or modified, or proposed
publicly to withdraw or modify, in a manner adverse to Southern Union,
its approval or recommendation of the merger agreement, (ii) approved or
recommended, or proposed publicly to approve or recommend, a Business
Combination, (iii) caused PEI to enter into a definitive agreement
related to any Business Combination, (iv) resolved to take any of the
foregoing actions or (v) failed by the effective time to cause PG Energy
to redeem or repurchase all of the outstanding shares of PG Energy
preferred stock; or
. Southern Union terminates the merger agreement because a third party,
including a group (as defined under the Exchange Act), has acquired
securities representing greater than 50% of the voting power of the
outstanding voting securities of PEI.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Financial Statements
present the combined financial data of Southern Union and PEI, including their
respective subsidiaries, after giving effect to the merger, assuming the merger
had been effective for the period indicated and assuming the purchase method of
accounting. The pro forma adjustments reflect an estimated additional purchase
cost assigned to utility plant based on the historical cost of the regulated
assets and liabilities of PEI and an estimate of the fair value of the non-
regulated assets and liabilities of PEI, plus estimated acquisition costs. The
estimate of the fair value of the non-regulated assets is preliminary and may
be revised after the completion of independent appraisals, which have not been
performed. The unaudited pro forma combined condensed financial information
presented below is based on the assumption that upon completion of the merger
each PEI stockholder will receive, in exchange for each share of PEI common
stock he or she owns, a combination of Southern Union common stock and cash
worth in the aggregate $35, consisting of shares of Southern Union common stock
worth $32 and $3 in cash. The historical financial statements of PEI include
certain reclassifications to conform to Southern Union's presentation. These
reclassifications have no impact on net income or total stockholders' equity.
The fiscal years of Southern Union and PEI end on June 30 and December 31,
respectively, and, accordingly, the accompanying Unaudited Pro Forma Combined
Condensed Financial Statements have been prepared using the financial
statements of Southern Union incorporated by reference combined with the
comparable financial statement periods of PEI derived from its financial
statements incorporated by reference or as previously filed with the SEC. The
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1999 is
presented as if the merger had occurred on that date and using the Southern
Union and PEI balance sheets at June 30, 1999. The Unaudited Pro Forma Combined
Condensed Statement of Operations for the twelve months ended June 30, 1999
assumes that the merger occurred on July 1, 1998 and includes Southern Union's
results of operations for its fiscal year ended June 30, 1999 and PEI's results
of operations for the twelve month period ended June 30, 1999.
The following Unaudited Pro Forma Combined Condensed Financial Statements
have been prepared from, and should be read in conjunction with, the historical
financial statements and related notes thereto of Southern Union and PEI
incorporated by reference. See "Where You Can Find More Information." The
following Unaudited Pro Forma Combined Condensed Financial Statements are
presented for purposes of illustration only in accordance with the assumptions
set forth below and are not necessarily indicative of the financial position or
operating results that would have occurred if the merger had been consummated
on the dates as of which, or at the beginning of the period for which, the
merger is being given effect nor is it necessarily indicative of the future
operating results or financial position of the combined enterprise. The
Unaudited Pro Forma Combined Condensed Financial Statements do not contain any
adjustments to reflect cost savings or other synergies anticipated as a result
of the merger.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- --------------------------
Southern Pennsylvania
Union Enterprises,
Company Inc. Adjustments Combined
----------- ------------ ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Property, plant and equipment........ $ 1,120,176 $ 384,562 $ -- $ 1,504,738
Less accumulated depreciation and
amortization........................ (376,212) (100,312) -- (476,524)
----------- --------- --------- -----------
743,964 284,250 -- 1,028,214
Additional purchase cost assigned to
utility plant, net.................. 134,296 -- 252,862 (A) 387,158
----------- --------- --------- -----------
Net property, plant and equipment.. 878,260 284,250 252,862 1,415,372
Current assets....................... 84,758 51,584 -- 136,342
Deferred charges..................... 96,635 40,785 1,070 (B) 138,490
Investment securities................ 12,000 -- -- 12,000
Real estate and other................ 15,695 31,969 -- 47,664
----------- --------- --------- -----------
Total $ 1,087,348 $ 408,588 $ 253,932 $ 1,749,868
=========== ========= ========= ===========
Common stockholders' equity.......... $ 301,058 $ 143,900 $(143,900)(C) $ 648,444
347,386 (D)
Preferred stock of subsidiary not
subject to mandatory redemption..... -- 4,745 (4,745)(E) --
Preferred stock of subsidiary subject
to mandatory redemption............. -- 160 (160)(E) --
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trust.................... 100,000 -- -- 100,000
Long-term debt and capital lease
obligation.......................... 390,931 95,000 108,098 (F) 594,029
----------- --------- --------- -----------
Total capitalization............... 791,989 243,805 306,679 1,342,473
Current liabilities.................. 143,628 87,818 (52,667)(G) 178,699
(80)(E)
Deferred credits and other........... 81,493 14,434 -- 95,927
Accumulated deferred income taxes.... 70,238 62,531 -- 132,769
Commitments and contingencies
----------- --------- --------- -----------
Total.............................. $ 1,087,348 $ 408,588 $ 253,932 $ 1,749,868
=========== ========= ========= ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
62
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Historical
-------------------------
Southern Pennsylvania Pro Forma
Union Enterprises, ---------------------------
Company Inc. Adjustments Combined
----------- ------------ ----------- -----------
(thousands of dollars, except shares and per
share amounts)
<S> <C> <C> <C> <C>
Operating revenues...... $ 605,231 $233,605 $ -- $ 838,836
Cost of gas and other
energy................. 342,301 145,319 -- 487,620
----------- -------- ----------- -----------
Operating margin...... 262,930 88,286 -- 351,216
----------- -------- ----------- -----------
Operating expenses:
Operating, maintenance
and general.......... 109,693 36,696 -- 146,389
Depreciation and
amortization......... 41,855 10,291 6,322 (H) 58,468
Taxes, other than on
income............... 46,535 12,415 -- 58,950
----------- -------- ----------- -----------
Total operating
expenses........... 198,083 59,402 6,322 263,807
----------- -------- ----------- -----------
Net operating
revenues........... 64,847 28,884 (6,322) 87,409
----------- -------- ----------- -----------
Other income (expenses):
Interest.............. (35,999) (11,395) (8,322)(I) (52,233)
3,483 (J)
Dividends on preferred
securities........... (9,480) -- -- (9,480)
Other, net............ (1,814) 1,173 -- (641)
----------- -------- ----------- -----------
Total other
expenses, net...... (47,293) (10,222) (4,839) (62,354)
----------- -------- ----------- -----------
Earnings before income
taxes.................. 17,554 18,662 (11,161) 25,055
Federal and state income
taxes.................. 7,109 7,090 (1,694)(K) 12,505
----------- -------- ----------- -----------
Net earnings before
preferred stock
dividend requirements.. 10,445 11,572 (9,467) 12,550
Preferred stock dividend
requirements........... -- (653) 653 (L) --
----------- -------- ----------- -----------
Net earnings available
for common stock....... $ 10,445 $ 10,919 $ (8,814) $ 12,550
=========== ======== =========== ===========
Net earnings per share:
Basic................. $ 0.34 $ 0.26
=========== ===========
Diluted............... $ 0.32 $ 0.25
=========== ===========
Weighted average shares
outstanding:
Basic................. 30,894,613 16,878,765 (M) 47,773,378
=========== =========== ===========
Diluted............... 32,589,610 16,878,765 (M) 49,468,375
=========== =========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Adjustments to the Unaudited Pro Forma Combined Condensed Balance Sheet
(A) Reflects the estimated excess of the purchase price and other
transaction costs over the historical cost of the regulated net assets
and the estimated fair value of the non-regulated net assets of PEI.
(B) Reflects the capitalization of estimated debt issuance costs associated
with the long-term debt to be issued in connection with the merger as
more specifically described in Note (F). These debt issue costs are
amortized on a straight line basis over the life of the new debt.
(C) Reflects the elimination of common stockholders' equity of PEI.
(D) Reflects the issuance of Southern Union common stock to PEI
stockholders. See Note (M).
(E) Reflects the repurchase of all of the PG Energy preferred stock prior
to the closing of the merger.
(F) Reflects issuance of long-term debt at an estimated annual interest
rate of 7.5% which Southern Union believes would be obtained based on
current market rates. The long-term debt is assumed to be utilized: to
finance the cash portion of the purchase of PEI common stock and
settlement of PEI stock options; to refinance certain current debt of
PEI; to pay for certain acquisition costs of $5 million related to
change of control agreements, the funding of PEI's Director Retirement
Plan, Director Deferred Compensation Plan and supplemental retirement
benefits and the exercise of certain parachute option payments for
certain PEI executives; and payment of various professional fees
estimated to total $4 million. See Note (M).
(G) Reflects refinancing of certain current debt of PEI.
Adjustments to the Unaudited Pro Forma Combined Statement of Operations
(H) Reflects amortization of the estimated excess purchase price over the
historical cost of the regulated net assets and the estimated fair
value of the non-regulated net assets of PEI on a straight line basis
over a 40-year period based on the estimated useful lives of the
utility assets of PEI.
(I) Reflects interest expense on issuance of long-term debt at an assumed
estimated interest rate of 7.5% which Southern Union believes would be
obtained based on current market rates. The long-term debt is assumed
to be utilized: to finance the cash portion of the purchase of PEI
common stock and settlement of PEI stock options; to refinance certain
current debt of PEI; to pay for certain acquisition costs of $5 million
related to change of control agreements, the funding of PEI's Director
Retirement Plan, Director Deferred Compensation Plan and supplemental
retirement benefits and the exercise of certain parachute option
payments for certain PEI executives; and payment of various
professional fees estimated to total $4 million. For every 1/8 percent
change in the interest rate, interest expense for the twelve months
ended June 30, 1999 would change by $135,000.
(J) Reflects the elimination of historical interest expense of PEI as a
result of refinancing certain current debt of PEI to long-term debt in
connection with the merger. See Note (I).
(K) Reflects the income tax consequences at the federal statutory rate of
the pro forma adjustments after excluding nondeductible goodwill
amortization.
(L) Reflects the elimination of preferred stock dividend requirement due to
the repurchase of all outstanding PG Energy preferred stock prior to
the closing of the merger.
(M) Reflects the issuance of Southern Union common stock to PEI
stockholders at an exchange ratio of 1.5548 based on an average trading
price of $20.58125 for Southern Union common stock at the average
closing price per share for the ten trading day period ending on the
third trading day before September 3, 1999. All PEI stock options are
assumed to be settled in cash based on the difference between the total
merger consideration per share of $35.00 and the exercise price of such
stock options.
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<PAGE>
THE COMPANIES
Southern Union
General. Southern Union was incorporated under the laws of the State of
Delaware in 1932 and is one of the top 15 gas utilities in the United States,
as measured by number of customers. Southern Union's principal line of business
is the distribution of natural gas as a public utility through Southern Union
Gas, Missouri Gas Energy ("MGE") and Atlantic Utilities, doing business as
South Florida Natural Gas ("SFNG"), each of which is a division of Southern
Union. Southern Union Gas, headquartered in Austin, Texas, serves 513,000
customers in Texas (including the cities of Austin, El Paso, Brownsville,
Galveston, Harlingen, McAllen and Port Arthur). MGE, headquartered in Kansas
City, Missouri, serves 484,000 customers in central and western Missouri
(including the cities of Kansas City, St. Joseph, Joplin and Monett). SFNG,
headquartered in New Smyrna Beach, Florida, serves 4,400 customers in central
Florida (including the cities of New Smyrna Beach, Edgewater and areas of
Volusia County, Florida). The diverse geographic area of Southern Union's
natural gas distribution systems reduces the sensitivity of Southern Union's
operations to weather risk and local economic conditions. See "--Acquisitions."
Subsidiaries of Southern Union have been established to support and expand
natural gas sales and to capitalize on Southern Union's gas energy expertise.
These subsidiaries market natural gas to end-users, operate natural gas
pipeline systems, distribute propane and sell commercial gas air conditioning
and other gas-fired engine-driven applications. By providing "one-stop
shopping," Southern Union can serve its various customers' specific energy
needs, which encompass substantially all of the natural gas distribution and
sales businesses from natural gas sales to specialized energy consulting
services. Southern Union distributes propane to 11,000 and 1,100 customers in
Texas and Florida, respectively. Additionally, certain subsidiaries own or hold
interests in real estate and other assets, which are primarily used in Southern
Union's utility business. Central to all of Southern Union's present businesses
and strategies is the sale and transportation of natural gas. See "--Operations
and Investments."
Southern Union is a sales and market-driven energy company whose management
is committed to achieving profitable growth of its utility businesses in an
increasingly competitive business environment. Southern Union's management's
strategies for achieving these objectives principally consist of: (i) promoting
new sales opportunities and markets for natural gas and propane; (ii) enhancing
financial and operating performance; and (iii) expanding Southern Union through
development of existing utility businesses and selective acquisition of new
utility businesses. Southern Union's management develops and continually
evaluates these strategies and their implementation by applying their
experience and expertise in analyzing the energy industry, technological
advances, market opportunities and general business trends. Each of these
strategies, as implemented throughout Southern Union's existing businesses,
reflects Southern Union's commitment to its core gas utility business.
Southern Union has a goal of selected growth and expansion, primarily in the
utilities industry. To that extent, Southern Union intends to consider, when
appropriate, and if financially practicable to pursue, the acquisition of other
utility distribution or transmission businesses. The nature and location of any
such properties, the structure of any such acquisitions and the method of
financing any such expansion or growth will be determined by Southern Union's
management and the Southern Union board. See "Forward-Looking Statements May
Prove Inaccurate."
Acquisitions. Effective December 31, 1997, Southern Union acquired Atlantic
Utilities Corporation and its subsidiaries (collectively, "Atlantic") for
shares of Southern Union common stock valued in the aggregate at $18,041,000
and cash in an aggregate amount of $4,436,000. Atlantic is operated as SFNG, a
natural gas division of Southern Union, and Atlantic Gas Corporation, a propane
subsidiary of Southern Union. Atlantic currently serves 4,400 natural gas
customers and 1,100 propane customers in central Florida.
On July 23, 1997, two subsidiaries of Southern Union acquired an equity
ownership in a natural gas distribution company and other related operations in
Piedras-Negras, Mexico for $2,700,000. Southern Union
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<PAGE>
currently has a 43% equity ownership in this company. The natural gas
distribution company currently serves 19,500 customers and is across the border
from Southern Union's Eagle Pass, Texas service area. On September 8, 1997,
Southern Union purchased a 45-mile intrastate pipeline, which augments Southern
Union's gas supply to the city of Eagle Pass and, subject to necessary
regulatory approvals, ultimately Piedras-Negras.
Operations and Investments. Southern Union's principal line of business is
the distribution of natural gas through its Southern Union Gas, MGE and SFNG
divisions. Southern Union Gas provides service to a number of communities and
rural areas in Texas, including the municipalities of Austin, El Paso,
Brownsville, Galveston, Harlingen, McAllen and Port Arthur. MGE provides
service to various cities and communities in central and western Missouri
including Kansas City, St. Joseph, Joplin and Monett. SFNG provides services to
various cities and communities in central Florida including New Smyrna Beach
and Edgewater. Southern Union's gas utility operations are generally seasonal
in nature, with a significant percentage of its annual revenues and earnings
occurring in the traditional winter heating season.
Southern Union Energy International, Inc. ("SUEI") and Southern Union
International Investments, Inc. ("Investments"), both wholly-owned subsidiaries
of Southern Union, participate in energy-related projects internationally.
Energia Estrella del Sur, S.A. de C.V. ("Estrella"), a wholly-owned Mexican
subsidiary of SUEI and Investments, seeks to participate in energy-related
projects in Mexico. Estrella has a 43% equity ownership in a natural gas
distribution company, along with other related operations, which currently
serves 19,500 customers in Piedras-Negras, Mexico, across the border from
Southern Union Gas' Eagle Pass, Texas service area.
Mercado Gas Services Inc. ("Mercado"), a wholly-owned subsidiary of Southern
Union, markets natural gas to approximately 240 commercial and industrial
customers. Mercado's sales and purchasing activities are made through short-
term and long-term contracts. These contracts and business activities are not
subject to direct rate regulation. Mercado had gas sales of 19,304 MMcf and
18,352 MMcf for the years ended June 30, 1999 and 1998, respectively.
Southern Transmission Company ("Southern"), a wholly-owned subsidiary of
Southern Union, operates interstate pipelines which connect the cities of
Lockhart, Luling, Cuero, Shiner, Yoakum and Gonzales, Texas, as well as a line
that provides gas to an industrial customer in Port Arthur, Texas. Southern
also owns a transmission line which supplies gas to the community of Sabine
Pass, Texas. On September 8, 1997, Southern purchased a 45-mile intrastate
pipeline which augments gas supply to the city of Eagle Pass, Texas, and
ultimately into Piedras Negras, Mexico. Southern transported 873 MMcf and 915
MMcf of gas for the years ended June 30, 1999 and 1998, respectively.
Norteno Pipeline Company ("Norteno"), a wholly-owned subsidiary of Southern
Union, operates interstate pipeline systems principally serving Southern
Union's gas distribution properties in the El Paso, Texas area. Norteno
transported a combined 6.3 billion cubic feet ("Bcf") for the city of Juarez,
Mexico and the Samalayunca Power Plant in north Mexico in fiscal year 1999.
Norteno transported 6,377 MMcf and 11,538 MMcf of gas for the years ended June
30, 1999 and 1998, respectively.
SuPro Energy Company ("SUPro"), a wholly-owned subsidiary of Southern Union,
provides propane gas services to 11,000 customers located principally in El
Paso and Alpine, Texas and Las Cruces, New Mexico and surrounding communities.
SUPro sold 5,945,000 and 5,125,000 gallons of propane for the years ended June
30, 1999 and 1998, respectively.
Atlantic Gas Corporation, a wholly-owned subsidiary of Southern Union,
provides propane gas services to 1,100 customers located in and around the
communities of New Smyrna Beach, Lauderhill and Dunnellon, Florida. Atlantic
Gas Corporation sold 1,348,000 gallons of propane during the twelve months
ended June 30, 1999 and 633,000 gallons of propane during the six months ended
June 30, 1998.
Energy WorX, a wholly-owned subsidiary of Southern Union, provides
interactive computer-based training for the natural gas transmission and
distribution industry.
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<PAGE>
Southern Union Total Energy Systems, Inc., a wholly-owned subsidiary of
Southern Union, markets and sells commercial gas air conditioning, irrigation,
pumps and other gas-fired engine-driven applications and related services.
Southern Union also holds investments in commercially developed real estate
in Austin, El Paso, Harlingen and Kansas City through Southern Union's wholly-
owned subsidiary, Lavaca Realty Company ("Lavaca Realty"). During fiscal 1998
and 1999, Southern Union made equity investments in a leading developer of
advanced gas turbine-driven generator technology and a developer of a mobile
workforce management system.
Competition. Southern Union's gas distribution divisions are not currently
in significant direct competition with any other distributors of natural gas to
residential and small commercial customers within their service areas. However,
in recent years, certain large volume customers, primarily industrial and
significant commercial customers, have had opportunities to access alternative
natural gas supplies and, in some instances, delivery service from other
pipeline systems. Southern Union has offered transportation arrangements to
customers who secure their own gas supplies. These transportation arrangements,
coupled with the efforts of Southern Union's unregulated marketing subsidiary,
Mercado, enable Southern Union to provide competitively priced gas service to
these large volume customers. In addition, Southern Union has successfully used
flexible rate provisions, when needed, to retain customers who may have access
to alternative energy sources.
As energy providers, Southern Union Gas, MGE and SFNG have historically
competed with alternative energy sources, particularly electricity and also
propane, coal, natural gas liquids and other refined products available in
Southern Union's service areas. At present rates, the cost of electricity to
residential and commercial customers in Southern Union's service areas
generally is higher than the effective cost of natural gas service. There can
be no assurance, however, that future fluctuations in gas and electric costs
will not reduce the cost advantage of natural gas service. The cost of
expansion for peak load requirements of electricity in some of Southern Union
Gas' and MGE's service areas has historically provided opportunities to allow
energy switching to natural gas pursuant to integrated resource planning
techniques. Electric competition has responded by offering equipment rebates
and incentive rates.
Competition between the use of fuel oils, natural gas and propane,
particularly by industrial, electric generation and agricultural customers, has
also increased due to the volatility of natural gas prices and increased
marketing efforts from various energy companies. While competition between such
fuels is generally more intense outside Southern Union's service areas, this
competition affects the nationwide market for natural gas. Additionally, the
general economic conditions in its service areas continue to affect certain
customers and market areas, thus impacting the results of Southern Union's
operations.
Gas Supply. The low cost of natural gas service is dependent upon Southern
Union's ability to contract for natural gas using favorable mixes of long-term
and short-term supply arrangements and favorable transportation contracts.
Southern Union has been directly acquiring its gas supplies since the mid-1980s
when interstate pipeline systems opened their systems for transportation
service. Southern Union has the organization, personnel and equipment necessary
to dispatch and monitor gas volumes on a daily, hourly and even a real- time
basis to ensure reliable service to customers.
The FERC required the "unbundling" of services offered by interstate
pipeline companies beginning in 1992. As a result, gas purchasing and
transportation decisions and associated risks have been shifted from the
pipeline companies to the gas distributors. The increased demands on
distributors to effectively manage their gas supply in an environment of
volatile gas prices provide an advantage to distribution companies such as
Southern Union who have demonstrated a history of contracting favorable and
efficient gas supply arrangements in an open market system.
The majority of Southern Union Gas' 1999 gas requirements for utility
operations were delivered under long-term transportation contracts through four
major pipeline companies. The majority of MGE's 1999 gas
67
<PAGE>
requirements were delivered under short- and long-term transportation contracts
through four major pipeline companies. The majority of SFNG's 1999 gas
requirements were delivered under a management supply contract through one
major pipeline company. These contracts have various expiration dates ranging
from calendar year 2000 through 2018. Southern Union Gas also purchases
significant volumes of gas under long- and short-term arrangements with
suppliers. The amounts of such short-term purchases are contingent upon price.
Southern Union Gas, MGE and SFNG all have firm supply commitments for all areas
that are supplied with gas purchased under short-term arrangements. MGE also
holds contract rights to over 16 Bcf of storage capacity to assist in meeting
peak demands.
Gas sales and/or transportation contracts with interruption provisions,
whereby large volume users purchase gas with the understanding that they may be
forced to shut down or switch to alternate sources of energy at times when the
gas is needed for higher priority customers, have been utilized for load
management by Southern Union and the gas industry as a whole for many years. In
addition, during times of special supply problems, curtailments of deliveries
to customers with firm contracts may be made in accordance with guidelines
established by appropriate federal and state regulatory agencies. There have
been no supply-related curtailments of deliveries to Southern Union Gas, MGE or
SFNG utility sales customers during the last ten years.
Southern Union is committed under various agreements to purchase certain
quantities of gas in the future. At June 30, 1999, Southern Union had purchase
commitments for certain quantities of gas at variable, market-based prices that
have an annual value of $94,275,000. Southern Union's purchase commitments may
extend over a period of several years depending upon when the required quantity
is purchased. Southern Union has purchase gas tariffs in effect for all its
utility service areas that provide for recovery of its purchase gas costs under
defined methodologies.
In August 1997, MPSC issued an order authorizing MGE to begin making semi-
annual purchase gas adjustments ("PGA") in November and April, instead of more
frequent adjustments as previously made. Additionally, the order authorized MGE
to establish an Experimental Price Stabilization Fund for purposes of procuring
natural gas financial instruments to hedge a minimal portion of its gas
purchase costs for the winter heating season. The cost of purchasing these
financial instruments and any gains derived from such activities are passed on
to the Missouri customers through the PGA. Accordingly, there is no earnings
impact as a result of the use of these financial instruments. These procedures
help stabilize the monthly heating bills for Missouri customers. Southern Union
believes it bears minimal risk under the authorized transactions.
The MPSC approved a three year, experimental gas supply incentive plan for
MGE effective July 1, 1996. Under the plan, Southern Union and MGE's customers
share in certain savings below benchmark levels of gas costs achieved as a
result of Southern Union's gas procurement activities. Likewise, if natural gas
is acquired above benchmark levels, both Southern Union and customers share in
such costs. For the years ended June 30, 1999, 1998 and 1997, the incentive
plan achieved a reduction of overall gas costs of $6,900,000, $9,200,000 and
$10,200,000, respectively, resulting in savings to Missouri customers of
$4,000,000, $5,100,000 and $5,600,000, respectively. Southern Union recorded
revenues of $2,900,000, $4,100,000 and $4,600,000 in 1999, 1998 and 1997,
respectively, under this plan. MGE is currently working with the MPSC to
develop an alternate plan due to the July 1, 1999 expiration of the
experimental gas supply incentive plan; however, there can be no assurance that
this or any similar plan will be approved by the MPSC for MGE.
Utility Regulation and Rates. Southern Union's rates and operations are
subject to regulation by local, state and federal authorities. In Texas,
municipalities have primary jurisdiction over natural gas rates within their
respective incorporated areas. Rates in adjacent environs and appellate matters
are the responsibility of the RRC. In Missouri, natural gas rates are
established by the MPSC on a system-wide basis. In Florida, natural gas rates
are established by the FPSC on a system-wide basis. The FERC and the RRC have
jurisdiction over rates, facilities and services of Norteno and Southern,
respectively.
Southern Union holds non-exclusive franchises with varying expiration dates
in all incorporated communities where it is necessary to carry on its business
as it is now being conducted. Kansas City, Missouri,
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<PAGE>
El Paso, Texas, Austin, Texas, Port Arthur, Texas and St. Joseph, Missouri are
the five largest cities in which Southern Union's utility customers are
located. The Kansas City franchise expired in May 1998. Southern Union is
currently in franchise renewal negotiations with Kansas City and expects to
obtain renewal of such franchise before the end of calendar year 1999. The
franchises in the following cities expire as follows: El Paso, Texas in 2000,
in which Southern Union is currently in discussions; Austin, Texas in 2006; and
Port Arthur, Texas in 2013. Southern Union fully expects these franchises to be
renewed upon their expiration. The franchise in St. Joseph, Missouri is
perpetual.
Gas service rates are established by regulatory authorities to permit
utilities the opportunity to recover operating, administrative and financing
costs, and the opportunity to earn a reasonable return on equity. Gas costs are
billed to customers through purchase gas adjustment clauses which permit
Southern Union to adjust its sales price as the cost of purchased gas changes.
This is important because the cost of natural gas accounts for a significant
portion of Southern Union's total expenses. The appropriate regulatory
authority must receive notice of such adjustments prior to billing
implementation.
Southern Union must support any service rate changes to its regulators using
an historic test year of operating results adjusted to normal conditions and
for any known and measurable revenue or expense changes. Because the regulatory
process has certain inherent time delays, rate orders may not reflect the
operating costs at the time new rates are put into effect.
The monthly customer bill contains a fixed service charge, a usage charge
for service to deliver gas, and a charge for the amount of natural gas used.
While the monthly fixed charge provides an even revenue stream, the usage
charge increases Southern Union's annual revenue and earnings in the
traditional heating load months when usage of natural gas increases. In recent
years, the majority of Southern Union's rate increases in Texas have resulted
in increased monthly fixed charges which help stabilize earnings. Weather
normalization clauses, in place in the City of Austin, El Paso environs,
Galveston, Port Arthur and two other service areas in Texas, also help
stabilize earnings.
On August 21, 1998, MGE was notified by the MPSC of its decision to grant a
$13,300,000 annual increase to revenue effective on September 2, 1998, which is
primarily earned volumetrically. The MPSC rate order reflected a 10.93% return
on common equity. The rate order, however, disallowed certain previously
recorded deferred costs requiring a non-cash write-off of $2,221,000. Generally
accepted accounting principles required Southern Union to record this charge to
earnings immediately, which Southern Union did as of June 30, 1998. On December
8, 1998, the MPSC denied rehearing requests made by all parties other than MGE
and granted a portion of MGE's rehearing request. The MPSC will conduct further
proceedings to take additional evidence on those matters for which it granted
MGE a rehearing. If the MPSC adopts MGE's positions on rehearing, then MGE
would be authorized an additional $2,200,000 of base revenues increasing the
$13,300,000 initially authorized in its August 21, 1998 order to $15,500,000.
The MPSC's orders may be subject to judicial review and although certain
parties may argue for a reduction in MGE's authorized base revenue increase on
judicial review, MGE expects such arguments to be unsuccessful.
On April 13, 1998, Southern Union Gas filed a $2,228,000 request for a rate
increase from the City of El Paso, which the city subsequently denied. On April
21, 1998, the City Council of El Paso voted to reduce Southern Union Gas's
rates by $1,570,000 annually and to order a one-time cost of gas refund of
$475,000. On May 21, 1998, Southern Union Gas filed with the RRC an appeal of
the City of El Paso's actions to reduce Southern Union Gas's rates and require
a one-time cost of gas refund. On December 21, 1998, the RRC issued its order
implementing an $884,000 one-time cost of gas refund and a $99,000 base rate
reduction. The cost of gas refund was completed in February 1999.
On January 22, 1997, MGE was notified by the MPSC of its decision to grant
an $8,847,000 annual increase to revenue effective on February 1, 1997.
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<PAGE>
The approval of the January 31, 1994 acquisition of the Missouri properties
by the MPSC was subject to the terms of a stipulation and settlement agreement
which, among other things, requires MGE to reduce rate base by $30,000,000
(amortized over a ten-year period on a straight-line basis) to compensate rate
payers for rate base reductions that were eliminated as a result of the
acquisition.
During the three-year period ended June 30, 1999, Southern Union did not
file for any other rate increases in any of its major service areas, although
several annual cost of service adjustments were filed.
In addition to the regulation of its utility and pipeline businesses,
Southern Union is affected by numerous other regulatory controls, including,
among others, pipeline safety requirements of the United States Department of
Transportation, safety regulations under the Occupational Safety and Health
Act, and various state and federal environmental statutes and regulations.
Southern Union believes that its operations are in compliance with applicable
safety and environmental statutes and regulations.
Environmental. Southern Union assumed responsibility for certain
environmental matters in connection with the acquisition of MGE. Additionally,
Southern Union is investigating the possibility that Southern Union or
predecessor companies may have been associated with manufactured gas plant
sites in other of its former service territories, principally in Arizona and
New Mexico, and present service territories in Texas. See "Forward-Looking
Statements May Prove Inaccurate."
Investments in Real Estate. Lavaca Realty owns a commercially developed
tract of land in the central business district of Austin, Texas, containing a
combined 11-story office building, parking garage and drive-through bank
("Lavaca Plaza"). Approximately 52% of the office space at Lavaca Plaza is used
in Southern Union's business while the remainder is leased to non-affiliated
entities. Lavaca Realty also owns a two-story office building in El Paso, Texas
as well as a one-story office building in Harlingen, Texas. Other significant
real estate investments held at June 30, 1999 include 39,341 square feet of
undeveloped land in McAllen, Texas and 25,000 square feet of improved property
in Kansas City, Missouri, of which 40% is occupied by MGE and the remainder by
a non-affiliated entity.
Employees. As of July 31, 1999, Southern Union had 1,563 employees, of whom
1,220 were paid on an hourly basis and 343 were paid on a salary basis. Of the
1,220 hourly paid employees, 45% were represented by unions. Of those employees
represented by unions, 95% were employed by Missouri Gas Energy. In December
1998, Southern Union agreed to five-year contracts with each bargaining-unit
representing the Missouri employees, which were effective in May 1999.
On June 4, 1997, Southern Union Gas employees in Austin, Texas covered by a
collective bargaining agreement voted to decertify their representing union.
Additionally, effective May 1, 1998, employees in Galveston, Texas chose to
withdraw their membership from their representing union.
PEI
PEI is a holding company which, through its subsidiaries, is engaged in both
regulated and nonregulated activities. PEI's regulated activities are conducted
by its principal subsidiary, PG Energy, a public utility regulated by the PPUC,
and PG Energy's wholly-owned subsidiary, Honesdale, also a regulated public
utility. Together PG Energy and Honesdale distribute natural gas to a thirteen-
county area in northeastern Pennsylvania, a territory that includes the cities
of Scranton, Wilkes-Barre and Williamsport. In 1998, PG Energy and Honesdale
collectively accounted for approximately 77% of PEI's operating revenues. Until
February 16, 1996, when its water utility operations were sold, PG Energy was
also engaged in the distribution of water.
PEI's nonregulated activities are conducted through its other subsidiaries,
PG Energy Services Inc. ("Energy Services"), PEI Power Corporation, Theta Land
Corporation and Keystone Pipeline Services, Inc., a wholly-owned subsidiary of
Energy Services. These nonregulated activities include the sale of natural gas,
propane, electricity and other energy-related products and services; the
construction, maintenance and rehabilitation of utility facilities, primarily
natural gas distribution pipelines; and the sale of property for
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residential, commercial and other development. In the fourth quarter of 1997,
Energy Services began marketing electricity and other products and services,
under the name PG Energy PowerPlus (a trademark of Energy Services),
principally in northeastern and central Pennsylvania. PEI Power Corporation, an
exempt wholesale generator (within the meaning of the Public Utility Holding
Company Act of 1935), began generating and selling electricity in July 1998,
upon completion of modifications to its cogeneration facility that enable it to
burn both natural gas and methane. In 1998, the revenues of the nonregulated
subsidiaries accounted for approximately 23% of PEI's operating revenues and
37% of its capital expenditures.
As of June 30, 1999, PG Energy provided service to approximately 149,000
natural gas customers and Honesdale provided service to approximately 3,400
natural gas customers.
PEI and its subsidiaries employed approximately 807 persons as of June 30,
1999.
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DESCRIPTION OF SOUTHERN UNION CAPITAL STOCK
General
Under the DGCL, a corporation may not issue a greater number of shares than
have been authorized by its certificate of incorporation. Southern Union's
restated certificate of incorporation provides that the authorized capital
stock of Southern Union consists of (i) 50,000,000 shares of common stock, par
value $1.00 per share, and (ii) 1,500,000 shares of cumulative preferred stock,
no par value. At the close of business on June 30, 1999, 31,188,201 shares of
Southern Union common stock were issued and outstanding and no shares of
Southern Union cumulative preferred stock were issued and outstanding.
Proposed Changes to Southern Union's Capitalization
The Southern Union board has approved and is recommending that Southern
Union stockholders approve at the Southern Union annual meeting the amendments
to Southern Union's restated certificate of incorporation, which will change
Southern Union's capitalization. These amendments are as follows:
. to increase the number of authorized shares of Southern Union common
stock from 50,000,000 to 200,000,000;
. to repeal the rights, powers, privileges and preferences of currently
authorized Southern Union cumulative preferred stock; and
. to grant the Southern Union board the authority to issue 6,000,000
shares of preferred stock in series as the Southern Union board deems
appropriate and to establish from time to time the number of shares to
be included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
Southern Union's management believes that the foregoing amendments will be
approved and adopted by its stockholders at the Southern Union annual meeting.
The amendments will become effective upon the filing of a Certificate of
Amendment to Southern Union's restated certificate of incorporation with the
Secretary of State of Delaware, which Southern Union's management expects will
occur prior to the consummation of the merger. Southern Union's management
believes that the proposed amendments will ensure that Southern Union will have
available for issuance that number of shares of its common stock which PEI
stockholders will be entitled to receive upon the effective time and will
enhance Southern Union's ability to raise capital through the sale or placement
of Southern Union's securities and pursue opportunities for future acquisitions
and business combinations.
Southern Union Common Stock
Voting Rights. Except with respect to the election of directors, the holders
of Southern Union common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. At all elections of
directors of Southern Union, the holders of Southern Union common stock have
cumulative voting rights. Accordingly, each holder of Southern Union common
stock is entitled to that number of votes which equals the number of shares
held by such stockholder multiplied by the number of directors to be elected,
and such stockholder may cast all of such votes for a single nominee or
distribute them among the nominees as such stockholder deems appropriate.
Dividends. The holders of Southern Union common stock are entitled to
receive dividends as and when declared by the Southern Union board out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding shares of Southern Union cumulative preferred stock.
Liquidation Rights. Subject to the rights of holders of Southern Union
cumulative preferred stock, upon liquidation, dissolution or winding up of
Southern Union, the holders of Southern Union common stock are entitled to
receive ratably the net assets of Southern Union available after the payment of
all debts and other liabilities.
No Other Rights. Holders of Southern Union common stock have no preemptive,
subscription, redemption or conversion rights.
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Effect of Proposed Amendments to Southern Union's Charter. If Southern Union
stockholders approve and adopt the proposed amendments to Southern Union's
restated certificate of incorporation, the number of authorized shares of
Southern Union common stock will increase from 50,000,000 to 200,000,000.
Southern Union management believes that if the proposed amendments are approved
and adopted by Southern Union stockholders at Southern Union's annual meeting,
the amendments will become effective before the consummation of the merger.
Effect of the Merger. Upon completion of the merger, PEI's stockholders will
receive shares of Southern Union common stock. Accordingly, the total number of
outstanding shares of Southern Union common stock will change.
Southern Union Cumulative Preferred Stock
General. Southern Union, by resolution of the Southern Union board and
without any further vote or action by the holders of Southern Union common
stock, has the authority, subject to certain limitations prescribed by law, to
issue from time to time up to an aggregate of 1,500,000 shares of Southern
Union cumulative preferred stock in one or more classes or series and to
determine the designation and the number of shares of any class or series.
Southern Union common stock is junior to and subject to all rights and
preferences of Southern Union cumulative preferred stock.
Voting Rights. Except as provided in Southern Union's restated certificate
of incorporation, the resolution of the Southern Union board providing for the
issuance of a series of Southern Union cumulative preferred stock or as
required by law, the holders of Southern Union cumulative preferred stock do
not have any voting rights. Southern Union's restated certificate of
incorporation provides that if arrearages in dividends on Southern Union
cumulative preferred stock equal at least six quarterly dividends thereon, the
holders of Southern Union cumulative preferred stock have the right, voting as
a class, to elect two members of the Southern Union board. This right to vote,
as a class, for the election of two directors remains exercisable until all
arrearages in dividends on Southern Union cumulative preferred stock have been
paid in full. Holders of Southern Union cumulative preferred stock will have
cumulative voting rights with respect to the two directors to be elected by
such holders.
In addition, so long as any shares of Southern Union cumulative preferred
stock are outstanding, Southern Union is prohibited from taking the following
actions without the approval, by affirmative vote at a meeting or written
consent, of at least 66 2/3% in Stated Value (defined below) of the then
outstanding shares of Southern Union cumulative preferred stock:
. authorizing or creating, or increasing the authorized amount of, any
additional class of stock ranking prior to or on a parity with Southern
Union cumulative preferred stock as to dividends or assets; or
authorizing or creating, or increasing the authorized amount of, any
class of stock or obligations convertible into or evidencing the right
to purchase any class of stock ranking prior to or on a parity with
Southern Union cumulative preferred stock as to dividends or assets;
. amending, altering or repealing any of the rights, preferences or powers
of the outstanding Southern Union cumulative preferred stock stated and
expressed in Southern Union's restated certificate of incorporation, as
amended, or in the resolution or resolutions of the Southern Union
board, adopted with respect to issuance of each series of Southern Union
cumulative preferred stock, so as adversely to affect the rights,
preferences or powers of the Southern Union preferred stock or its
holders; provided, however, that if any such amendment, alteration or
repeal would adversely affect the rights, preferences or powers of
outstanding shares of Southern Union cumulative preferred stock of any
particular series without correspondingly affecting the rights,
preferences or powers of the outstanding shares of all series, then a
like vote or consent by the holders of at least 66 2/3% in Stated Value
of the Southern Union cumulative preferred stock of the affected series
at the time outstanding will also be necessary for effecting or
validating any such amendment, alteration or repeal;
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. selling, leasing or conveying all, or substantially all, of its property
or business; or voluntarily liquidating, dissolving or winding up its
business; or
. effecting the merger or consolidation of Southern Union into or with any
other corporation, or the merger of any other corporation into the
corporation, unless the corporation resulting from or surviving such
merger or consolidation will upon consummation of such merger or
consolidation have no class of stock and no other securities, either
authorized or outstanding ranking prior to or on parity with Southern
Union cumulative preferred stock, except the same number of shares (or
aggregate par value or Stated Value) of stock and the same principal
amount of other securities with the same rights and preferences as the
stock and other securities of Southern Union respectively authorized and
outstanding immediately preceding such merger or consolidation and
unless each holder of the Southern Union preferred stock immediately
preceding such merger or consolidation shall receive or retain the same
number of shares (or aggregate par value of Stated Value) of stock with
the same rights and preferences of the resulting or surviving
corporation.
Furthermore, Southern Union's restated certificate of incorporation provides
that so long as any shares of Southern Union cumulative preferred stock are
outstanding, Southern Union is not permitted, without the approval of the
holders of at least a majority in Stated Value of the then outstanding shares
of Southern Union cumulative preferred stock, by affirmative vote at a meeting
or written consent, to increase the authorized amount of Southern Union
cumulative preferred stock, or decrease the authorized amount of Southern Union
cumulative preferred stock.
Liquidation. The preferential amount payable to holders of each series of
Southern Union cumulative preferred stock upon any voluntary liquidation,
dissolution or winding-up of Southern Union (the "Preferential Amount") is
determined and fixed by the Southern Union board in the resolution providing
for issuance of such series. Likewise, the amount payable to holders of each
series of Southern Union cumulative preferred stock upon any involuntary
liquidation, dissolution or winding-up of Southern Union (the "Stated Value")
is determined and fixed by the Southern Union board in the resolution providing
for issuance of such series. Upon any voluntary liquidation, dissolution or
winding-up of Southern Union, holders of Southern Union cumulative preferred
stock of each series are entitled, before any distribution is made to the
holders of the Southern Union common stock, to be paid the full Preferential
Amount fixed by the board of directors for such series. Upon any involuntary
liquidation, dissolution or winding-up of Southern Union, holders of Southern
Union cumulative preferred stock of each series are entitled, before any
distribution is made to the holders of Southern Union common stock, to be paid
the Stated Value fixed by the Southern Union board for such series per share
plus accrued dividends to the date of distribution. The aggregate Stated Value
of all shares of Southern Union cumulative preferred stock at any time
outstanding must not exceed $60,000,000.
Dividends. Holders of Southern Union cumulative preferred stock of each
series are entitled to receive cumulative cash dividends at the annual rate
fixed by the Southern Union board for such series as may be declared by the
Southern Union board out of funds legally available therefor. Dividends on
Southern Union cumulative preferred stock are payable quarterly on the
fifteenth days of March, June, September and December in each year. Such
dividends are cumulative and are deemed to accrue from day to day regardless of
whether or not earned or declared. Holders of Southern Union cumulative
preferred stock of each series are entitled to receive ratably any dividend
payment upon the Southern Union cumulative preferred stock in proportion to the
amount of the dividends accrued thereon to the date of such dividend payment.
Accumulations of dividends do not bear interest.
If any shares of Southern Union cumulative preferred stock are outstanding,
no dividends may be declared and no distribution may be made or ordered in
respect of Southern Union common stock unless the following conditions have
been satisfied:
. all dividends on all outstanding shares of Southern Union cumulative
preferred stock of all series for all past dividend periods have been
paid and the full dividend on all outstanding shares of Southern Union
cumulative preferred stock of all series for the then current quarterly
dividend period shall have been paid or declared and set apart for
payment; and
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. Southern Union has set aside all amounts, if any, theretofore required
to be set aside as and for sinking, purchase and/or analogous funds, if
any, for the Southern Union cumulative preferred stock of all series.
Redemption. Southern Union, at the option of the Southern Union board may at
any time redeem all, or any portion of the outstanding shares of Southern Union
cumulative preferred stock by paying the holders of such shares cash in the
amount fixed by the Southern Union board in the resolution or resolutions
authorizing the issuance of the shares being redeemed. Such redemption must be
in accordance with the procedures pertaining to Southern Union's redemption
rights of Southern Union cumulative preferred stock set forth in Southern
Union's restated certificate of incorporation. Shares of Southern Union
cumulative preferred stock of any series may also be redeemed through operation
of any sinking or analogous fund created for such series, at the prices and
under the terms and provisions fixed for such fund by the Southern Union board
in the resolution or resolutions authorizing the issuance of such series.
Effect of Proposed Amendments to Southern Union's Charter. If the proposed
amendments to Southern Union's restated certificate of incorporation are
approved and adopted by Southern Union stockholders at the Southern Union
annual meeting, the rights, preferences and powers of shares of Southern Union
cumulative preferred stock will be repealed in their entirety. The Southern
Union board will be granted the authority to issue 6,000,000 shares of
preferred stock in series the Southern Union board deems appropriate and to
establish from time to time the number of shares to be included in each such
series and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof
("Southern Union Blank Check Preferred Stock"). The dividend rights, dividend
rates, conversion rights and terms, voting rights, redemption rights and terms
and liquidation preferences of each series of Southern Union Blank Check
Preferred Stock may be similar to or significantly different from the rights,
preferences and powers of currently authorized Southern Union cumulative
preferred stock.
As of June 30, 1999, there were no shares of Southern Union cumulative
preferred stock outstanding and Southern Union has no plans to issue any shares
of Southern Union cumulative preferred stock. Accordingly, the proposed
amendment to Southern Union's restated certificate of incorporation only
requires the approval of the holders of Southern Union common stock, and no
shares of Southern Union cumulative preferred stock will be redeemed by
Southern Union prior to the effective date of the proposed amendment. If the
proposed amendment is approved and adopted by Southern Union stockholders at
the Southern Union annual meeting, Southern Union's management believes the
amendments will become effective prior to the consummation of the merger.
Transfer Agent and Registrar
BankBoston, N.A. c/o EquiServe, L.P. acts as transfer agent and registrar
for the Southern Union common stock.
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COMPARISON OF PEI AND SOUTHERN UNION STOCKHOLDER RIGHTS
In connection with the merger, you will be converting your shares of PEI
common stock into shares of Southern Union common stock. Southern Union is a
Delaware corporation and PEI is a Pennsylvania corporation, and Southern
Union's restated certificate of incorporation and bylaws differ from PEI's
restated articles of incorporation and bylaws in several significant respects.
Because of the differences between the Delaware General Corporation Law (the
"DGCL") and the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL") and the differences in the restated certificate of incorporation and
bylaws of Southern Union and the restated articles of incorporation and bylaws
of PEI, the rights of a holder of Southern Union common stock differ from the
rights of a holder of PEI common stock.
This document contains a summary of some of the important differences
between the DGCL and the PBCL and the restated certificate of incorporation and
bylaws of Southern Union and the restated articles of incorporation and bylaws
of PEI. This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the DGCL and the PBCL, as well as
the restated certificate of incorporation and bylaws of Southern Union and the
restated articles of incorporation and bylaws of PEI, copies of which are on
file with the SEC.
Southern Union PEI
Corporate Governance
Currently governed by Delaware law Currently governed by Pennsylvania
and the restated certificate of law and the restated articles of
incorporation and bylaws of Southern incorporation and bylaws of PEI.
Union.
Upon completion of the merger, the Upon completion of the merger, the
rights of stockholders of the rights of stockholders of the
combined company will be governed by combined company will be governed by
Delaware law and the restated Delaware law and the restated
certificate of incorporation and certificate of incorporation and
bylaws of Southern Union, after bylaws of Southern Union, after
giving effect to the amendments to giving effect to the amendments to
the restated certificate of the restated certificate of
incorporation proposed for adoption incorporation proposed for adoption
at the Southern Union annual at the Southern Union annual
meeting. meeting.
Authorized Capital Stock
50,000,000 shares of common stock, 5,000,000 shares of common stock
par value $1 per share. At the without nominal or par value.
Southern Union annual meeting,
Southern Union's stockholders will
be asked to vote on a proposal to
amend Southern Union's restated
certificate of incorporation to
provide for 200,000,000 authorized
shares of common stock.
1,500,000 shares of cumulative
preferred stock with no par value.
At the Southern Union annual
meeting, Southern Union's
stockholders will be asked to vote
on a proposal to amend Southern
Union's restated certificate of
incorporation in order to:
. repeal the rights, powers,
privileges and preferences of
cumulative preferred stock; and
. grant the Southern Union board
the authority to issue 6,000,000
shares of preferred stock in
series the Southern Union board
deems appropriate and to
establish from time to time the
terms of each series of this
preferred stock.
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Southern Union PEI
Size of the Board of Directors
Not less than five nor more than Not less than three nor more than
twelve. The Southern Union board may fifteen. The PEI board may increase
increase or decrease the number of or decrease the number of directors
directors within these limits within these limits without a
without a stockholder vote. Holders stockholder vote. The PEI board
of cumulative preferred stock may currently consists of nine
elect additional directors if directors.
dividends are in arrears. The
Southern Union board currently
consists of ten directors. If the
stockholders approve a proposed
amendment to the restated
certificate of incorporation, the
maximum number of directors will be
increased to fifteen. After the
merger is completed, the Southern
Union board will be comprised of
thirteen members. See "The Merger
Agreement--Covenants and Other
Agreements--Certain Other Covenants
and Agreements."
Election and Classification of Board of Directors
The Southern Union board is divided Elected annually.
into three classes, with the term of
office of one class expiring each
year. In the case of any increase in
the number of directors, the number
of directors in each class shall be
as nearly equal as possible. Each
director elected for a three-year
term.
Voting Rights
The stockholders have cumulative Each stockholder is entitled to one
voting rights at all elections of vote for every share held.
directors. Any stockholder who Stockholders do not have cumulative
intends to cumulate votes must give voting rights.
written notice to the secretary no
later than ten days after the notice
of meeting was first sent to the
stockholders.
Removal of Directors; Filling Vacancies
Any and all of the directors may be Any one or more of the directors may
removed with cause by a vote of the be removed with or without cause, at
holders of a majority of shares any time, by a majority vote of the
entitled to vote at an election of stockholders entitled to vote at any
directors. New directorships regular or special meeting. The
resulting from an increase in the successor to any director so removed
authorized number of directors or shall be elected by the remaining
any vacancy on the Southern Union directors.
board may be filled by a majority
vote of the directors then in
office, though less than a quorum.
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Southern Union PEI
Interested Director Transactions
Under the DGCL, certain contracts or Under the PBCL, a transaction
transactions in which one or more of between a corporation and an
a corporation's directors has an interested director will not be void
interest are not void or voidable or voidable solely because of such
because of such interest, provided interest if either:
that either:
. the director's interest has been
. the stockholders or the disclosed to or the PEI board
disinterested directors must knows about the director's
approve any such contract or interest and authorizes the
transaction after full disclosure transaction by the affirmative
of material facts, or vote of a majority of the
disinterested directors even
. the contract or transaction must though the disinterested
have been fair as to the directors are less than a quorum,
corporation at the time it was
approved. If board approval is . the director's interest has been
sought, the contract or disclosed to or the stockholders
transactions must be approved by entitled to vote thereon know
a majority of the disinterested about the director's interest and
directors (even though less than the contract is specifically
a quorum). approved in good faith by a vote
of those stockholders, or
Southern Union's bylaws provide that
no contract, transaction or act of . the transaction is fair to the
Southern Union shall be affected by corporation as of the time it is
the fact that a director is in any authorized, approved or ratified
way interested in, or connected by the PEI board or the
with, any party to such contract, stockholders.
transaction or act, if the
interested director, at least five
days prior to the date of any
regular or special meeting of the
Southern Union board at which such
contract, transaction or act is to
be considered, gives notice in
writing to each of the remaining
directors of his interest in or in
connection with the proposed
contract, transaction or act. If
this condition is complied with, the
interested director may be counted
in determining a quorum at any
meeting of the Southern Union board
at which the contract, transaction
or act will be authorized, but may
not vote on the resolution
pertaining to the interested
director transaction.
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Southern Union PEI
Indemnification of Directors and Officers
Southern Union's bylaws provide that PEI's bylaws provide that, except as
Southern Union shall indemnify each prohibited by law, every director
of its directors and officers to the and officer of PEI is entitled as of
fullest extent permitted by law in right to be indemnified by PEI in
connection with any actual or connection with any actual or
threatened action or proceeding threatened claim, action, suit or
(including civil, criminal, proceeding, civil, criminal,
administrative or investigative administrative, investigative or
proceedings) arising out of their other, whether brought by or in the
service to Southern Union or to any right of PEI or otherwise, in which
other organization at Southern he or she may be involved, as a
Union's request. Employees and party or otherwise, by reason of
agents of Southern Union who are not such person being or having been a
directors and officers may be director or officer of PEI or by
similarly indemnified in respect of reason of the fact that such person
such service to the extent is or was serving at the request of
authorized at any time by the PEI as a director, officer,
Southern Union board. employee, fiduciary or other
representative of another
Under the DGCL, other than an action corporation, partnership, joint
brought by or in the right of the venture, trust, employee benefit
corporation, such indemnification is plan or other entity. Such
available if it is determined that indemnification shall include the
the proposed indemnitee acted in right to have expenses incurred by
good faith and in a manner he or she such person in connection with such
reasonably believed to be in or not claim, action, suit or proceeding
opposed to the best interests of the paid in advance by PEI prior to
corporation, and, with respect to final disposition of such claim,
any criminal action or proceedings, action, suit or proceeding, subject
had no reasonable cause to believe to such conditions as may be
his or her conduct was unlawful. In prescribed by law.
actions brought by or in the right
of the corporation, such The PBCL permits indemnification
indemnification is limited to unless the act or omission giving
expenses actually and reasonably rise to the claim constitutes
incurred and permitted only if the willful misconduct or recklessness.
indemnitee acted in good faith and
in a manner he or she reasonably
believed to be in or not opposed to
the best interests of the
corporation, except that no
indemnification may be made in
respect of any claim, issue or
matter as to which such person is
adjudged to be liable to the
corporation, unless and only to the
extent that the court in which the
action was brought determines that,
despite the adjudication of
liability, but in view of all of the
circumstances of the case, the
person is fairly and reasonably
entitled to indemnity for such
expenses which the court deems
proper. To the extent that the
proposed indemnitee has been
successful in defense of any action,
suit or proceeding, he must be
indemnified against expenses
actually and reasonably incurred by
him in connection with the action.
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Southern Union PEI
Amendments to the Certificate or Articles of Incorporation
The restated certificate of Unless the articles of incorporation
incorporation may be amended by the or a specific provision of the PBCL
affirmative vote of the Southern require a greater vote, the articles
Union board followed by the of incorporation may be amended by
affirmative vote of the holders of a the affirmative vote of the PEI
majority of the outstanding stock board followed by the affirmative
entitled to vote thereon and the vote of a majority of the votes cast
majority of the outstanding stock by all stockholders entitled to vote
entitled to vote thereon as a class. thereon. If any class or series of
shares is entitled to vote on a
proposed amendment as a class, such
amendment must also be approved by
the affirmative vote of a majority
of the votes cast in each such class
vote. Unless otherwise provided in
the articles of incorporation, a
proposed amendment of the articles
of incorporation need not be
approved by the PEI board before
being submitted for stockholder
approval if it is proposed by a
petition of stockholders entitled to
cast at least 10% of the votes that
all stockholders are entitled to
cast thereon. Section 12 of the
restated articles of incorporation
relating to business combinations
with related persons may not be
repealed or amended in any respect,
and no provision inconsistent with
Section 12 may be adopted unless
such action is approved by the
affirmative vote of the holders of a
majority of the outstanding shares
of voting stock held by stockholders
other than related persons.
Amendment of Bylaws
The stockholders may amend, alter or The stockholders, by the affirmative
repeal the bylaws by the affirmative vote of the holders of a majority of
vote of the holders of a majority of the stock issued and outstanding of
the voting power of the then the class or classes entitled to
outstanding shares of stock entitled vote, may at any meeting, provided
to vote generally in the election of the substance of the proposed
directors, voting together as a amendment shall have been stated in
single class. In addition, the the notice of the meeting, amend,
Southern Union board, by the alter or repeal the bylaws. The PEI
affirmative vote of a majority of board, by a majority vote of its
the directors, may at any meeting, members, has the power to make,
if the substance of the proposed alter, amend and repeal the bylaws,
amendment shall have been stated in subject to the power of the
the notice of meeting, amend, alter stockholders to change such action.
or repeal the bylaws.
Power to Call Special Stockholders Meeting
Special meetings of stockholders may A stockholders meeting for any
be called only by the Southern Union purpose may be called at any time by
board pursuant to a resolution the PEI board, upon written request
adopted by a majority of the total delivered to the secretary. In
number of authorized directors addition, an "interested
(whether or not there exist any stockholder" (as defined in PBCL
vacancies in previously authorized Section 2553) may, upon written
directorships at the time any such request delivered to the secretary,
resolution is presented to the call a special meeting for the
Southern Union board for adoption) purpose of approving a business
or by the holders of not less than a combination under PBCL Section 2555,
majority of the voting power of all subsections (3) or (4).
of the then outstanding shares of
any class or series of capital stock
entitled to vote generally in the
election of directors.
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Southern Union PEI
Action by Written Consent
Any action required or permitted to
Any action required or permitted to be taken at a stockholders meeting
be taken by the stockholders must be may be taken without a meeting if,
effected at a duly called annual or before or after the action, consents
special meeting of the stockholders, thereto by all the stockholders who
and may not be effected by the would be entitled to vote at a
written consent of the stockholders. meeting for such purpose are filed
with the secretary.
Inspection of Stockholders List
The officer who has charge of the The officer or agent having charge
stock ledger must prepare and make, of the transfer books for the shares
at least 10 days before every of the corporation must make a
stockholders meeting, a complete complete list of the stockholders
list of the stockholders entitled to entitled to vote at a stockholders
vote at the meeting, arranged in meeting, arranged in alphabetical
alphabetical order, and showing the order, with the address of and the
address of each stockholder and the number of shares held by each
number of shares registered in the stockholder. The list must be
name of each stockholder. The list produced and kept open at the time
must be open to the examination of and place of the meeting and will be
any stockholder, for any purpose subject to the inspection of any
germane to the meeting, during stockholder during the whole time of
ordinary business hours, for a the meeting for the purposes
period of at least 10 days before thereof, except that if the
the meeting. The list must also be corporation has 5,000 or more
produced and kept at the time and stockholders, the corporation may,
place of the meeting during the in lieu of making a list, make the
whole time thereof, and may be information available at the meeting
inspected by any stockholder by any other means.
present.
Dividends and Repurchases of Shares
Dividends on the stock of Southern The PBCL provides that, unless
Union of any class are payable only otherwise restricted in the bylaws,
out of assets, profits or funds of a distribution may be made unless,
the corporation at the time legally after giving effect thereto,
available therefor, and only when
and as declared by the Southern . the corporation would be unable to
Union board. Dividends may be paid pay its debts as they become due
upon common stock as and when in the usual course of its
declared by the Southern Union business or
board, subject to all of the rights
of the preferred stockholders. See . the total assets of the
"Description of Southern Union corporation would be less than the
Capital Stock--Southern Union sum of its total liabilities plus
Cumulative Preferred Stock." the amount that would be needed if
the corporation were to be
In addition, the DGCL generally dissolved at the time as of which
provides that a corporation may the distribution is measured, to
redeem or repurchase its shares only satisfy the preferential rights
if such redemption or repurchase upon dissolution of stockholders
would not impair the capital of the whose preferential rights are
corporation. The ability of a superior to those receiving the
Delaware corporation to pay distribution.
dividends on, or to make repurchases
or redemptions of, its shares is The PBCL also permits corporations
dependent on the financial status of to acquire their own shares.
the corporation standing alone and
not on a consolidated basis. In The PEI board may declare dividends
determining the amount of surplus of from the surplus or net profits
a Delaware corporation, the assets arising from the business of PEI as
of the corporation, including stock and when it deems expedient. Before
of subsidiaries owned by the declaring any dividend, there may be
corporation, must be valued at their reserved out of the accumulated
fair market value as determined by profits such sum or sums as the
the Southern Union board, regardless directors from time to time, in
of their historical book value. their discretion, think proper for
working capital or as a reserve fund
to meet contingencies or for
equalizing dividends, or for such
other purpose as the directors shall
think conducive to the interest of
PEI.
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<PAGE>
Southern Union PEI
Mergers and Major Transactions
Under the DGCL, whenever the approval Under the PBCL, stockholder approval
of the stockholders of a corporation is required for the sale, lease,
is required for an agreement of exchange or other disposition of all
merger or consolidation, or for a or substantially all of the property
sale, lease or exchange of all or and assets of a corporation when not
substantially all of its assets, such made in the usual and regular course
agreement, sale, lease or exchange of the business of such corporation
must be approved by the affirmative or for the purpose of relocating all
vote of the holders of a majority of or substantially all of the business
outstanding shares entitled to vote of such corporation in connection
thereon. Notwithstanding the with the dissolution or liquidation
foregoing, unless required by its of the corporation. In cases where
certificate of incorporation, no vote stockholder approval is required, a
of the stockholders of a constituent merger, consolidation, sale, lease,
corporation surviving a merger is exchange or other disposition must be
necessary to authorize such merger approved by a majority of the votes
if: cast by all stockholders entitled to
vote thereon. Stockholder approval is
. the agreement of merger does not not required for a plan of merger or
amend the certificate of consolidation if:
incorporation of such constituent
corporation; . the surviving or new corporation
is a domestic corporation whose
. each share of stock of such articles are identical to the
constituent corporation articles of such constituent
outstanding prior to such merger corporation;
is to be an identical outstanding
or treasury share of the surviving . each share of such constituent
corporation after the merger; corporation outstanding
immediately prior to the merger
. either no shares of common stock or consolidation will continue as
of the surviving corporation and or be converted into (except as
no shares, securities or otherwise agreed to by the holder
obligations convertible into such thereof) an identical share of
common stock are to be issued the surviving or new corporation;
under such agreement of merger, or and
the number of shares of common
stock issued or so issuable does . such plan provides that the
not exceed 20% of the number stockholders of such constituent
thereof outstanding immediately corporation will hold in the
prior to such merger. aggregate shares of the surviving
or new corporation having a
In addition, the DGCL provides that a majority of the votes entitled to
parent corporation that is the record be cast generally in an election
holder of at least 90% of the of directors. In addition, the
outstanding shares of each class of PBCL provides that stockholder
stock of a subsidiary may merge such approval is not required if,
subsidiary into such parent prior to the adoption of a plan
corporation without the approval of of merger, another corporation
such subsidiary's stockholders or that is a party to such plan owns
board and without the approval of the 80% or more of the outstanding
parent's stockholders. shares of each class of such
constituent corporation.
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<PAGE>
Southern Union PEI
Appraisal Rights/Dissenters Rights
Under the DGCL, unless the The PBCL provides that stockholders
certificate of incorporation of a of a corporation have dissenters
corporation provides otherwise, there rights with respect to specified
are no appraisal rights provided in corporate actions, including:
the case of certain mergers, a sale
or transfer of all or substantially . a plan of merger, consolidation,
all of the corporation's assets or an share exchange or conversion,
amendment to the corporation's
certificate of incorporation. . certain other plans or amendments
Moreover, the DGCL does not provide to its articles in which
appraisal rights in connection with a disparate treatment is accorded
merger or consolidation, unless the to the holders of shares of the
certificate of incorporation provides same class or series and
otherwise, to stockholders of a
constituent corporation that is . a sale, lease, exchange or other
either: disposition of all or
substantially all of the
. listed on a national securities corporation's property and
exchange or designated as a assets, except if such sale,
national market system security by lease, exchange or other
the National Association of disposition is
Securities Dealers or
. made in connection with the
. held of record by more than 2,000 dissolution or liquidation of the
stockholders, unless the corporation,
applicable agreement of merger or
consolidation requires that such . the acquiring corporation owns
stockholders will be entitled to all of the outstanding shares of
receive, in exchange for their the acquired corporation or the
shares of such constituent voting rights, preferences,
corporation, anything except limitations or relative rights of
the acquired corporation are not
. shares of stock of the resulting altered thereby, or
or surviving corporation,
. the assets sold, leased,
. shares of stock of any other exchanged or otherwise disposed
corporation listed on a national of are simultaneously leased back
securities exchange or designated to the corporation.
as a national market system
security on an interdealer Under the PBCL, dissenters rights are
quotation system by the National not provided, however, to the holders
Association of Securities of shares of any class that is either
Dealers, Inc. or held of record listed on a national securities
by more than 2,000 holders, exchange or held of record by more
than 2,000 stockholders unless:
. cash in lieu of fractional shares,
or . such shares are not converted
solely into shares of the
. any combination of the above three acquiring, surviving, new or
bullets. other corporation and cash in
lieu of fractional shares,
The DGCL denies appraisal rights to
the stockholders of the surviving . such shares constitute a
corporation if such merger did not preferred or special class of
require for its approval the vote of stock, the plan or terms of the
the stockholders of such surviving transaction entitle all
corporation. stockholders of the class to vote
thereon and the affirmative vote
of a majority of the votes cast
by all stockholders of such class
is required for adoption of the
plan or the effectuation of the
transactions, or
. such shares constitute a group of
a class or series which are to
receive special treatment in the
corporate action under
consideration and the holders of
such group are not entitled to
vote as a special class in
respect of such corporate action.
83
<PAGE>
Southern Union PEI
Anti-Takeover Provisions
Southern Union is subject to DGCL PEI is subject to PBCL Section 2555,
Section 203, which generally which generally prohibits
prohibits a Delaware corporation from corporations subject to the Exchange
engaging in a "business combination" Act reporting requirements from
(defined as a variety of engaging in a "business combination"
transactions, including mergers, (defined as a variety of
asset sales, issuance of stock and transactions, including mergers,
other transactions resulting in a consolidations, share exchanges,
financial benefit to the interested asset sales and dispositions, stock
stockholder) with an "interested issuances and transfers and other
stockholder" (defined generally as a transactions resulting in a
person that is the beneficial owner disproportionate financial benefit to
of 15% or more of a corporation's an interested shareholder) with an
outstanding voting stock) for a "interested shareholder" (defined
period of three years following the generally as a person that is the
date that such person became an beneficial owner of 20% or more of a
interested stockholder unless certain corporation's outstanding voting
conditions are met. stock) for a period of five years
following the date that such person
became an interested shareholder
unless certain conditions are met.
The PBCL, unlike the DGCL, provides
that, subject to certain limited
exceptions, in the event of the
acquisition by any person or group of
shares of an Exchange Act reporting
corporation that entitles the holder
thereof to at least 20% of the voting
power of the voting shares of the
corporation, such person or group
must give notice to all stockholders
of record of the corporation that the
acquisition has occurred and any of
the stockholders may demand payment
of the fair value of their shares.
PEI's restated articles of
incorporation provide that, in
addition to any affirmative vote
required by law, certain "business
combinations" (defined as a variety
of transactions, including mergers,
asset sales or other dispositions,
securities issuances,
reclassifications, recapitalizations
and certain other types of
transactions) with a "related person"
(defined generally as a holder of 10%
or more of PEI's voting stock),
require the approval of a majority of
the outstanding shares entitled to
vote in the election of PEI's
directors held by stockholders other
than a related person, unless certain
price or directors' approval
conditions are met.
The PBCL's "control-share
acquisition" and controlling
stockholder disgorgement provisions
are not applicable to PEI by virtue
of an opt-out clause in PEI's bylaws.
84
<PAGE>
Southern Union PEI
Dissolution
Under the DGCL, if the Southern Union Under the PBCL, if the board adopts a
board deems it advisable that the resolution recommending to dissolve
corporation should be dissolved and a the corporation, the stockholders
majority of the outstanding stock of must adopt the resolution by the
the corporation entitled to vote affirmative vote of a majority of the
thereon votes in favor of the votes cast by all stockholders
proposed dissolution, the corporation entitled to vote thereon. Unlike the
shall be dissolved upon the filing of DGCL, the PBCL provides two different
a certificate of dissolution with the procedures for the corporation to
Secretary of State of the State of provide for the winding up and
Delaware. The corporation shall distribution of the corporation's
continue after dissolution for the assets. The board may elect that the
purposes of defending suits and dissolution shall proceed under
settling its affairs for a three-year Subchapter H or under Section 1975 of
period. The DGCL sets forth certain the PBCL. Under Section 1975, the
payment and distribution procedures a corporation must provide for the
dissolving corporation must follow in liabilities of the corporation prior
connection with winding up its to filing the articles of dissolution
affairs. Such procedures include in the Pennsylvania Department of
certain notification requirements, State. Directors of corporations that
and, under certain circumstances, elect to follow this procedure are
obtaining the approval of the held to the standard of care that
Delaware Court of Chancery. Directors applies to all of their other duties.
of a dissolved corporation that The Subchapter H provision is largely
comply with the DGCL's payment and analogous to the procedure under the
distribution procedures shall not be DGCL. Under the PBCL, however, the
personally liable to the claimants of corporation only continues to exist
the dissolved corporation. for the purpose of settling its
affairs for a period of two years.
Furthermore, the court in determining
the amount of security that shall be
posted by the dissolved corporation
shall consider the amount that would
be reasonably likely to be sufficient
to provide compensation for claims
that are unknown but that are likely
to arise or become known for a period
of only two years after the
dissolution of the corporation.
85
<PAGE>
PRINCIPAL STOCKHOLDERS
Beneficial Owners of More Than 5% of Southern Union's Outstanding Securities
The following table shows, as of September 3, 1999, any person who is known
by Southern Union to be the beneficial owner individually or collectively of
more than five percent of the outstanding Southern Union common stock.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial
Ownership
Number of Shares Percent
Beneficially Owned of
Name and Address of Beneficial Owner (1) Class
- ------------------------------------ -------------------- -------
<S> <C> <C>
George L. Lindemann ............................ 4,683,224 (2)(3) 14.79%
767 Fifth Avenue, 50th Floor
New York, New York 10153
Adam M. Lindemann .............................. 2,614,598 (3)(4) 8.37%
767 Fifth Avenue, 50th Floor
New York, New York 10153
George Lindemann, Jr. .......................... 2,611,831 (3) 8.36%
11950 Mainstone Drive
Wellington, Florida 33414
Sloan N. Lindemann ............................. 2,611,831 (3) 8.36%
767 Fifth Avenue, 50th Floor
New York, New York 10153
Lee M. Bass .................................... 1,192,039 (5)(6) 3.82%
201 Main Street
Fort Worth, Texas 76102
Sid R. Bass Management Trust (7) ............... 1,542,274 (5)(8) 4.94%
201 Main Street
Fort Worth, Texas 76102
Baron Capital Group, Inc. ...................... 3,408,521 (9) 10.91%
767 Fifth Avenue, 49th Floor
New York, New York 10153
The Equitable Companies Incorporated ........... 1,709,967 (10) 5.47%
1290 Avenue of the Americas
New York, New York 10104
</TABLE>
- --------
(1) Includes options to acquire shares of Southern Union common stock that are
exercisable within 60 days of September 3, 1999. All information has been
adjusted for the 5% stock dividend distributed on August 6, 1999.
(2) Of these shares: 1,938,320 are owned by Mr. Lindemann including 7,388
vested shares held by the 401(k) Southern Union Savings Plan (the "40l(k)
Plan") and 10,833 vested shares held through the Southern Union
Supplemental Deferred Compensation Plan (the "Supplemental Plan");
2,099,135 shares are owned by his wife, Dr. F.B. Lindemann; and 430,609
shares of Southern Union common stock Mr. Lindemann is entitled to
purchase upon the exercise of presently exercisable stock options pursuant
to the 1992 Plan. Substantially all shares held by Mr. and Dr. Lindemann
and their three children (Adam M., George, Jr., and Sloan N.) have been
pledged to Activated Communications Limited Partnership ("Activated").
Activated, which is owned and managed by or for the benefit of the
Lindemanns, provided the funds used to purchase certain of such shares.
Mr. Lindemann is the Chairman of the board and President, and
Dr. Lindemann is a director, of the sole general partner of Activated.
(3) This information regarding direct share ownership by members of the
Lindemann Family generally was obtained from and is reported herein in
reliance upon a Schedule 13D (as amended through February 6, 1997) as
adjusted for any stock dividends and splits since the date of such report
filed by Adam M. Lindemann, Dr. F.B. Lindemann, George L. Lindemann,
George L. Lindemann, Jr. and Sloan N. Lindemann. In addition, information
regarding share ownership by George L. Lindemann (including shares owned
by his wife, Dr. F.B. Lindemann) and Adam M. Lindemann reflects
information
86
<PAGE>
derived from their respective reports on Form 4 and Form 5 under the
Exchange Act filed to date. Each member of the Lindemann Family disclaims
beneficial ownership of any shares owned by any other member of the
Lindemann Family. Accordingly, with respect to each member of the Lindemann
Family, the above table reflects only individual share ownership except
that the shares held by Dr. F. B. Lindemann are reflected as owned by
George L. Lindemann, as explained in Note (2).
(4) Includes 3,359 vested shares pursuant to the Southern Union Directors'
Deferred Compensation Plan (the "Directors' Plan").
(5) Does not include 132,667, 67,586 and 67,586 shares (all representing less
than 1% of the Southern Union common stock outstanding) owned by Bass
Enterprises Production Co. ("BEPCO"), The Bass Foundation ("BF") and Lee
and Romana Bass Foundation ("LRBF"), respectively. This information, the
information set forth in note (7) and the number of shares owned by Lee
M. Bass and Sid R. Bass Management Trust set forth in the table were
obtained from and are reported herein in reliance upon a Schedule 13D (as
amended through December 30, 1997) filed by Sid R. Bass, Lee M. Bass, Sid
R. Bass Management Trust, Perry R. Bass, BEPCO, BF and LRBF (the "Bass
Filing Group"), as adjusted for any stock dividends and splits since the
date of such schedule. Members of the Bass Filing Group disclaim
beneficial ownership in each other's shares.
(6) Does not include shares reported to be held by Sid R. Bass Management
Trust. See notes (5), (7) and (8).
(7) Sid R. Bass Management Trust is a revocable trust under Texas law for
which Sid R. Bass, Lee M. Bass and one other person are trustees. See
note (5) above.
(8) Does not include shares reported to be held by Lee M. Bass. See notes (5)
and (6).
(9) This information regarding share ownership by Baron Capital Group, Inc.
("BCG") was obtained from and is reported herein in reliance upon a
Schedule 13G, as amended through August 4, 1999 (the "Baron Filing")
filed by BCG, BAMCO, Inc. ("BAMCO"), Baron Capital Management, Inc.
("BCM"), Baron Asset Fund ("BAF") and Ronald Baron (collectively, the
"Baron Filing Group"). Pursuant to the Baron Filing, the members of the
Baron Filing Group own beneficially and have shared power to vote or
direct the vote of and to dispose or direct the disposition of the
following number of shares of Southern Union common stock: BCG--3,408,521
shares; BAMCO--2,707,000 shares; BCM--701,521 shares, BAF--2,173,600
shares; and Mr. Baron--3,408,521 shares. The members of the Baron Filing
Group disclaim beneficial ownership in each other's shares.
(10) This information regarding direct share ownership by The Equitable
Companies Incorporated was obtained from and is reported herein in
reliance upon a Schedule 13G (dated February 10, 1999) as adjusted for any
stock dividends since the date of such report and any 13F filings by The
Equitable Companies Incorporated.
87
<PAGE>
Southern Union Management Ownership
The following table shows the number of shares of Southern Union common
stock, beneficially owned, directly or indirectly, as of September 3, 1999, by
individual directors and officers, and all directors and officers as a group,
who held such positions as of the Southern Union record date. Unless otherwise
specified, shares are beneficially owned directly by the director or officer.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percent
Number of Shares of
Name of Beneficial Owner Beneficially Owned (1) Class
- ------------------------ ---------------------- -------
<S> <C> <C>
George L. Lindemann............................ 4,683,224(2)(3) 14.79%
Adam M. Lindemann.............................. 2,614,598(3)(4) 8.37%
John E. Brennan................................ 630,035(5) 2.00%
Frank W. Denius................................ 47,506(6) *
Aaron I. Fleischman............................ 520,502(7) 1.66%
Kurt A. Gitter, M.D............................ 175,132(8) *
Peter H. Kelley................................ 469,469(9) 1.49%
Roger J. Pearson............................... 39,044(10) *
George Rountree, III........................... 56,548(11) *
Dan K. Wassong................................. 53,207(12) *
Steve W. Cattron............................... 5,472(13) *
Ronald J. Endres............................... 313,054(14) 1.00%
David J. Kvapil................................ 47,972(15) *
Dennis K. Morgan............................... 65,000(16) *
David W. Stevens............................... 70,605(17) *
All directors and officers as a group (15
persons)...................................... 9,838,588(18) 31.50%
</TABLE>
- --------
* Less than one percent.
(1) Includes options to acquire shares of Southern Union common stock that
are exercisable within 60 days of September 3, 1999. All information has
been adjusted for the 5% stock dividend distributed on August 6, 1999.
(2) For a description of the shares of Southern Union common stock
beneficially owned by Mr. George L. Lindemann and included in the above
table, see note (2) to the table set forth in "--Beneficial Owners of
More Than 5% of Southern Union's Outstanding Securities."
(3) For information regarding beneficial share ownership by members of the
Lindemann Family, see note (3) to the table set forth in "--Beneficial
Owners of More Than 5% of Southern Union's Outstanding Securities."
(4) For a description of the shares of Southern Union common stock
beneficially owned by Mr. Adam M. Lindemann and included in the above
table, see note (4) to the table set forth in "--Beneficial Owners of
More Than 5% of Southern Union's Outstanding Securities."
(5) Of these shares, 3,876 vested shares are held by the 401(k) Plan, 4,753
vested shares are held through the Supplemental Plan, 4,756 shares are
owned by his wife, 199,720 are held in two separate trusts for the
benefit of members of his family and 315,292 represent shares that Mr.
Brennan is entitled to purchase upon the exercise of presently
exercisable stock options granted to him pursuant to the Southern Union
1982 Stock Option Plan (the "1982 Plan") and the 1992 Plan.
(6) Includes: 910 shares owned by his wife: 25,921 shares that The Effie and
Wofford Cain Foundation (the "Foundation"), in which Mr. Denius is a
director, owns; and 7,200 vested shares pursuant to the Directors' Plan.
Mr. Denius disclaims beneficial ownership of those shares held by the
Foundation since he does not have a pecuniary interest in or control the
Foundation's assets.
(7) Includes: 100,506 shares that Fleischman and Walsh, L.L.P., in which Mr.
Fleischman is Senior Partner, is entitled to purchase upon exercise of a
Warrant; 12,151 vested shares pursuant to the Directors' Plan; 106,872
shares owned by the Fleischman and Walsh 401(k) Profit Sharing Plan for
which Mr. Fleischman is a trustee and a beneficiary; and 21,147 shares
owned by the Aaron I. Fleischman Foundation for which
88
<PAGE>
Mr. Fleischman is the sole trustee. Mr. Fleischman disclaims beneficial
ownership of those shares held by the Fleischman and Walsh 401(k) Profit
Sharing Plan, in which he does not have a pecuniary interest, and those
shares held by the Aaron I. Fleischman Foundation.
(8) Includes 5,445 vested shares pursuant to the Directors' Plan.
(9) Includes 322,068 shares that Mr. Kelley is entitled to purchase upon the
exercise of presently exercisable stock options granted pursuant to the
1982 Plan and the 1992 Plan. Such number also includes: 18,265 vested
shares held by the 401(k) Plan; 3,383 vested shares held through the
Southern Union Stock Purchase Plan; and 27,357 vested shares held
through the Supplemental Plan.
(10) Includes 2,936 shares held by Mr. Pearson as Custodian (pursuant to the
Uniform Gifts to Minors Act) for his children; and 3,828 vested shares
pursuant to the Directors' Plan.
(11) Includes 1,376 shares owned by his wife and 14,337 vested shares
allocated to Mr. Rountree pursuant to the Directors' Plan.
(12) Includes 5,127 vested shares pursuant to the Directors' Plan.
(13) Includes 511 vested shares held through the Supplemental Plan and 4,961
of presently exercisable stock options pursuant to the 1992 Plan.
(14) Includes 203,776 shares Mr. Endres is entitled to purchase upon the
exercise of presently exercisable stock options pursuant to the 1982
Plan and the 1992 Plan. Such number also includes: 10,856 vested shares
held through the 401(k) Plan and 17,093 vested shares held through the
Supplemental Plan.
(15) Includes 29,926 shares that Mr. Kvapil is entitled to purchase upon the
exercise of presently exercisable stock options pursuant to the 1992
Plan. Such number also includes 8,793 vested shares held through the
Supplemental Plan; 3,549 vested shares held by the 401(k) Plan; and
3,614 vested shares held through the Southern Union Stock Purchase Plan.
(16) Includes 48,165 shares Mr. Morgan is entitled to purchase upon the
exercise of presently exercisable stock options pursuant to the 1992
Plan. Such number also includes 5,459 vested shares held through the
401(k) Plan and 9,751 vested shares held through the Supplemental Plan.
(17) Includes 46,355 shares that Mr. Stevens is entitled to purchase upon the
exercise of presently exercisable stock options granted pursuant to the
1992 Plan. Such number also includes: 10,601 vested shares held by the
401(k) Plan; 1,738 vested shares held through the Southern Union Stock
Purchase Plan and 10,629 vested shares held through the Supplemental
Plan.
(18) Excludes options granted pursuant to the 1982 Plan and the 1992 Plan to
acquire shares of Southern Union common stock that are not presently
exercisable or do not become exercisable within 60 days of September 3,
1999. Includes vested shares held through certain Southern Union benefit
and deferred savings plans for which certain executive officers and
directors may be deemed beneficial owners, but excludes shares which
have not vested under the terms of such plans. Also, includes 47,220
shares held by a "Rabbi Trust" known as the Trust for Miscellaneous
Southern Union Company Deferred Compensation Arrangements ("Rabbi
Trust"). The shares are held as a part of Southern Union's efforts to
provide funding for a portion of the future liability under the Southern
Union Supplemental Executive Retirement Plan ("SERP"). Any assets held
for the benefit of the SERP are held in the Rabbi Trust. Southern Union
management directly or indirectly controls the investment of any assets,
and the voting of any securities, held for the SERP. Of the shares held
for the SERP as of September 3, 1999, 21,700 shares were purchased in
the open market after June 30, 1999. Southern Union anticipates that the
SERP may continue to purchase shares of Southern Union common stock,
including in the open market, to assist in fulfillment of future payment
obligations under the SERP.
Beneficial Owners of More Than 5% of PEI's Common Stock
PEI does not know of any person who is the beneficial owner of more than 5%
of the outstanding PEI common stock, other than Mr. Kenneth M. Pollock, a
director of PEI, who beneficially owns 6.34% of the PEI common stock as
described below in the PEI Management Ownership section of this proxy
statement/prospectus. Mr. Pollock's mailing address is c/o Pennsylvania
Enterprises, Inc., One PEI Center, Wilkes-Barre, Pennsylvania 18711-0601.
89
<PAGE>
PEI Management Ownership
The following table shows the number of shares of PEI common stock,
beneficially owned, directly or indirectly, as of September 3, 1999, by
individual directors and officers, and all directors and officers as a group,
who held such positions as of September 3, 1999. Unless otherwise specified,
shares are beneficially owned directly by the director or officer.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percent
Number of Shares of
Name of Beneficial Owner Beneficially Owned (1) Class
- ------------------------ --------------------- -------
<S> <C> <C>
Ronald W. Simms............................... 333,946(2) 3.08%
Thomas F. Karam............................... 241,265(3) 2.22%
William D. Davis.............................. 46,141(4) *
Robert J. Keating............................. 31,151(5) *
James A. Ross................................. 12,720(6) *
John D. McCarthy.............................. 20,118(7) *
Kenneth M. Pollock............................ 687,778(8) 6.34%
John D. McCarthy, Jr.......................... 9,462(9) *
Richard A. Rose, Jr........................... 38,885(10) *
Vincent A. Bonaddio........................... 3,220 *
Harry E. Dowling.............................. 14,921 *
John F. Kell, Jr.............................. 16,376
All directors and officers as a group (17
persons)..................................... 1,455,921(11)(12) 13.41%
</TABLE>
- --------
* Less than one percent.
(1) Includes shares that may be acquired pursuant to the exercise of stock
options exercisable within 60 days of September 3, 1999, as follows:
140,000 for Mr. Karam; 110,000 for the Estate of Mr. Kenneth L. Pollock,
of which Mr. Kenneth M. Pollock is co-executor; 7,000 for Mr. Dowling;
7,000 for Mr. Kell; and 3,600 for other officers not specifically named.
Also includes 15,816 stock units credited to directors' accounts pursuant
to the Director Deferred Compensation Plan as follows: 2,328 for
Mr. Simms, 2,800 for Mr. Davis, 2,768 for Mr. John D. McCarthy, 820 for
Mr. Ross, 2,163 for Mr. John D. McCarthy, Jr., 2,729 for Mr. Pollock, and
2,208 for Mr. Rose. Does not include 245,750 shares that may be acquired
pursuant to the exercise of stock options that are not exercisable within
60 days of September 3, 1999 but will become exercisable upon stockholder
approval of the merger agreement. See "The Merger--Potential Conflicts
and Interests of Certain Persons in The Merger."
(2) Includes 87,854 shares owned by Mr. Simms's wife and 105,519 shares for
which Mr. Simms has voting power.
(3) Includes 32,800 shares that Mr. Karam owns jointly with his wife, 53,897
shares for which Mr. Karam has voting power, and 13,000 shares held in
the name of Lakeside Drive Assoc., Inc., in which Mr. Karam's wife has an
interest. These 13,000 shares are also reported for Mr. Keating who has
an interest in Lakeside Drive Assoc., Inc. These shares are reported one
time, on an unduplicated basis, in the total shares owned by all
directors and officers as a group.
(4) Includes 1,000 shares owned by Mr. Davis's wife; 3,000 shares owned by a
charitable remainder trust of which Mr. Davis is the life income
beneficiary and a joint trustee with his wife; and 3,000 shares owned by
a charitable remainder trust of which Mr. Davis's wife is a life income
beneficiary and a joint trustee with Mr. Davis. Mr. Davis shares voting
and investment power with his wife of the shares held by both these
trusts.
(5) Includes 1,411 shares owned by Mr. Keating's wife and 13,000 shares that
Mr. Keating beneficially owns through Lakeside Drive Assoc., Inc.
(6) Includes 1,500 shares held jointly with Mr. Ross's wife, 600 shares owned
by Mr. Ross's wife and 2,600 shares owned by charitable foundations of
which Mr. Ross is a trustee. Mr. Ross shares voting and investment power
and disclaims beneficial ownership of the shares held by these
foundations. Also
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includes 2,000 shares owned by the estate of Ruth H. Ross of which Mr.
Ross is co-executor and co-trustee, 1,000 shares owned by James A. Ross
Profit Sharing of which Mr. Ross is a trustee, and 2,000 shares owned by
the James A. Ross Marital Trust of which Mr. Ross has informal investment
control and a remaining interest and disclaims beneficial ownership,
except for pecuniary interest.
(7) Includes 2,000 shares owned by Mr. McCarthy's wife and 2,000 shares held
by McCarthy Realty Inc., in which both Messrs. John D. McCarthy and John
D. McCarthy, Jr. each have a beneficial interest. These shares are
reported in the total shares for each of them, but are reported one time,
on an unduplicated basis, in the total shares owned by all directors and
officers as a group.
(8) Includes 265,953 shares owned by the Estate of Mr. Kenneth L. Pollock of
which Mr. Kenneth M. Pollock is co-executor; 216,800 shares held by
several corporations of which controlling interests are owned by the
Estate of Mr. Kenneth L. Pollock; 34,778 shares owned by Kenneth L.
Pollock and Marion F. Pollock of which Mr. Pollock has voting and
investment power; 2,407 shares owned by Marion F. Pollock under PEI's
Employees' Savings Plan for which Mr. Pollock has voting and investment
power; 13,456 shares owned by Mr. Pollock's children; 30,703 shares owned
by Mr. Pollock as custodian for his children; and presently exercisable
options to purchase 110,000 shares owned by the Estate of Mr. Kenneth L.
Pollock.
(9) Includes 2,000 shares that Mr. McCarthy owns jointly with his wife and
500 shares he owns jointly with his wife and son.
(10) Includes 22,486 shares that Mr. Rose owns jointly with his wife, 5,794
shares owned by Mr. Rose's wife, 2,473 shares held as custodian for his
children, and 4,924 shares for which Mr. Rose has voting power.
(11) PEI has an Employees' Savings Plan in which officers and employees
participate. Included in the number of shares of PEI common stock shown
above are 22,206 shares which were allocated to accounts under the
Employees' Savings Plan of all officers as a group at September 3, 1999
(including 1,568 for Mr. Karam, 2,220 for Mr. Bonaddio, 5,652 for Mr.
Dowling, and 3,972 for Mr. Kell).
(12) Does not include 112,255 shares of PEI common stock held by the
Employees' Retirement Plan, as to which investment power is exercised by
the Investment Committee under the Plan, consisting of Messrs. John D.
McCarthy, Keating, Ross, Davis and John D. McCarthy, Jr. The Committee
members disclaim beneficial ownership of these shares.
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LEGAL MATTERS
The validity of the Southern Union common stock offered hereby will be
passed upon by Fleischman and Walsh, L.L.P. In addition, certain tax matters in
connection with the merger will be passed upon for Southern Union by Roberts &
Holland LLP. Mr. Aaron I. Fleischman, the senior partner of Fleischman and
Walsh, L.L.P., is a director of Southern Union.
Certain legal matters in connection with the merger, including, among other
things, certain tax matters, will be passed upon for PEI by Hughes Hubbard &
Reed LLP.
EXPERTS
The consolidated financial statements of Southern Union included in its
Annual Report on Form 10-K for the years ended June 30, 1999, 1998 and 1997,
have been incorporated in this proxy statement/prospectus by reference and have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements and schedules of PEI included in its
Annual Report on Form 10-K for the years ended December 31, 1998 and 1997, have
been incorporated in this proxy statement/prospectus by reference and have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements and schedules for the year ended
December 31, 1996 included in PEI's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference, were audited by
Arthur Andersen LLP, independent accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
Representatives of PricewaterhouseCoopers LLP expect to be present at the
PEI special meeting, and while they have stated that they do not intend to make
a statement at the meeting, they will be available to respond to appropriate
questions from stockholders in attendance.
OTHER BUSINESS
The PEI board does not intend to bring any other business before the PEI
special meeting, and, so far as is known to the PEI board, no other business is
to be brought before the meeting. As to any business that may properly come
before the meeting, however, it is intended that proxies, in the form enclosed,
will be voted in respect thereof in accordance with the judgment of the persons
voting such proxies.
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AGREEMENT OF MERGER
This AGREEMENT OF MERGER (this "Agreement") is made as of the 7th day of
June, 1999, by and between SOUTHERN UNION COMPANY, a Delaware corporation
("SUG"), and PENNSYLVANIA ENTERPRISES, INC., a Pennsylvania corporation
("PNT").
RECITALS
WHEREAS, the Board of Directors of each of SUG and PNT has approved and
deems it advisable and in the best interests of their respective shareholders
to consummate the merger of PNT with and into SUG upon the terms and subject
to the conditions set forth herein; and
WHEREAS, in furtherance thereof, the Board of Directors of each of SUG and
PNT has approved this Agreement and the merger of PNT with and into SUG, with
SUG being the surviving corporation (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, SUG
and PNT hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Article I
(such definitions to be equally applicable to both the singular and plural
forms of the terms defined):
"Acquired Companies"--PNT and its Subsidiaries, collectively, and each, an
"Acquired Company."
"Applicable Contract"--any Contract (a) under which any Acquired Company
has any rights, (b) under which any Acquired Company has any obligation or
liability, or (c) by which any Acquired Company or any of the assets owned or
used by it is bound.
"Average Trading Price"--of SUG Common Stock, as of any date, will equal
the average of the reported closing market prices of such stock for the ten
consecutive trading days ending on the third trading day prior to such date
(counting from and including the trading day immediately preceding such date).
The closing market price for each day in question will be the last sale price,
regular way or, if no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system of the principal national
securities exchange on which SUG Common Stock is listed or admitted to
trading.
"CERCLA"--the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing Date"--the date on which the Closing actually takes place.
"COBRA"--the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, or any successor law, and regulations and rules issued pursuant to
that act or any successor law, and also the requirements of Part 6 of Subtitle
B of Title I of ERISA.
"Consent"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
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"Contract"--any agreement, contract, document, instrument, obligation,
promise or undertaking (whether written or oral) that is legally binding.
"DGCL"--the Delaware General Corporation Law.
"Encumbrance"--any charge, adverse claim, lien, mortgage, pledge, security
interest or other encumbrance.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins,
and wetlands), groundwaters, drinking water supply, stream sediments, ambient
air (including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Law"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful; or
(e) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for injuries
done to public assets or for damages to natural resources.
"ERISA"--the Employee Retirement Income Security Act of 1974, as amended,
or any successor law, and regulations and rules issued pursuant to that act or
any successor law.
"Exchange Act"--the Securities Exchange Act of 1934, as amended, or any
successor law, and regulations and rules issued by the SEC pursuant to that
act or any successor law.
"Facilities"--any real property, leaseholds, or other interests currently
or formerly owned or operated by any Acquired Company and any buildings,
plants, structures, or equipment (including motor vehicles, tank cars, and
rolling stock) currently or formerly owned or operated by any Acquired
Company.
"FERC"--the Federal Energy Regulatory Commission or any successor agency.
"Final Order"--an action by a Governmental Body as to which: (a) no request
for stay of the action is pending, no such stay is in effect and if any time
period is permitted by statute or regulation for filing any request for such
stay, such time period has passed; (b) no petition for rehearing,
reconsideration or application for review of the action is pending and the
time for filing any such petition or application has passed; (c) such
Governmental Body does not have the action under reconsideration on its own
motion and the time in which such reconsideration is permitted has passed; and
(d) no appeal to a court, or a request for stay by a court of the Governmental
Body's action is pending or in effect and the deadline for filing any such
appeal or request has passed.
"GAAP"--generally accepted United States accounting principles, applied on
a consistent basis.
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"Governmental Authorization"--any approval, consent, license, franchise,
certificate of public convenience and necessity, permit, waiver or other
authorization issued, granted, given, or otherwise made available by or under
the authority of any Governmental Body or pursuant to any Legal Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district or other
jurisdiction of any nature;
(b) federal, state, county, local, municipal or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or entity
and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature.
"Hazardous Activity"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any withdrawal
or other use of groundwater) of Hazardous Materials in, on, under, about, or
from the Facilities or any part thereof into the Environment, any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"Hazardous Materials"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, or any successor law, and regulations and rules issued by the U.S.
Department of Justice or the Federal Trade Commission pursuant to that act or
any successor law.
"IRC"--the Internal Revenue Code of 1986, as amended.
"IRS"--the Internal Revenue Service or any successor agency.
"Knowledge"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who is
serving as a director or officer of such Person or any material Subsidiary of
it or other management employee with direct responsibility for such particular
fact or other matter of such Person or any material Subsidiary of it (or in
any similar capacity) has actual knowledge of such fact or other matter.
"Legal Requirement"--any federal, state, county, local, municipal, foreign,
international, multinational, or other administrative order, constitution,
law, ordinance, principle of common law, regulation, rule, tariff, franchise
agreement, statute or treaty.
"Material Contract"--a Contract involving a total commitment by or to any
party thereto of at least $100,000 on an annual basis or at least $500,000 on
its remaining term which cannot be terminated on no more than sixty (60) days'
notice without penalty or additional cost to the Acquired Company as the
terminating party.
"Occupational Safety and Health Law"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working
conditions.
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"Order"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action and authorization therefor is consistent with the past
practices of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; and
(b) such action is not required by law to be authorized by the board of
directors (or similar authority) of such Person or of such Person's parent
company (if any).
"Organizational Documents"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement
and any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) the certificate of formation and the members, operating or
similar agreement of a limited liability company; (e) any charter or similar
document adopted or filed in connection with the creation, formation or
organization of a Person; and (f) any amendment to any of the foregoing.
"PBCL"--the Pennsylvania Business Corporation Law.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, organized
group of persons, entity of any other type, or Governmental Body.
"PG Preferred Stock"--each series of the cumulative preferred stock, par
value $100.00 per share, of PG Energy.
"PNT Balance Sheet"--the audited consolidated balance sheet of the Acquired
Companies at December 31, 1998 (including the notes thereto), provided by PNT
to SUG as part of the PNT Financial Statements.
"PNT Common Stock"--the common stock, no par value, of PNT.
"PNT Disclosure Schedule"--the disclosure schedule delivered by PNT to SUG
concurrently with the execution and delivery of this Agreement.
"PNT Material Adverse Effect"--a material adverse effect (i) on the
business, operations, financial condition or results of operations of PNT and
its Subsidiaries, taken as a whole, or (ii) on the ability of PNT and its
Subsidiaries to consummate the Mergers in accordance with this Agreement.
"PNT Permitted Liens"--Encumbrances securing Taxes, assessments,
governmental charges or levies, or the claims of materialmen, mechanics,
carriers and like persons, all of which are not yet due and payable or which
are being contested in good faith; Encumbrances (other than any Encumbrance
imposed by ERISA) incurred on deposits made in the Ordinary Course of Business
in connection with worker's compensation, unemployment insurance or other
types of social security; the Encumbrances created by and the Encumbrances
permitted under the Indenture of Mortgage and Deed of Trust, dated as of March
15, 1946, between PG Energy (formerly known as Scanton-Spring Brook Water
Service Company) and Morgan Guaranty Trust Company of New York (formerly known
as Guaranty Trust Company of New York), as Trustee, as amended or supplemented
from time to time; in the case of leased real property, Encumbrances (not
attributable to an Acquired Company as lessee) affecting the landlord's (and
any underlying landlord's) interest in any leased real property; and such
other Encumbrances which are not, individually or in the aggregate, reasonably
likely to have a PNT Material Adverse Effect.
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"Proceeding"--any action, arbitration, hearing, litigation or suit (whether
civil, criminal, administrative, investigative, or informal) commenced,
brought, conducted, or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"PUHCA"--the Public Utility Holding Company Act of 1935, as amended, or any
successor law, and regulations and rules issued by the SEC pursuant to that
act or any successor law.
"Related Documents"--any Contract provided for in this Agreement to be
entered into by one or more of the parties hereto or their respective
Subsidiaries in connection with the Mergers.
"Release"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SEC"--the United States Securities and Exchange Commission or any
successor agency.
"Securities Act"--the Securities Act of 1933, as amended, or any successor
law, and regulations and rules issued by the SEC pursuant to that act or any
successor law.
"Subsidiary"--with respect to any Person (the "Owner"), any Person of which
securities or other interests having the power to elect a majority of that
other Person's board of directors or similar governing body, or otherwise
having the power to direct the business and policies of that corporation or
other Person (other than securities or other interests having such power only
upon the happening of a contingency that has not occurred) are held by the
Owner or one or more of its Subsidiaries; when used without reference to a
particular Person, "Subsidiary" means a Subsidiary of PNT.
"SUG Balance Sheet"--the audited consolidated balance sheet of SUG at June
30, 1998 (including the notes thereto), provided by SUG to PNT as part of the
SUG Financial Statements.
"SUG Common Stock"--the Common Stock, par value $1.00 per share, of SUG.
"SUG Disclosure Schedule"--the disclosure schedule delivered by SUG to PNT
concurrently with the execution and delivery of this Agreement.
"SUG Material Adverse Effect"--a material adverse effect (i) on the
business, operations, financial condition or results of operations of SUG and
its Subsidiaries, taken as a whole, or (ii) on the ability of SUG to
consummate the Mergers in accordance with this Agreement.
"SUG Permitted Liens"--Encumbrances securing Taxes, assessments,
governmental charges or levies, or the claims of materialmen, mechanics,
carriers and like persons, all of which are not yet due and payable or which
are being contested in good faith; Encumbrances (other than any Encumbrance
imposed by ERISA) incurred on deposits made in the Ordinary Course of Business
in connection with worker's compensation, unemployment insurance or other
types of social security; in the case of leased real property, Encumbrances
(not attributable to SUG as lessee) affecting the landlord's (and any
underlying landlord's) interest in any leased real property; and such other
Encumbrances which are not, individually or in the aggregate, reasonably
likely to have an SUG Material Adverse Effect.
"Tax"--any tax (including any income tax, capital gains tax, value-added
tax, sales and use tax, franchise tax, payroll tax, withholding tax or
property tax), levy, assessment, tariff, duty (including any customs duty),
deficiency, franchise fee or payment, payroll tax, utility tax, gross receipts
tax or other fee or payment, and any related charge or amount (including any
fine, penalty, interest or addition to tax), imposed, assessed or
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collected by or under the authority of any Governmental Body or payable
pursuant to any tax-sharing agreement or any other Contract relating to the
sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency
or fee.
"Tax Return"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any Legal Requirement
relating to any Tax.
"Threat of Release"--a reasonable likelihood of a Release that will require
action under Environmental Laws in order to prevent or mitigate damage to the
Environment that may result from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstance exists, that would
lead a director, officer or management employee of a comparable gas
distribution company to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken or
otherwise pursued in the future.
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Section 1.2 Other Defined Terms. In addition to the terms defined in
Section 1.1, certain other terms are defined elsewhere in this Agreement as
indicated below and, whenever such terms are used in this Agreement, they
shall have their respective defined meanings.
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
4.10% PG Preferred Stock 5.2
5.75% PG Preferred Stock 5.2
Acquired Company Option Plans 3.4
Agreement Introductory Paragraph
Business Combination 6.1(h)(4)
Cash Consideration 3.1(a)(2)
Certificates 3.2(b)
Closing 2.3
Confidentiality Agreement 6.1(c)
Conversion Price 3.1(a)
Dissenting Shares 3.3
Effective Time 2.2
Employees 6.2(b)
Exchange Ratio 3.1(a)(1)
Honesdale 2.6
Honesdale Merger 2.6
Indemnified Parties 9.1(a)
Initial Termination Date 8.1(j)
Maximum Value 3.1(a)
Merger Recitals
Merger Consideration 3.1(a)
Mergers 2.6
Minimum Value 3.1(a)
NYSE 3.4
Paying Agent 3.2(a)
PBGC 4.18(b)
PG Energy 2.6
PG Energy Merger 2.6
PNT Introductory Paragraph
PNT Benefit Plans 5.18(a)
PNT Commonly Controlled Entity 5.18(e)
PNT Financial Statements 5.9
PNT Meeting 6.1(j)(1)
PNT Options 3.4
PNT Proxy Statement 4.23
PNT Rights 3.1(a)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
PNT Rights Agreement 3.1(a)
PNT SEC Documents 5.9
PNT Shareholders' Approval 5.25
Registration Statement 4.23
Rule 145 Affiliates 6.1(k)
Rule 145 Letters 6.1(k)
Stock Consideration 3.1(a)(1)
SUG Introductory Paragraph
SUG Benefit Plans 4.18(a)
SUG Commonly Controlled Entity 4.18(e)
SUG Financial Statements 4.9
SUG Meeting 6.2(m)
SUG Proxy Statement 4.23
SUG SEC Documents 4.9
SUG Shareholders' Approval 4.24
Superior Proposal 6.1(h)
Surviving Corporation 2.1
Third Party Beneficiary 10.11
</TABLE>
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ARTICLE II
THE MERGER; OTHER TRANSACTIONS
Section 2.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 2.2), PNT will be
merged with and into SUG in accordance with the laws of the State of Delaware
and the Commonwealth of Pennsylvania. SUG will be the surviving corporation in
the Merger (the "Surviving Corporation") and will continue its corporate
existence under the laws of the State of Delaware. The Merger will have the
effect as provided in the applicable provisions of the DGCL and the PBCL.
Without limiting the generality of the foregoing, upon the Merger, all the
rights, privileges, immunities, powers and franchises of PNT and SUG will vest
in the Surviving Corporation and all obligations, duties, debts and
liabilities of PNT and SUG will be the obligations, duties, debts and
liabilities of the Surviving Corporation.
Section 2.2 Effective Time of the Merger. On the Closing Date, with respect
to the Merger, (i) a duly executed certificate of merger complying with the
requirements of the DGCL will be executed and filed with the Secretary of
State of the State of Delaware and (ii) a duly executed articles of merger and
plan of merger complying with the requirements of the PBCL will be filed with
the Secretary of State of the Commonwealth of Pennsylvania. The Merger will
become effective upon filing the certificate of merger with the Secretary of
State of the State of Delaware and the articles of merger and plan of merger
with the Secretary of State of the Commonwealth of Pennsylvania (the
"Effective Time").
Section 2.3 Closing. Unless this Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to Article VIII
hereof, the closing of the transactions contemplated by this Agreement (the
"Closing") will take place at 10:00 a.m., Eastern Time, on the Closing Date to
be specified by the parties, which shall be no later than the tenth business
day after satisfaction or waiver of all of the conditions set forth in Article
VII hereof (other than Sections 7.1(a), 7.1(b), 7.1(c), 7.1(f), 7.1(g),
7.1(h), 7.1(k), 7.1(l), 7.2(a), 7.2(b), 7.2(c), 7.2(e), 7.2(f) and 7.2(h),
which shall be satisfied or waived on the Closing Date) at the offices of
Fleischman and Walsh, L.L.P., counsel to SUG, unless another date or place is
agreed to in writing by the parties hereto.
Section 2.4 Certificate of Incorporation; By-laws. Pursuant to the Merger,
the Restated Certificate of Incorporation of SUG, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and (ii) the
By-laws of SUG as in effect immediately prior to the Effective Time, shall be
the By-laws of the Surviving Corporation until thereafter amended as provided
by law.
Section 2.5 Directors and Officers. The directors and officers of SUG
immediately prior to the Effective Time will be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation.
Section 2.6 Other Transactions. Immediately after the Effective Time on the
Closing Date, the Surviving Corporation shall cause Honesdale Gas Company
("Honesdale"), a wholly-owned Subsidiary of PG Energy, Inc., a Subsidiary of
PNT ("PG Energy"), to merge with and into PG Energy by complying with the
requirements of the PBCL (the "Honesdale Merger"). Immediately after the
consummation of the Honesdale Merger on the Closing Date, the Surviving
Corporation shall cause PG Energy to merge with and into SUG, as the Surviving
Corporation, by complying with the requirements of the PBCL and the DGCL (the
"PG Energy Merger"). The Merger, the Honesdale Merger and the PG Energy Merger
shall hereinafter be referred to collectively as the "Mergers."
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ARTICLE III
CONVERSION OF SHARES
Section 3.1 Effect of the Merger. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any shares of
PNT Common Stock:
(a) Each issued and outstanding share of PNT Common Stock (other than
Dissenting Shares (as defined in Section 3.3) covered by Section 3.3) and each
associated stock purchase right (collectively, the "PNT Rights") issued
pursuant to the Rights Agreement, dated as of April 26, 1995 between PNT and
Chemical Bank, as Rights Agent (the "PNT Rights Agreement"), which will be
terminated at the Effective Time (any reference in this Agreement to PNT
Common Stock will be deemed to include the associated PNT Rights), will be
converted into the right of each holder thereof to receive the following
consideration (the "Merger Consideration"):
(1) that number of fully paid and nonassessable shares of SUG Common Stock
(the "Stock Consideration") equal to $32.00 divided by the Conversion Price
(as defined below) rounded to the nearest hundred-thousandth (the "Exchange
Ratio"); and
(2) an amount in cash without interest (the "Cash Consideration") equal to
the sum of $3.00, plus, if the Average Trading Price of SUG Common Stock as of
the Closing Date is less than $19.46250, the product of (x) the amount of such
shortfall not to exceed $2.16250 and (y) the Exchange Ratio.
"Conversion Price" shall mean the Average Trading Price of SUG Common Stock as
of the Closing Date. Notwithstanding the foregoing, if the Conversion Price as
calculated pursuant to the preceding sentence and without regard to this
sentence (i) is less than the Minimum Value, then the Conversion Price will be
equal to the "Minimum Value," or (ii) is greater than the "Maximum Value,"
then the Conversion Price will be equal to the "Maximum Value." "Minimum
Value" will be $19.46250 and "Maximum Value" will be $22.70625.
Each holder of PNT Common Stock shall surrender all such holder's certificates
formerly representing ownership of PNT Common Stock in the manner provided in
Section 3.2. All such shares of PNT Common Stock, when so converted, shall no
longer be outstanding and shall be canceled and automatically converted into
the right to receive the Merger Consideration therefor upon the surrender of
such certificate in accordance with Section 3.2. Any payment made pursuant to
this Section 3.1(a) shall be made net of applicable withholding taxes to the
extent such withholding is required by law.
(b) No fractional share of SUG Common Stock shall be issued in connection
with the Merger. Each holder of shares of PNT Common Stock shall be entitled
to receive in lieu of any fractional share of SUG Common Stock to which such
holder otherwise would have been entitled pursuant to this Section 3.1 (after
taking into account all shares of PNT Common Stock then held of record by such
holder) a cash payment in an amount equal to the product of (i) the fractional
interest of a share of SUG Common Stock to which such holder otherwise would
have been entitled and (ii) the closing price of a share of SUG Common Stock
on the NYSE on the trading day immediately prior to the Effective Time.
Payment of such amounts shall be made by SUG.
Section 3.2 Exchange of PNT Common Stock Certificates and PG Preferred
Stock Certificates.
(a) SUG's registrar and transfer agent, or such other bank or trust company
as may be selected by SUG and be reasonably acceptable to PNT, will act as
paying agent ("Paying Agent") for the holders of PNT Common Stock in
connection with the Merger, pursuant to an agreement providing for the matters
set forth in this Section 3.2 and such other matters as may be appropriate and
the terms of which shall be reasonably satisfactory to SUG and PNT, to receive
the consideration to which holders of PNT Common Stock become entitled
pursuant to Section 3.1. Contemporaneous with the Effective Time, SUG will
deposit in trust with the Paying Agent for the benefit of holders of PNT
Common Stock, the aggregate Cash Consideration and the SUG Common Stock
necessary to pay the aggregate Merger Consideration as contemplated by Section
3.1(a) with respect to each share of PNT Common Stock.
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(b) At the Effective Time of the Merger, SUG will instruct the Paying Agent
to promptly, and in any event not later than three (3) business days following
the Effective Time, mail (and to make available for collection by hand) to
each holder of record of a certificate or certificates, which immediately
prior to the Effective Time represented outstanding shares of PNT Common Stock
(the "Certificates"), whose shares of PNT Common Stock were converted pursuant
to Section 3.1(a) into the right to receive the Merger Consideration (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Paying Agent and shall be in such form and have
such other provisions as SUG may reasonably specify) and (ii) instructions
(which shall provide that at the election of the surrendering holder
Certificates may be surrendered, and payment therefor collected, by hand
delivery) for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by SUG, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor
the Merger Consideration for each share of PNT Common Stock formerly
represented by such Certificate, to be mailed (or made available for
collection by hand if so elected by the surrendering holder) within three (3)
business days of receipt thereof, and the Certificate so surrendered shall
forthwith be canceled. If payment of the Merger Consideration is to be made to
a Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form
for transfer and that the Person requesting such payment shall have paid any
transfer and other Taxes required by reason of the payment of the Merger
Consideration to a Person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such Tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 3.2, each Certificate (other than
Certificates representing PNT Common Stock held by SUG or Dissenting Shares)
shall be deemed at any time after the Effective Time to represent only the
right to receive the Merger Consideration as contemplated by this Section 3.2.
(c) The Paying Agent shall invest the funds representing the aggregate Cash
Consideration, as directed by SUG, in (i) direct obligations of the United
States of America, (ii) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal
and interest or (iii) commercial paper rated the highest quality by either
Moody's Investors Service, Inc., or Standard and Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. Any net earnings with respect to
such finds shall be the property of and paid over to SUG as and when requested
by SUG; provided, however, that any such investment or any such payment of
earnings may not delay the receipt by holders of Certificates of the Merger
Consideration.
(d) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed, the Paying Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Article III, provided that the Person to whom the Merger Consideration is
paid shall, as a condition precedent to the payment thereof, give the Paying
Agent a bond in such sum as it may ordinarily require and indemnify the
Surviving Corporation in a manner satisfactory to it against any claim that
may be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
(e) After the Effective Time, the stock transfer books of PNT shall be
closed and there shall be no transfers on the stock transfer books of the
Surviving Corporation of shares of PNT Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration as provided in this
Article III.
(f) Any portion of the funds held by the Paying Agent that remain
undistributed to the former shareholders of PNT for eighteen (18) months after
the Effective Time shall be delivered by the Paying Agent to the Surviving
Corporation, which shall thereafter act as the Paying Agent, and any former
shareholders of PNT who have not complied with this Article III prior to
eighteen (18) months after the Effective Time shall thereafter look only as a
general creditor to the Surviving Corporation for payment of their claim for
the Merger Consideration.
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(g) The Surviving Corporation shall not be liable to any holder of PNT
Common Stock for Merger Consideration delivered to a public official pursuant
to any applicable abandonment, escheat or similar law. Any amounts remaining
unclaimed by holders of any such shares of PNT Common Stock seven years after
the Effective Time (or such earlier date immediately prior to the time at
which such amounts would otherwise escheat to or become property of any
Governmental Body) shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
Section 3.3 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of PNT Common Stock outstanding immediately prior to
the Effective Time the holder of which filed with PNT, prior to the vote to
secure the PNT Shareholders' Approval, a written notice of intention to demand
payment (collectively, the "Dissenting Shares"), shall not be converted into
the right to receive the Merger Consideration, as provided in Section 3.1(a)
hereof, unless and until such holder fails to perfect or effectively withdraws
or otherwise loses his right to appraisal and payment under the PBCL. If,
after the Effective Time, any holder of PNT Common Stock fails to perfect or
effectively withdraws or loses his right to appraisal, such Dissenting Shares
shall thereupon be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration to which such holder
is entitled, without interest or dividends thereon. PNT shall give SUG prompt
notice of any demands received by PNT for appraisal of PNT Common Stock, and,
prior to the Effective Time, SUG shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, PNT shall not, except with the prior written consent of SUG,
make any payment with respect to or offer to settle, any such demands.
Section 3.4 PNT Option Plans. Each outstanding option to purchase shares of
PNT Common Stock or other similar interest (collectively, the "PNT Options"),
granted under any stock option plans or under any other plan or arrangement of
any Acquired Company (the "Acquired Company Option Plans") together with the
applicable exercise prices, are disclosed in Section 5.18 of the PNT
Disclosure Schedule. Unless otherwise agreed by the parties hereto, each PNT
Option under the PNT 1992 Stock Option Plan as to which the holder has
consented to a conversion to cash and each PNT Option under the PNT Stock
Incentive Plan that is outstanding at the Effective Time shall be converted at
the Effective Time into a right to receive in respect thereof a cash payment
in an amount equal to the product of (x) the amount by which (i) the sum of
the Cash Consideration plus the product of (a) the Exchange Ratio and (b) the
closing price of a share of SUG Common Stock on the New York Stock Exchange
(the "NYSE") on the trading day immediately prior to the date on which the
Effective Time occurs exceeds (ii) the exercise price of such PNT Option (if
less than (i)) and (y) the number of shares of PNT Common Stock subject
thereto. Such cash payment (net of applicable withholding taxes) shall be made
on the Closing Date or as promptly thereafter as reasonably practicable. PNT
shall use its reasonable best efforts to obtain the consent of holders of
options outstanding under the 1992 Stock Option Plan to a conversion to cash
in accordance herewith. PNT Options under the 1992 Stock Option Plan as to
which consent is not obtained shall be converted into such number of options
to purchase SUG Common Stock such that the aggregate option value, based on
the Merger Consideration, and the aggregate exercise price are preserved and
otherwise having the same terms as the PNT Options being converted.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUG
SUG, as to SUG and its Subsidiaries, represents and warrants to PNT that:
Section 4.1 Organization, Existence and Qualification. SUG is a corporation
duly incorporated, validly existing, and in good standing under the laws of
the State of Delaware, with full corporate power and authority to conduct its
business as it is now being conducted, to own or use the properties and assets
that it purports to own or use, to perform its obligations under all Contracts
to which it is a party, and to execute and deliver this Agreement. SUG is duly
qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
business conducted by it, requires such qualification as a foreign corporation
except such failures to be so qualified or in good standing as are not,
individually or in the aggregate, reasonably likely to have an SUG Material
Adverse Effect.
Section 4.2 Capitalization. The authorized capital stock of SUG consists of
(i) 50,000,000 shares of SUG Common Stock, of which 29,745,234 shares were
issued and outstanding on May 28, 1999, and (ii) 1,500,000 shares of
Cumulative Preferred Stock, no par value, none of which are issued or
outstanding. The issued and outstanding shares of SUG Common Stock have been
validly issued and are fully paid and nonassessable. The shares of SUG Common
Stock to be issued as part of the Merger Consideration have been duly
authorized and when issued and delivered in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable and the issuance thereof is not subject to any preemptive or
other similar right. Except as specifically described in the SUG SEC Documents
delivered to PNT prior to the date of this Agreement, as of the date of this
Agreement, no shares of SUG Common Stock are held, in treasury or otherwise,
by SUG or any of its Subsidiaries and except as set forth in Section 4.2 of
the SUG Disclosure Schedule, there are no outstanding (i) securities
convertible into SUG Common Stock or other capital stock of SUG or any of its
material Subsidiaries, (ii) warrants or options to purchase SUG Common Stock
or other securities of SUG or any of its material Subsidiaries or (iii)
commitments to issue shares of SUG Common Stock (other than pursuant to the
Merger) or other securities of SUG or any of its material Subsidiaries.
Section 4.3 Subsidiaries; Investments. Except as set forth in Section 4.3
of the SUG Disclosure Schedule, as of the date of this Agreement, SUG has no
Subsidiaries or investments in any Person except for marketable securities
reflected in the SUG SEC Documents delivered to PNT prior to the date of this
Agreement, and SUG is the registered owner and holder of all of the issued and
outstanding shares of capital stock of its Subsidiaries and has good title to
such shares. The outstanding capital stock of each material Subsidiary of SUG
has been validly issued and is fully paid and nonassessable. All such capital
stock owned by SUG or any of its Subsidiaries is free and clear of any
Encumbrance (except for any Encumbrance imposed by federal or state securities
laws).
Section 4.4 Authority Relative to this Agreement and Binding Effect. The
execution, delivery and performance of this Agreement and the Related
Documents by SUG have been duly authorized by all requisite corporate action,
except, as of the date of this Agreement, for the SUG Shareholders' Approval.
Except as set forth in Section 4.4 of the SUG Disclosure Schedule, the
execution, delivery and performance of this Agreement and the Related
Documents by SUG will not result in a violation or breach of any term or
provision of, or constitute a default or accelerate the performance required
under, the Organizational Documents of SUG, any indenture, mortgage, deed of
trust, security agreement, loan agreement, or Material Contract to which SUG
is a party or by which its assets are bound, or violate any order, writ,
injunction or decree of any Governmental Body, with such exceptions as are
not, individually or in the aggregate, reasonably likely to have an SUG
Material Adverse Effect. This Agreement constitutes and the Related Documents
to be executed by SUG when executed and delivered will constitute valid and
binding obligations of SUG, enforceable against SUG in accordance with their
terms, except as enforceability may be limited by (i) bankruptcy or similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally or (ii) the availability of equitable remedies generally.
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Section 4.5 Governmental Approvals. Except for the Missouri Public Service
Commission (with respect to the Mergers), the Florida Public Service
Commission (with respect to the securities issued and debt assumed by SUG in
connection with the Mergers), the Pennsylvania Public Utility Commission and
as required by the HSR Act, no approval or authorization of any Governmental
Body with respect to performance under this Agreement by SUG is required to be
obtained by SUG in connection with the execution and delivery by SUG of this
Agreement or the consummation of the transactions contemplated by this
Agreement, the failure to obtain which are, individually or in the aggregate,
reasonably likely to have an SUG Material Adverse Effect.
Section 4.6 Public Utility Holding Company Status; Regulation as a Public
Utility. SUG is a "gas utility company" (as such term is defined in PUHCA).
SUG indirectly owns a minority interest in a "foreign utility company" (as
such term is defined in PUHCA) that is exempt from, and is deemed not to be a
public utility company for purposes of, PUHCA pursuant to Section 33 thereof
with respect to which SUG has filed with the SEC a Form U-57 notification of
foreign utility company status. Except as stated above in this Section 4.6,
neither SUG nor any of its Subsidiaries is a "holding company," a "subsidiary
company," a "public utility company" or an "affiliate" of a "public utility
company," or a "holding company" within the meaning of such terms in PUHCA.
Section 4.7 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Section 4.7 of the SUG Disclosure Schedule or
specifically described in the SUG SEC Documents delivered to PNT prior to the
date of this Agreement, and subject to Section 4.19 of this Agreement, to the
Knowledge of SUG, SUG is not in violation of any Legal Requirement that is
applicable to it, to the conduct or operation of its business, or to the
ownership or use of any of its assets, other than such violations, if any,
which are not, individually or in the aggregate, reasonably likely to have an
SUG Material Adverse Effect.
(b) The SUG SEC Documents delivered to PNT prior to the date of this
Agreement accurately describe all material regulation of SUG that relates to
the utility business of SUG. Except as set forth in Section 4.7 of the SUG
Disclosure Schedule, SUG has and is in material compliance with all material
Governmental Authorizations necessary to conduct its business and to own,
operate and use all of its assets as currently conducted.
Section 4.8 Legal Proceedings; Orders. Except as set forth in Section 4.8
of the SUG Disclosure Schedule or as specifically described in the SUG SEC
Documents delivered to PNT prior to the date of this Agreement, there is no
pending Proceeding:
(1) that has been commenced by or against, or that otherwise relates to,
SUG that is reasonably likely to have an SUG Material Adverse Effect; or
(2) as of the date of this Agreement, that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, the Mergers or any of the transactions contemplated hereby.
To the Knowledge of SUG, no such Proceedings, audits or investigations have
been Threatened that are, individually or in the aggregate, reasonably likely
to have an SUG Material Adverse Effect.
Section 4.9 SEC Documents. SUG has made (and, with respect to such
documents filed after the date hereof through the Closing Date, will make)
available to PNT a true and complete copy of each report, schedule,
registration statement (other than on Form S-8), and definitive proxy
statement filed by SUG with the SEC since June 30, 1998 and through the
Closing Date in substantially the form filed with the SEC (the "SUG SEC
Documents"). As of their respective dates, the SUG SEC Documents, including
without limitation any financial statements or schedules included therein,
complied (or will comply), in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SUG SEC Documents, and
did not (or will not) contain any untrue
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statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements
of SUG included in the SUG SEC Documents (collectively, the "SUG Financial
Statements") were (or will be) prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements as permitted by Form 10-Q) and
fairly present (or will fairly present) in all material respects the financial
position of SUG as of the respective dates thereof or the results of
operations and cash flows for the respective periods then ended, as the case
may be, subject, in the case of unaudited interim financial statements, to
normal, recurring adjustments which are not material in the aggregate.
Section 4.10 Taxes. Except as set forth in Section 4.10 of the SUG
Disclosure Schedule:
(a) SUG and its Subsidiaries have timely filed all United States federal,
state and local income Tax Returns required to be filed by or with respect to
them or requests for extensions to file such Tax Returns have been timely
filed, granted and have not expired, and SUG and its Subsidiaries have timely
paid and discharged all Taxes due in connection with or with respect to the
periods or transactions covered by such Tax Returns and have paid all other
Taxes as are due or made adequate provision therefor in accordance with GAAP
except where the failures to so file, pay or discharge are not, individually
or in the aggregate, reasonably likely to have an SUG Material Adverse Effect.
There are no pending audits or other examinations relating to any Tax matters.
There are no Tax liens on any assets of SUG or its Subsidiaries. As of the
date of this Agreement, SUG and its Subsidiaries have not granted any waiver
of any statute of limitations with respect to, or any extension of a period
for the assessment of, any Tax. The accruals and reserves (including deferred
taxes) reflected in the SUG Balance Sheet are in all material respects
adequate to cover all material Taxes accruable through the date thereof
(including interest and penalties, if any, thereon and Taxes being contested)
in accordance with GAAP.
(b) Neither SUG nor any of its Subsidiaries is obligated under any Contract
with respect to industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder for federal or
state income tax purposes could be affected by the Merger or any of the
transactions contemplated by this Agreement.
Section 4.11 Intellectual Property. SUG has no Knowledge of (i) any
infringement or claimed infringement by it of any patent rights or copyrights
of others or (ii) any infringement of the patent or patent license rights,
trademarks or copyrights owned by or under license to it, except for any such
infringements of the type described in clause (i) or (ii) that are not,
individually or in the aggregate, reasonably likely to have an SUG Material
Adverse Effect.
Section 4.12 Title to Assets. Except (i) as set forth in Section 4.12 of
the SUG Disclosure Schedule, (ii) as specifically described in the SUG SEC
Documents delivered to PNT prior to the date of this Agreement, (iii) as set
forth in Section 4.19 of this Agreement or (iv) as set forth in Section 4.19
of the SUG Disclosure Schedule, none of SUG's assets are subject to any
Encumbrance other than SUG Permitted Liens.
Section 4.13 Indebtedness. All outstanding principal amounts of
indebtedness for borrowed money of SUG as of June 4, 1999 are set forth in
Section 4.13 of the SUG Disclosure Schedule.
Section 4.14 Machinery and Equipment. Except for normal wear and tear and
with such other exceptions as are not, individually or in the aggregate,
reasonably likely to have an SUG Material Adverse Effect, SUG's machinery and
equipment is in good operating condition and in a state of reasonable
maintenance and repair.
Section 4.15 Material Contracts. Except as described in Section 4.15 of the
SUG Disclosure Schedule or as specifically described in the SUG SEC Documents
delivered to PNT prior to the date of this Agreement, and with such exceptions
as are not, individually or in the aggregate, reasonably likely to have an SUG
Material Adverse Effect, all of SUG's Material Contracts are in full force and
effect and neither SUG nor, to the
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Knowledge of SUG, any other party thereto is in default thereunder nor has any
event occurred or is any event occurring that, with notice or the passage of
time or otherwise, is reasonably likely to give rise to an event of default
thereunder by any party thereto.
Section 4.16 Insurance. Section 4.16 of the SUG Disclosure Schedule sets
forth a list of all policies of insurance held by SUG as of the date of this
Agreement. Since June 30, 1994, the assets and the business of SUG have been
continuously insured with what SUG reasonably believes are reputable insurers
against all risks and in such amounts normally insured against by companies of
the same type and in the same line of business as SUG. As of the date of this
Agreement, no notice of cancellation, non-renewal or material increase in
premiums has been received by SUG with respect to such policies, and SUG has
no Knowledge of any fact or circumstance that could reasonably be expected to
form the basis for any cancellation, non-renewal or material increase in
premiums, except for such cancellations, non-renewals and increases which are
not, individually or in the aggregate, reasonably likely to have an SUG
Material Adverse Effect. SUG is not in default with respect to any provision
contained in any such policy or binder nor has there been any failure to give
notice or to present any claim relating to the business or the assets of SUG
under any such policy or binder in a timely fashion or in the manner or detail
required by the policy or binder, except for such defaults or failures which
are not, individually or in the aggregate, reasonably likely to have an SUG
Material Adverse Effect. As of the date of this Agreement, there are no
outstanding unpaid premiums (except premiums not yet due and payable), and no
notice of cancellation or renewal with respect to, or disallowance of any
claim under, any such policy or binder has been received by SUG as of the date
hereof, except for such non-payments of premiums, cancellations, renewals or
disallowances which are not, individually or in the aggregate, reasonably
likely to have an SUG Material Adverse Effect.
Section 4.17 Employees. Except as set forth on Section 4.17 of the SUG
Disclosure Schedule, as of the date of this Agreement, no labor union or other
collective bargaining unit has been certified or recognized by SUG or its
Subsidiaries, and, to the Knowledge of SUG, as of the date of this Agreement,
there are no elections, organizing drives or material controversies pending or
Threatened between SUG or its Subsidiaries and any labor union or other
collective bargaining unit representing SUG's or its Subsidiaries' employees.
There is no pending or, to the Knowledge of SUG, Threatened labor practice
complaint, arbitration, labor strike or other material labor dispute
(excluding grievances) involving SUG or its Subsidiaries which are,
individually or in the aggregate, reasonably likely to have an SUG Material
Adverse Effect. Except as described in Section 4.18 or specifically described
in the SUG SEC Documents delivered to PNT prior to the date of this Agreement,
as of the date of this Agreement, neither SUG nor its Subsidiaries are a party
to any employment agreement with any employee pertaining to SUG or any of its
Subsidiaries.
Section 4.18 Employee Benefit Plans.
(a) Each of the SUG Benefit Plans has been operated and administered in all
material respects in accordance with its governing documents and applicable
federal and state laws (including, but not limited to, ERISA and the IRC). For
purposes of this Agreement, "SUG Benefit Plans" shall mean all employee
retirement, welfare or other benefit plans, agreements, practices, policies,
programs, or arrangements identified and described in Section 4.18 of the SUG
Disclosure Schedule, which sets forth all SUG Benefit Plans that are
applicable to any employee of SUG or its Subsidiaries employed by SUG or its
Subsidiaries thirty (30) days prior to the date of this Agreement or
maintained by or contributed to by SUG or its Subsidiaries.
(b) As to any SUG Benefit Plan subject to Title IV of ERISA, there is no
event or condition which presents the material risk of plan termination, no
accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the IRC has been incurred for which any
liability is outstanding, no reportable event within the meaning of Section
4043 of ERISA (for which the notice requirements of Regulation (S)4043
promulgated by the Pension Benefit Guaranty Corporation ("PBGC") have not been
waived) has occurred within the last six years, no notice of intent to
terminate the SUG Benefit Plan has been given under Section 4041 of ERISA, no
proceeding has been instituted under Section 4042 of ERISA
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to terminate the SUG Benefit Plan, there has been no termination or partial
termination of the SUG Benefit Plan within the meaning of Section 411(d)(3) of
the IRC within the last six years, except with respect to the conversion of
the retirement income plan to a cash balance plan for which full vesting was
granted with respect to affected employees, no event described in Sections
4062 or 4063 of ERISA has occurred, all PBGC premiums have been timely paid
and no liability to the PBGC has been incurred, except for PBGC premiums not
yet due.
(c) There is no matter pending (other than qualification determination
applications and filings and other required periodic filings) with respect to
any of the SUG Benefit Plans before the IRS, the Department of Labor, the PBGC
or in or before any other governmental authority.
(d) Each trust funding an SUG Benefit Plan, which trust is intended to be
exempt from federal income taxation pursuant to Section 501(c)(9) of the IRC,
satisfies the requirements of such section and has, whenever required by law,
received a favorable determination letter from the IRS regarding such exempt
status and, to the Knowledge of SUG has not, since receipt of the most recent
favorable determination letter, been amended or operated in any way which
would adversely affect such exempt status.
(e) With respect to any SUG Benefit Plan or any other "employee benefit
plan" as defined in Section 3(3) of ERISA which is established, sponsored,
maintained or contributed to, or has been established, sponsored, maintained
or contributed to or, to the Knowledge of SUG, with respect to any such plan
which has been established, sponsored, maintained or contributed to within six
years prior to the Closing Date, by SUG or its Subsidiaries or any
corporation, trade, business or entity under common control or being a part of
an affiliated service group with SUG, within the meaning of Section 414(b),
(c) or (m) of the IRC or Section 4001 of ERISA ("SUG Commonly Controlled
Entity"), (i) no withdrawal liability, within the meaning of Section 4201 of
ERISA, has been incurred, which withdrawal liability has not been satisfied
and no such withdrawal liability is reasonably expected to be incurred, (ii)
no liability under Title IV of ERISA (including, but not limited to, liability
to the PBGC) has been incurred by SUG or any SUG Commonly Controlled Entity,
which liability has not been satisfied (other than for PBGC premiums not yet
due), (iii) no accumulated funding deficiency, whether or not waived, within
the meaning of Section 302 of ERISA or Section 412 of the IRC has been
incurred for which any liability is outstanding, (iv) there has been no
failure to make any contribution (including installments) to such plan
required by Section 302 of ERISA and Section 412 of the IRC which has resulted
in a lien under Section 302 of ERISA or Section 412 of the IRC and for which
any liability is currently outstanding, (v) to the Knowledge of SUG, no
action, omission or transaction has occurred with respect to any such plan or
any other SUG Benefit Plan which could subject SUG or the plan or trust
forming a part thereof to a material civil liability or penalty under ERISA or
other applicable laws, or a material Tax under the IRC, (vi) any such plan
which is a Group Health Plan has complied in all material respects with the
provisions of Sections 601-608 of ERISA and Section 4980B of the IRC, (vii)
there are no pending or, to the Knowledge of SUG, Threatened claims by or on
behalf of any such plan or any other SUG Benefit Plan, by any employees,
former employees or plan beneficiaries covered by such plan or otherwise by or
on behalf of any person involving any such plan (other than routine non-
contested claims for benefits) which could result in a material liability to
SUG and its Subsidiaries, taken as a whole, and (viii) neither SUG nor any SUG
Commonly Controlled Entity has engaged in, or is a successor or parent
corporation to any entity or person that has engaged in, a transaction
described in Section 4069 of ERISA.
(f) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not (i) require SUG to make a later
contribution to, payment or transfer of money or property or payment of
greater benefits under or with respect to any SUG Benefit Plan than SUG or its
Subsidiaries are currently required by the terms and provisions of such SUG
Benefit Plan to do, (ii) create or give rise to any additional eligibility for
participation, vested rights benefits or service credits under any SUG Benefit
Plan, or (iii) in and of themselves cause or result in SUG incurring any civil
liability or penalty under ERISA or other applicable laws or Tax under the
IRC.
(g) SUG is not a party to any Contract nor has it established any policy or
practice, which would require SUG to make a payment or provide any other form
of compensation or benefit to any Person performing (or
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who within the past twelve months performed) services for SUG during or upon
termination of such services which would not be payable or provided in the
absence of the consummation of the transactions contemplated by this
Agreement.
(h) Except as would affect unionized employees and/or retirees who had been
unionized employees, each SUG Benefit Plan which is an "employee welfare
benefit plan," as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without any liability being
incurred by SUG or any affiliate of SUG, except as to benefits accrued
thereunder prior to such amendment or termination.
(i) Section 4.18 of the SUG Disclosure Schedule contains a true and
complete list as of the date of this Agreement of each SUG Benefit Plan, all
stock option plans of SUG and any management, employment, deferred
compensation, severance (including any payment, right or benefit resulting
from a change in control), bonus or other contract for personal services with
any current or former officer, director or employee, any consulting contract
with any person who prior to entering this such contract was a director or
officer of SUG or any plan, agreement, arrangement or understanding similar to
any of the foregoing.
(j) SUG has not contributed nor been obligated to contribute to any "multi-
employer plan" within the meaning of Section 3(37) of ERISA within the last
six years and has no outstanding liability with respect to any such plan.
Section 4.19 Environmental Matters. Except as set forth in Section 4.19 of
the SUG Disclosure Schedule or as specifically described in the SUG SEC
Documents delivered to PNT prior to the date of this Agreement, and with such
other exceptions as are not, individually or in the aggregate, reasonably
likely to have an SUG Material Adverse Effect:
(a) To the Knowledge of SUG, no Facility owned or operated by SUG is
currently, or was at any time, listed on the National Priorities List
promulgated under CERCLA, or on any comparable state list, and SUG has not
received any written notification of potential or actual liability or a
written request for information from any Person under or relating to CERCLA or
any comparable Legal Requirement with respect to SUG or the Facilities;
(b) To the Knowledge of SUG, SUG and any Person for whose conduct SUG is
reasonably likely to be held responsible, and at all times has been, in
material compliance with any Environmental Law. SUG has not received any
Order, notice, or other communication from (i) any Governmental Body or
private citizen acting in the public interest, or (ii) the current or prior
owner or operator of any Facilities, of any violation or failure to comply
with any Environmental Law, or of any obligation to undertake or bear the cost
of any environmental cleanup, or with respect to any property or Facility at
which Hazardous Materials generated by SUG or any other Person for whose
conduct SUG may be held responsible were transported for disposal;
(c) There are no pending or, to the Knowledge of SUG, Threatened claims or
Encumbrances arising under or pursuant to any Environmental Law with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which SUG has or had a direct or
indirect interest (including by ownership or use); and
(d) SUG has delivered or made available to PNT true and complete copies and
results of any environmental site assessments, studies, analyses, tests or
monitoring possessed by SUG and of which it has Knowledge pertaining to
Hazardous Materials or Hazardous Activities in, on or under the Facilities, or
concerning compliance by SUG or any other Person for whose conduct SUG is
reasonably likely to be held responsible, with Environmental Laws.
Section 4.20 No Material Adverse Change. Except as described in the SUG SEC
Documents that have been provided to PNT prior to the date of this Agreement,
since the date of the SUG Balance Sheet, there has not been any SUG Material
Adverse Effect, and no events have occurred or circumstances exist that are,
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individually or in the aggregate, reasonably likely to have an SUG Material
Adverse Effect, except that any SUG Material Adverse Effect that results from
or relates to (a) general business or economic conditions, (b) conditions
generally affecting the industries in which SUG competes or (c) the
announcement of the transactions contemplated by this Agreement shall be
disregarded.
Section 4.21 Brokers. SUG is not a party to, or in any way obligated under
any Contract, and there are no outstanding claims against SUG, for the payment
of any broker's or finder's fees in connection with the origin, negotiation,
execution or performance of this Agreement.
Section 4.22 Regulatory Proceedings. Except as set forth in Section 4.22 of
the SUG Disclosure Schedule, other than purchase gas adjustment provisions,
SUG (a) has no rates that have been or are being collected subject to refund,
pending final resolution of any rate proceeding pending before a Governmental
Body or on appeal to the courts, or (b) is a party to any rate proceeding
before a Governmental Body that are, individually or in the aggregate,
reasonably likely to result in any Orders having an SUG Material Adverse
Effect.
Section 4.23 Proxy Statement; Registration Statement. None of the
information supplied or to be supplied to PNT by or on behalf of SUG for
inclusion in the proxy statement, in definitive form, relating to the PNT
Meeting (as defined in Section 6.1(j)) to be held in connection with the
Merger (the "PNT Proxy Statement"), supplied or to be supplied by or on behalf
of SUG in the proxy statement, in definitive form, relating to the SUG Meeting
(as defined in Section 6.2(m)) to be held in connection with the Merger (the
"SUG Proxy Statement") or supplied by or on behalf of SUG in the Registration
Statement on Form S-4 (and any amendments thereto) to be filed by SUG with the
SEC pursuant to the Securities Act to register the shares of SUG Common Stock
constituting the Stock Consideration (the "Registration Statement") will, in
the case of the Registration Statement, at the effective time of the
Registration Statement, at any time the Registration Statement is amended or
supplemented, at the date the PNT Proxy Statement is first mailed to PNT's
shareholders, at any time the PNT Proxy Statement is amended or supplemented,
at the time of the PNT Meeting and at the Effective Time, in the case of the
PNT Proxy Statement, at the date the PNT Proxy Statement is first mailed to
PNT's shareholders, at any time the PNT Proxy Statement is amended or
supplemented and at the time of the PNT Meeting, and in the case of the SUG
Proxy Statement, at the date the SUG Proxy Statement is first mailed to SUG's
shareholders, at any time the SUG Proxy Statement is amended or supplemented
and at the time of the SUG Meeting (giving effect to any documents
incorporated by reference therein), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement will comply as to form and in substance in all material respects
with the applicable provisions of the Securities Act and the rules and
regulations thereunder. The SUG Proxy Statement will comply as to form and in
substance in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder.
Section 4.24 Vote Required. At the SUG Meeting, SUG will seek the approval
of the Merger (and any other transaction contemplated by this Agreement which
requires the approval of SUG's shareholders) by the holders of a majority of
the outstanding shares of SUG Common Stock (the "SUG Shareholders' Approval"),
and no other vote of the holders of any class or series of the capital stock
of SUG is required to approve this Agreement and the Mergers.
Section 4.25 Disclaimer of Representations and Warranties. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE IV, SUG MAKES NO
OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND SUG HEREBY
DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER BY SUG, ANY
SUBSIDIARY OF SUG, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO THIS AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO PNT OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
REPRESENTATIVES, OR ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER
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INFORMATION BY SUG, ANY SUBSIDIARY OF SUG, OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER
PERSON, WITH RESPECT TO ANY OF THE FOREGOING.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PNT
PNT, as to the Acquired Companies, represents and warrants to SUG as
follows:
Section 5.1 Organization, Existence and Qualification.
(a) Each Acquired Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of its state of incorporation,
with full corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it purports to
own or use, and to perform all its obligations under Applicable Contracts.
Section 5.1(a) of the PNT Disclosure Schedule sets forth the name of each
Acquired Company, the state or jurisdiction of its incorporation or formation,
and, except as set forth on Section 5.1(a) of the PNT Disclosure Schedule,
each state or jurisdiction where such Acquired Company is duly qualified as a
foreign corporation. Each Acquired Company is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the business conducted by it, requires
such qualification as a foreign corporation except such failures to be so
qualified or in good standing as are not, individually or in the aggregate,
reasonably likely to have a PNT Material Adverse Effect.
(b) PNT has delivered to SUG copies of the Organizational Documents, as
currently in effect, of each Acquired Company.
Section 5.2 Capitalization. The capital stock of PNT consists of 30,000,000
shares of PNT Common Stock, of which 10,835,270 shares were issued and
outstanding on May 28, 1999. PG Energy is authorized to issue 997,500 shares
of PG Preferred Stock, of which (i) 47,451 shares of the Series 4.10% PG
Preferred Stock (the "4.10% PG Preferred Stock"), and (ii) 2,396 shares of the
Series 5.75% PG Preferred Stock (the "5.75% PG Preferred Stock"), were issued
and outstanding on May 28, 1999. The issued and outstanding shares of PNT
Common Stock and PG Preferred Stock have been validly issued and are fully
paid and nonassessable. Except as specifically described in the PNT SEC
Documents delivered to SUG prior to the date of this Agreement, as of the date
of this Agreement, no shares of PNT Common Stock or PG Preferred Stock are
held, in treasury or otherwise, by PNT or any of its Subsidiaries and except
as set forth in Section 5.2 of the PNT Disclosure Schedule, there are no
outstanding (i) securities convertible into PNT Common Stock, PG Preferred
Stock or other capital stock PNT or any of its material Subsidiaries, (ii)
warrants or options to purchase PNT Common Stock or other securities of PNT or
any of its material Subsidiaries or (iii) other commitments to issue shares of
any PNT Common Stock, PG Preferred Stock or other securities of PNT or any of
its material Subsidiaries.
Section 5.3 Subsidiaries; Investments. Except as set forth in Section 5.3
of the PNT Disclosure Schedule, as of the date of this Agreement, PNT has no
Subsidiaries or investments in any Person (except for marketable securities
disclosed to SUG) and, except for the issued and outstanding PG Preferred
Stock, PNT is the registered owner and holder of all of the issued and
outstanding shares of capital stock of its Subsidiaries and has good title to
such shares. The outstanding capital stock of each material Subsidiary has
been validly issued and is fully paid and nonassessable. All such capital
stock owned by any Acquired Company is free and clear of any Encumbrance
(except for any Encumbrance disclosed in the PNT SEC Documents filed to date,
or created or incurred by this Agreement in favor of SUG, or imposed by
federal or state securities laws).
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Section 5.4 Authority Relative to this Agreement and Binding Effect. The
execution, delivery and performance of this Agreement and the Related
Documents by PNT have been duly authorized by all requisite corporate action,
except, as of the date of this Agreement, for the PNT Shareholders' Approval,
the approval of the Boards of Directors of PG Energy and Honesdale of the
transactions contemplated hereby and the approval of the holders of common
stock of each of PG Energy and Honesdale of the transactions contemplated
hereby. Except as set forth in the schedule to be delivered by PNT to SUG
within seven days of the date of this Agreement, the execution, delivery and
performance of this Agreement and the Related Documents by PNT will not result
in a violation or breach of any term or provision of, or constitute a default
or accelerate the performance required under, the Organizational Documents of
any of the Acquired Companies, any indenture, mortgage, deed of trust,
security agreement, loan agreement, or Material Contract to which any of the
Acquired Companies is a party or by which its assets are bound, or violate any
order, writ, injunction or decree of any Governmental Body, with such
exceptions as are not, individually or in the aggregate, reasonably likely to
have a PNT Material Adverse Effect. This Agreement constitutes and the Related
Documents to be executed by any of the Acquired Companies when executed and
delivered will constitute valid and binding obligations of such Acquired
Company, enforceable against such Acquired Company in accordance with their
terms, except as enforceability may be limited by (i) bankruptcy or similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally or (ii) the availability of equitable remedies generally.
Section 5.5 Governmental Approvals. Except as set forth in Section 5.5 of
the PNT Disclosure Schedule and as required by the HSR Act, no approval or
authorization of any Governmental Body with respect to performance under this
Agreement by any Acquired Company is required to be obtained by PNT in
connection with the execution and delivery by PNT of this Agreement or the
consummation by the Acquired Companies of the transactions contemplated by
this Agreement, the failure to obtain which are, individually or in the
aggregate, reasonably likely to have a PNT Material Adverse Effect.
Section 5.6 Public Utility Holding Company Status; Regulation as a Public
Utility. PNT is a "holding company" (as such term is defined in PUHCA) exempt
from certain provisions of PUHCA, and has received no adverse notice from the
SEC with respect to the validity of its exempt status, pursuant to Section
3(a)(1) of PUHCA. PG Energy is a "public utility company" (as such term is
defined in PUHCA). Honesdale is a "public utility company" (as such term is
defined in PUHCA). Each of PG Energy and Honesdale is a "subsidiary company"
of PNT, and an "affiliate" of the other and of PNT (as such terms are defined
in PUHCA). Except as stated above in this Section 5.6, none of the Acquired
Companies is a "holding company," a "subsidiary company," a "public utility
company," or an "affiliate" of a "public utility company" or a "holding
company" within the meaning of such terms in PUHCA.
Section 5.7 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Section 5.7(a) of the PNT Disclosure Schedule
or as specifically described in the PNT SEC Documents delivered to SUG prior
to the date of this Agreement, and subject to Section 5.19 of this Agreement,
to the Knowledge of any Acquired Company, no Acquired Company is in violation
of any Legal Requirement that is applicable to it, to the conduct or operation
of its business, or to the ownership or use of any of its assets, other than
such violations, if any, which are not, individually or in the aggregate,
reasonably likely to have a PNT Material Adverse Effect.
(b) The PNT SEC Documents delivered to SUG prior to the date of this
Agreement accurately describe all material regulation of each Acquired Company
that relates to the utility business of any Acquired Company. Except as set
forth on Section 5.7(a) of the PNT Disclosure Schedule, each Acquired Company
has and is in material compliance with all material Governmental
Authorizations necessary to conduct its business and to own, operate and use
all of its assets as currently conducted.
Section 5.8 Legal Proceedings; Orders. Except as set forth in Section 5.8
of the PNT Disclosure Schedule or as specifically described in the PNT SEC
Documents delivered to SUG prior to the date of this Agreement, there is no
pending Proceeding:
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(1) that has been commenced by or against, or that otherwise relates to,
any Acquired Company that is reasonably likely to have a PNT Material Adverse
Effect; or
(2) as of the date of this Agreement, that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, the Mergers or any of the transactions contemplated hereby.
To the Knowledge of PNT, except as set forth in Section 5.8 of the PNT
Disclosure Schedule, as of the date of this Agreement, no such Proceedings,
audits or investigations have been Threatened that are, individually or in the
aggregate, reasonably likely to have a PNT Material Adverse Effect.
Section 5.9 SEC Documents. PNT has made (and, with respect to such
documents filed after the date hereof through the Closing Date, will make)
available to SUG a true and complete copy of each report, schedule,
registration statement (other than on Form S-8), and definitive proxy
statement filed by PNT or PG Energy with the SEC since December 31, 1998
through the Closing Date in substantially the form filed with the SEC (the
"PNT SEC Documents"). As of their respective dates, the PNT SEC Documents,
including without limitation any financial statements or schedules included
therein, complied (or will comply), in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such PNT SEC
Documents, and did not (or will not) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of PNT or PG Energy
included in the PNT SEC Documents (collectively, the "PNT Financial
Statements") were (or will be) prepared in accordance with GAAP (except as may
be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q) and fairly present (or will
fairly present) in all material respects the financial position of PNT and its
Subsidiaries, or PG Energy, as the case may be, as of the respective dates
thereof or the results of operations and cash flows for the respective periods
then ended, as the case may be, subject, in the case of unaudited interim
financial statements, to normal, recurring adjustments which are not material
in the aggregate.
Section 5.10 Taxes.
(a) The Acquired Companies have timely filed all United States federal,
state and local income Tax Returns required to be filed by or with respect to
them or requests for extensions to file such Tax Returns have been timely
filed, granted and have not expired, and the Acquired Companies have timely
paid and discharged all Taxes due in connection with or with respect to the
periods or transactions covered by such Tax Returns and have paid all other
Taxes as are due or made adequate provision therefor in accordance with GAAP
except where failures to so file, pay or discharge are not, individually or in
the aggregate, reasonably likely to have a PNT Material Adverse Effect. There
are no pending audits or other examinations relating to any Tax matters. There
are no Tax liens on any assets of the Acquired Companies. As of the date of
this Agreement, none of the Acquired Companies has granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. The accruals and reserves (including deferred taxes)
reflected in the PNT Balance Sheet are in all material respects adequate to
cover all material Taxes accruable through the date thereof (including
interest and penalties, if any, thereon and Taxes being contested) in
accordance with GAAP. Prior to the date of this Agreement, no Acquired Company
has at any time adopted a plan of complete liquidation within the meaning of
Section 332 of the IRC.
(b) None of the Acquired Companies is obligated under any Contract with
respect to industrial development bonds or other obligations with respect to
which the excludability from gross income of the holder for federal or state
income tax purposes could be affected by the Merger or any of the transactions
contemplated by this Agreement.
Section 5.11 Intellectual Property. Except as set forth in Section 5.11 of
the PNT Disclosure Schedule, no Acquired Company has any Knowledge of (i) any
infringement or claimed infringement by it of any patent
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rights or copyrights of others or (ii) any infringement of the patent or
patent license rights, trademarks or copyrights owned by or under license to
it, except for any such infringements of the type described in clause (i) or
(ii) that are not, individually or in the aggregate, reasonably likely to have
a PNT Material Adverse Effect.
Section 5.12 Title to Assets. Except (i) as set forth in Section 5.12 of
the PNT Disclosure Schedule, (ii) as specifically described in the PNT SEC
Documents delivered to SUG prior to the date of this Agreement, (iii) as set
forth in Section 5.19 of this Agreement or (iv) as set forth in Section 5.19
of the PNT Disclosure Schedule, none of the Acquired Companies' assets are
subject to any Encumbrance other than PNT Permitted Liens.
Section 5.13 Indebtedness. All outstanding principal amounts of
indebtedness for borrowed money of the Acquired Companies as of June 4, 1999
are set forth in Section 5.13 of the PNT Disclosure Schedule, except for
inter-company indebtedness.
Section 5.14 Machinery and Equipment. Except for normal wear and tear, and
with such exceptions as are not, individually or in the aggregate, reasonably
likely to have a PNT Material Adverse Effect, the machinery and equipment of
the Acquired Companies is in good operating condition and in a state of
reasonable maintenance and repair.
Section 5.15 Material Contracts. Except as specifically described in the
PNT SEC Documents delivered to SUG prior to the date of this Agreement, and
with such exceptions as are not, individually or in the aggregate, reasonably
likely to have a PNT Material Adverse Effect, all Material Contracts of the
Acquired Companies are in full force and effect and no Acquired Company nor,
to the Knowledge of PNT, any other party thereto is in default thereunder nor
has any event occurred or is any event occurring that with notice or the
passage of time or otherwise, is reasonably likely to give rise to an event of
default thereunder by any party thereto.
Section 5.16 Insurance. Section 5.16(a) of the PNT Disclosure Schedule sets
forth a list of all policies of insurance held by the Acquired Companies as of
the date of this Agreement. Except as set forth in Section 5.16(b) of the PNT
Disclosure Schedule, since June 30, 1994, the assets and the business of the
Acquired Companies have been continuously insured with what PNT reasonably
believes are reputable insurers against all risks and in such amounts normally
insured against by companies of the same type and in the same line of business
as any of the Acquired Companies. As of the date of this Agreement, no notice
of cancellation, non-renewal or material increase in premiums has been
received by any of the Acquired Companies with respect to such policies, and
no Acquired Company has Knowledge of any fact or circumstance that could
reasonably be expected to form the basis for any cancellation, non-renewal or
material increase in premiums, except for such cancellations, non-renewals and
increases which are not, individually or in the aggregate, reasonably likely
to have a PNT Material Adverse Effect. None of the Acquired Companies is in
default with respect to any provision contained in any such policy or binder
nor has there been any failure to give notice or to present any claim relating
to the business or the assets of the Acquired Companies under any such policy
or binder in a timely fashion or in the manner or detail required by the
policy or binder, except for such defaults or failures which are not,
individually or in the aggregate, reasonably likely to have a PNT Material
Adverse Effect. As of the date of this Agreement, there are no outstanding
unpaid premiums (except premiums not yet due and payable), and no notice of
cancellation or renewal with respect to, or disallowance of any claim under,
any such policy or binder has been received by the Acquired Companies as of
the date hereof, except for such non-payments of premiums, cancellations,
renewals or disallowances which are not, individually or in the aggregate,
reasonably likely to have a PNT Material Adverse Effect.
Section 5.17 Employees. Section 5.17(a) of the PNT Disclosure Schedule sets
forth a list as of no more than thirty (30) days prior to the date of this
Agreement of all the present officers and employees of the Acquired Companies.
Except as set forth in Section 5.17(b) of the PNT Disclosure Schedule, as of
the date of this Agreement, no labor union or other collective bargaining unit
has been certified or recognized by any of the Acquired Companies, and, to the
Knowledge of the Acquired Companies, as of the date of this Agreement,
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there are no elections, organizing drives or material controversies pending or
Threatened between any of the Acquired Companies and any labor union or other
collective bargaining unit representing any of the Acquired Companies'
employees. There is no pending or, to the Knowledge of PNT, Threatened labor
practice complaint, arbitration, labor strike or other material labor dispute
(excluding grievances) involving any of the Acquired Companies which are,
individually or in the aggregate, reasonably likely to have a PNT Material
Adverse Effect. Except for collective bargaining agreements or as described in
or pursuant to Section 5.18 and Section 6.1(a)(16) or as attached as an
exhibit to, or as specifically described in, the PNT SEC Documents delivered
to SUG prior to the date of this Agreement, as of the date of this Agreement,
to the Knowledge of PNT, none of the Acquired Companies is a party to any
employment agreement with any employee pertaining to any of the Acquired
Companies.
Section 5.18 Employee Benefit Plans.
(a) Except as set forth in Section 5.18 of the PNT Disclosure Schedule,
each of the PNT Benefit Plans has been operated and administered in all
material respects in accordance with its governing documents and applicable
federal and state laws (including, but not limited to, ERISA and the IRC). For
purposes of this Agreement, "PNT Benefit Plans" shall mean all employee
retirement, welfare or other benefit plans, agreements, practices, policies,
programs, or arrangements identified and described in Section 5.18 of the PNT
Disclosure Schedule, which sets forth all PNT Benefit Plans that are
applicable to any employee of the Acquired Companies identified in Section
5.17 of the PNT Disclosure Schedule or maintained by or contributed to by any
of the Acquired Companies.
(b) Except as set forth in Section 5.18 of the PNT Disclosure Schedule, as
to any PNT Benefit Plan subject to Title IV of ERISA, there is no event or
condition which presents the material risk of plan termination, no accumulated
funding deficiency, whether or not waived, within the meaning of Section 302
of ERISA or Section 412 of the IRC has been incurred for which any liability
is outstanding, no reportable event within the meaning of Section 4043 of
ERISA (for which the notice requirements of Regulation (S)4043 promulgated by
the PBGC have not been waived) has occurred within the last six years, no
notice of intent to terminate the PNT Benefit Plan has been given under
Section 4041 of ERISA, no proceeding has been instituted under Section 4042 of
ERISA to terminate the PNT Benefit Plan, there has been no termination or
partial termination of the PNT Benefit Plan within the meaning of Section
411(d)(3) of the IRC within the last six years, no event described in Sections
4062 or 4063 of ERISA has occurred, all PBGC premiums have been timely paid
and no liability to the PBGC has been incurred, except for PBGC premiums not
yet due.
(c) There is no matter pending (other than qualification determination
applications and filings and other required periodic filings) with respect to
any of the PNT Benefit Plans before the IRS, the Department of Labor, the PBGC
or in or before any other governmental authority.
(d) Except as set forth in Section 5.18 of the PNT Disclosure Schedule,
each trust funding a PNT Benefit Plan, which trust is intended to be exempt
from federal income taxation pursuant to Section 501(c)(9) of the IRC,
satisfies the requirements of such section and has received a favorable
determination letter from the IRS regarding such exempt status and to the
Knowledge of any Acquired Company has not, since receipt of the most recent
favorable determination letter, been amended or operated in any way which
would adversely affect such exempt status.
(e) Except as otherwise set forth in Section 5.18 of the PNT Disclosure
Schedule, with respect to any PNT Benefit Plan or any other "employee benefit
plan" as defined in Section 3(3) of ERISA which is established, sponsored,
maintained or contributed to, or to the Knowledge of the Acquired Companies,
with respect to any such plan which has been established, sponsored,
maintained or contributed to within six years prior to the Closing Date, by
the Acquired Companies or any corporation, trade, business or entity under
common control or being a part of an affiliated service group with any of the
Acquired Companies, within the meaning of Section 414(b), (c) or (m) of the
IRC or Section 4001 of ERISA ("PNT Commonly Controlled Entity"), (i) no
withdrawal liability, within the meaning of Section 4201 of ERISA, has been
incurred, which withdrawal liability
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has not been satisfied and no such withdrawal liability is reasonably expected
to be incurred, (ii) no liability under Title IV of ERISA (including, but not
limited to, liability to the PBGC) has been incurred by the Acquired Companies
or any PNT Commonly Controlled Entity, which liability has not been satisfied
(other than for PBGC premiums not yet due), (iii) no accumulated funding
deficiency, whether or not waived, within the meaning of Section 302 of ERISA
or Section 412 of the IRC has been incurred for which any liability is
outstanding, (iv) there has been no failure to make any contribution
(including installments) to such plan required by Section 302 of ERISA and
Section 412 of the IRC which has resulted in a lien under Section 302 of ERISA
or Section 412 of the IRC and for which any liability is currently
outstanding; (v) to the Knowledge of any Acquired Company, no action, omission
or transaction has occurred with respect to any such plan or any other PNT
Benefit Plan which could subject any of the Acquired Companies, the plan or
trust forming a part thereof, or SUG to a material civil liability or penalty
under ERISA or other applicable laws, or a material Tax under the IRC, (vi)
any such plan which is a Group Health Plan has complied in all material
respects with the provisions of Sections 601-608 of ERISA and Section 4980B of
the IRC, (vii) there are no pending or, to the Knowledge of any of the
Acquired Companies, Threatened claims by or on behalf of any such plan or any
other PNT Benefit Plan, by any employees, former employees or plan
beneficiaries covered by such plan or otherwise by or on behalf of any person
involving any such plan (other than routine non-contested claims for benefits)
which could result in a material liability to the Acquired Companies taken as
a whole and (viii) neither the Acquired Companies nor any PNT Commonly
Controlled Entity has engaged in, or is a successor or parent corporation to
any entity or person that has engaged in, a transaction described in Section
4069 of ERISA.
(f) Except as otherwise set forth in Section 5.18 of the PNT Disclosure
Schedule, the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not (i) require SUG to make a later
contribution to, payment or transfer of money or property or payment of
greater benefits under or with respect to any PNT Benefit Plan than any of the
Acquired Companies is currently required by the terms and provisions of such
PNT Benefit Plan to do, (ii) create or give rise to any additional eligibility
for participation, vested rights benefits or service credits under any PNT
Benefit Plan, or (iii) in and of themselves cause or result in SUG incurring
any civil liability or penalty under ERISA or other applicable laws or Tax
under the IRC.
(g) Except as otherwise set forth in Section 5.18 of the PNT Disclosure
Schedule, none of the Acquired Companies is a party to any Contract nor has it
established any policy or practice, which would require it or SUG to make a
payment or provide any other form of compensation or benefit to any Person
performing (or who within the past twelve months performed) services for any
of the Acquired Companies during or upon termination of such services which
would not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
(h) Except as would affect retirees and unionized employees and as
otherwise set forth in Section 5.18 of the PNT Disclosure Schedule, each PNT
Benefit Plan which is an "employee welfare benefit plan," as such term is
defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in
its entirety without any liability being incurred by any of the Acquired
Companies, SUG or any affiliate of SUG, except as to benefits accrued
thereunder prior to such amendment or termination.
(i) Section 5.18 of the PNT Disclosure Schedule contains a true and
complete list as of the date of this Agreement of each PNT Benefit Plan, all
Acquired Company Option Plans and any management, employment, deferred
compensation, severance (including any payment, right or benefit resulting
from a change in control), bonus or other contract for personal services with
any current or former officer, director or employee, any consulting contract
with any person who prior to entering this such contract was a director or
officer of any Acquired Company or any plan, agreement, arrangement or
understanding similar to any of the foregoing.
(j) None of the Acquired Companies has contributed nor been obligated to
contribute to any "multi-employer plan" within the meaning of Section 3(37) of
ERISA within the last six years, and none of the Acquired Companies has any
outstanding liability with respect to any such plan.
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Section 5.19 Environmental Matters. Except as set forth in Section 5.19 of
the PNT Disclosure Schedule or as specifically described in the PNT SEC
Documents delivered to SUG prior to the date of this Agreement, and with such
other exceptions as are not, individually or in the aggregate, reasonably
likely to have a PNT Material Adverse Effect:
(a) To the Knowledge of any Acquired Company, no Facility owned or operated
by any Acquired Company is currently, or was at any time, listed on the
National Priorities List promulgated under CERCLA, or on any comparable state
list, and no Acquired Company has received any written notification of
potential or actual liability or a written request for information from any
Person under or relating to CERCLA or any comparable Legal Requirement with
respect to any Acquired Company or the Facilities;
(b) To the Knowledge of any Acquired Company, each Acquired Company and any
Person for whose conduct any Acquired Company is reasonably likely to be held
responsible, and at all times has been, in material compliance with any
Environmental Law. No Acquired Company has received any Order, notice, or
other communication from (i) any Governmental Body or private citizen acting
in the public interest, or (ii) the current or prior owner or operator of any
Facilities, of any violation or failure to comply with any Environmental Law,
or of any obligation to undertake or bear the cost of any environmental
cleanup, or with respect to any property or Facility at which Hazardous
Materials generated by any Acquired Company were transported for disposal;
(c) There are no pending or, to the Knowledge of any of the Acquired
Companies, Threatened claims arising under or pursuant to any Environmental
Law with respect to or affecting any of the Facilities or any other properties
and assets (whether real, personal, or mixed) in which any Acquired Company
has or had a direct or indirect interest (including by ownership or use); and
(d) PNT has delivered or made available to SUG true and complete copies and
results of any environmental site assessments, studies, analyses, tests or
monitoring possessed by any Acquired Company of which any Acquired Company has
Knowledge pertaining to Hazardous Materials or Hazardous Activities in, on or
under the Facilities, or concerning compliance by any Acquired Company or any
other Person for whose conduct any Acquired Company is reasonably likely to be
held responsible, with Environmental Laws.
Section 5.20 No Material Adverse Change. Since the date of the PNT Balance
Sheet, except as specifically described in the PNT SEC Documents delivered to
SUG prior to the date of this Agreement, there has not been any PNT Material
Adverse Effect, and no events have occurred or circumstances exist that are,
individually or in the aggregate, reasonably likely to have a PNT Material
Adverse Effect, except that any PNT Material Adverse Effect that results from
or relates to (a) general business or economic conditions, (b) conditions
generally affecting the industries in which the Acquired Companies compete or
(c) the announcement of the transactions contemplated by this Agreement shall
be disregarded.
Section 5.21 Brokers. No Acquired Company is a party to, or in any way
obligated under any Contract, and there are no outstanding claims against any
Acquired Company, for the payment of any broker's or finder's fees in
connection with the origin, negotiation, execution or performance of this
Agreement.
Section 5.22 PNT Rights Agreement. Prior hereto, PNT has delivered to SUG
a true and complete copy of the PNT Rights Agreement. The consummation of the
transactions contemplated by this Agreement will not result in the triggering
of any right or entitlement of the holders of the PNT Common Stock or other
PNT securities under the PNT Rights Agreement or any similar agreement to
which PNT or any of its Subsidiaries is a party.
Section 5.23 Regulatory Proceedings. Except as set forth in Section 5.23 of
the PNT Disclosure Schedule, other than purchase gas adjustment provisions,
none of PNT or its Subsidiaries all or part of whose rates or services are
regulated by a Governmental Body (a) has rates that have been or are being
collected subject to refund, pending final resolution of any rate proceeding
pending before a Governmental Body or on appeal to the courts, or (b) is a
party to any rate proceeding before a Governmental Body that are, individually
or in the aggregate, reasonably likely to result in any Orders having a PNT
Material Adverse Effect.
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Section 5.24 Proxy Statement; Registration Statement. None of the
information supplied or to be supplied by or on behalf of PNT and its
Subsidiaries in either the PNT Proxy Statement or supplied or to be supplied
by PNT to SUG for inclusion in either the SUG Proxy Statement or the
Registration Statement, will, with respect to the Registration Statement, at
the effective time of the Registration Statement, at any time the Registration
Statement is amended or supplemented, at the date the PNT Proxy Statement is
first mailed to PNT's shareholders, at any time the PNT Proxy Statement is
amended or supplemented, at the time of the PNT Meeting and at the Effective
Time, in the case of the PNT Proxy Statement, at the date the PNT Proxy
Statement is first mailed to PNT's shareholders, at any time the PNT Proxy
Statement is amended or supplemented and at the time of the PNT Meeting and in
the case of the SUG Proxy Statement, at the date the SUG Proxy Statement is
first mailed to SUG's shareholders, at any time the SUG Proxy Statement is
amended or supplemented and at the time of the SUG Meeting (giving effect to
any documents incorporated by reference therein), contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The PNT Proxy
Statement will comply as to form and in substance in all material respects
with the applicable provisions of the Exchange Act and the rules and
regulations thereunder.
Section 5.25 Vote Required. Other than the approval of the Merger by the
holders of a majority of the outstanding shares of PNT Common Stock (the "PNT
Shareholders' Approval") and the approval by the holders of common stock of
each of PG Energy and Honesdale, no vote of the holders of any class or series
of the capital stock of any Acquired Company is required to approve this
Agreement and the Mergers.
Section 5.26 Opinion of Financial Advisor. PNT has provided (or promptly
upon receipt of a written copy thereof, will provide) SUG a copy of the
opinion of Legg Mason Wood Walker, Incorporated, dated as of the date hereof,
with respect to the Merger Consideration to be received by the holders of PNT
Common Stock pursuant to the transactions contemplated by this Agreement.
Section 5.27 Disclaimer of Representations and Warranties. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE V, PNT MAKES NO OTHER
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND PNT HEREBY DISCLAIMS
ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER BY PNT, ANY SUBSIDIARY
OF PNT, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE
TO SUG OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
REPRESENTATIVES, OR ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER
INFORMATION BY PNT, ANY SUBSIDIARY OF PNT, OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER
PERSON, WITH RESPECT TO ANY OF THE FOREGOING.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of PNT. PNT agrees to observe and perform the
following covenants and agreements:
(a) Conduct of the Business Prior to the Closing Date. With respect to the
Acquired Companies, except (i) as contemplated in this Agreement, (ii) for a
sale by PNT of Keystone Pipeline Services, Inc. or by Keystone Pipeline
Services, Inc. of its assets, or the sale by any of the Acquired Companies of
any real property owned by any of them that is not used or useful in the
Acquired Companies' utility operations, (iii) the redemption or repurchase of
the PG Preferred Stock prior to the Effective Time, (iv) as required by law or
regulation or (v) as
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otherwise expressly consented to in writing by SUG which consent will not be
unreasonably withheld or delayed, prior to the Closing, PNT will cause each
Acquired Company to:
(1)Not make or permit any material change in the general nature of its
business;
(2)Maintain its Ordinary Course of Business in accordance with prudent
business judgment and consistent with past practice and policy, and maintain
its assets in good repair, order and condition, reasonable wear and tear
excepted, subject to retirements in the Ordinary Course of Business;
(3)Preserve the Acquired Company as an ongoing business and use
reasonable efforts to maintain the goodwill associated with the Acquired
Company;
(4)Preserve all of the Acquired Companies' franchises, tariffs,
certificates of public convenience and necessity, licenses, authorizations and
other governmental rights and permits;
(5)Not enter into any material transaction or Material Contract other
than in the Ordinary Course of Business;
(6)Not purchase, sell, lease, dispose of or otherwise transfer or make
any contract for the purchase, sale, lease, disposition or transfer of, or
subject to lien, any of the assets of the Acquired Company other than in the
Ordinary Course of Business;
(7)Not hire any new employee unless such employee is a bona fide
replacement for a presently-filled position with the Acquired Company as of
the date hereof except for no more than ten (10) new employees to be hired by
PG Energy Services, Inc. for the conduct of the electric and natural gas
marketing business;
(8)Not file any material applications, petitions, motions, orders,
briefs, settlement or agreements in any material Proceeding before any
Governmental Body which involves the Acquired Company, and appeals related
thereto without, to the extent reasonably practicable, consulting SUG;
provided, however, that if such Proceeding is reasonably likely to have a PNT
Material Adverse Effect, PNT shall not make any such filing without the
consent of SUG, which consent shall not be unreasonably withheld or delayed;
(9)Not engage in any new (other than intercompany short-term financing
arrangements in the Ordinary Course of Business), or modify any existing,
intercompany transactions involving Keystone Pipeline Services, Inc., and not
engage in or modify, except in the Ordinary Course of Business, any material
intercompany transactions involving any other Acquired Company, except as set
forth in Section 6.1(a)(9) of the PNT Disclosure Schedule;
(10)Not voluntarily change in any material respect or terminate any
insurance policies disclosed on Section 5.16(a) of the PNT Disclosure Schedule
that presently are in effect unless equivalent coverage is obtained;
(11)Except as disclosed or specifically contemplated in this Agreement
or in Section 6.1(a)(11) of the PNT Disclosure Schedule, and with respect to
budgeted expenditures known and specifically disclosed in writing to SUG,
subject to adjustments in the Ordinary Course of Business and other deviations
(which in the aggregate shall not exceed 5% on an annualized basis during the
period from the date of this Agreement until the Closing Date), not make any
capital expenditure or capital expenditure commitment;
(12)Not make any changes in financial policies or practices, or
strategic or operating policies or practices, in each case which involve any
Acquired Company, except as required by law, rule or regulation;
(13)Comply in all material respects with all applicable material Legal
Requirements and permits, including without limitation those relating to the
filing of reports and the payment of Taxes due to be paid prior to the
Closing, other than those contested in good faith;
(14)Not adopt, amend (other than amendments that reduce the amounts
payable by SUG or any of its subsidiaries or amendments required by law) or
assume an obligation to contribute to any PNT Benefit
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Plan or collective bargaining agreement or enter into any employment,
severance or similar contract with any Person (including without limitation,
contracts with management of any Acquired Company or any of its affiliates
that might require payments be made upon consummation of the transactions
contemplated hereby) or amend any such existing contracts to increase any
amounts payable thereunder or benefits provided thereunder;
(15)Except in the Ordinary Course of Business or in accordance with the
terms of any existing Contract, PNT Benefit Plan or collective bargaining
agreement, not grant any increase or change in total compensation, benefits or
pay any bonus to any employees;
(16)Not grant or enter into any Contract, written or oral, with respect
to continued employment for any employee, officer or director;
(17)Not make (i) any loan or advance to any officer, director,
stockholder or employee other than in the Ordinary Course of Business or (ii)
make any other loan or advance to any Person other than in the Ordinary Course
of Business;
(18)Not terminate any existing gas purchase, exchange or transportation
contract necessary to supply firm gas at all city gate delivery points or
enter into any new contract for the supply, transportation, storage or
exchange of gas with respect to the Acquired Companies' regulated gas
distribution operations or renew or extend or negotiate any existing contract
providing for the same where such contract is not terminable within sixty (60)
days without penalty unless specifically agreed to by SUG;
(19)Not amend any of its Organizational Documents; and
(20)Subject to Section 6.1(l), not issue or assume any note, debenture
or other evidence of indebtedness which by its terms does not mature within
two year(s) (except that PG Energy shall have no more than $11,999,999 of
indebtedness which matures within one year from the date of any such issuance
or assumption) from the date of execution or issuance thereof, unless
otherwise redeemable or subject to prepayment at any time at the option of the
Acquired Company on not more than thirty (30) days notice without penalty for
such redemption or prepayment.
(b) Customer Notifications. At any time and from time to time reasonably
requested by SUG prior to the Closing Date, each Acquired Company will permit
SUG at SUG's expense to insert preprinted single-page customer education
materials into billing documentation to be delivered to customers affected by
this Agreement; provided that, PNT has reviewed in advance and consented to
the content of such materials, which consent shall not be unreasonably
withheld. Other means of notifying customers may be employed by either party,
at the expense of the initiating party, but in no event shall any notification
be initiated without the prior consent of the other party (which consent shall
not be unreasonably withheld).
(c) Access to the Acquired Companies' Offices, Properties and Records;
Updating Information.
(1)From and after the date hereof and until the Closing Date, the
Acquired Companies shall permit SUG and its Representatives to have, on
reasonable notice and at reasonable times, reasonable access to such of the
offices, properties and employees of the Acquired Companies, and shall
disclose, and make available to SUG and its Representatives all books, papers
and records to the extent that they relate to the ownership, operation,
obligations and liabilities of or pertaining to the Acquired Companies and
their businesses and assets. Without limiting the application of the
Confidentiality Agreement dated May 10, 1999 between PNT and SUG (the
"Confidentiality Agreement"), all documents or information furnished by the
Acquired Companies hereunder shall be subject to the Confidentiality
Agreement.
(2)PNT will notify SUG as promptly as practicable of any significant
change in the Ordinary Course of Business or operation of any of the Acquired
Companies and of any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) by any
Governmental Body, or the institution or overt threat or settlement of any
material Proceeding involving or affecting any of the
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Acquired Companies or the transactions contemplated by this Agreement, and
shall use reasonable efforts to keep SUG fully informed of such events and
permit SUG's Representatives access to all materials prepared in connection
therewith, consistent with any applicable Legal Requirement or Contract.
(3)As promptly as practicable after SUG's request, PNT will furnish
such financial and operating data and other information pertaining to the
Acquired Companies and their businesses and assets as SUG may reasonably
request; provided, however, that nothing herein will obligate any of the
Acquired Companies to take actions that would unreasonably disrupt its
Ordinary Course of Business or violate the terms of any Legal Requirement or
Contract to which the Acquired Company is a party or to which any of its
assets is subject in providing such information, or to incur any costs with
respect to SUG's external auditors (or the Acquired Companies' external
auditors in the event a report by such auditors is requested by SUG) providing
accounting services with respect to issuing an auditor's report required by or
for SUG.
(d) Governmental Approvals; Third Party Consents. PNT will use its
reasonable best efforts to obtain all necessary consents, approvals and
waivers from any Person required under any license, lease, permit or Contract
applicable to the Acquired Companies, including, without limitation, the
approvals of those Governmental Bodies and the consents of those third parties
listed in Section 5.4 and Section 5.5 of the PNT Disclosure Schedule and as
required by the HSR Act.
(e) Dividends. PNT shall not, nor shall it permit any of its Subsidiaries
to: (i) declare or pay any dividends on or make other distributions in respect
of any of its or their capital stock other than (A) dividends by a wholly
owned Subsidiary to PNT or another wholly owned subsidiary, (B) dividends by a
less than wholly owned Subsidiary consistent with past practice, (C) regular
quarterly dividends on PNT Common Stock with usual record and payment dates
that do not exceed the current rate of $1.20 per fiscal year, or (D) regular
cumulative cash distributions on the 4.10% PG Preferred Stock not to exceed an
annual rate of $4.10 per share or on the 5.75% PG Preferred Stock not to
exceed an annual rate of $5.75 per share; (ii) split, combine or reclassify
any capital stock or the capital stock of any Subsidiary or issue or authorize
or propose the issuance of any other securities in respect of, or in
substitution for, shares of capital stock or the capital stock of any
Subsidiary; or (iii) redeem, repurchase or otherwise acquire any shares of
capital stock of any Subsidiary other than (A) redemptions, repurchases and
other acquisitions of shares of capital stock in connection with the
administration of employee benefit and dividend reinvestment and customer
stock purchase plans as in effect on the date hereof in the ordinary course of
the operation of such plans consistent with past practice, (B) intercompany
acquisitions of capital stock, (C) required redemptions of the 5.75% PG
Preferred Stock, (D) the redemption or repurchase of the PG Preferred Stock as
contemplated herein or (E) as set forth in Section 6.1(l) of this Agreement.
(f) Issuance of Securities. PNT shall not, nor shall it permit any of its
Subsidiaries to, issue, agree to issue, deliver, sell, award, pledge, dispose
of or otherwise encumber or authorize or propose the issuance, delivery, sale,
award, pledge, disposal or other encumbrance of, any shares of its or their
capital stock of any class or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities, other than as provided for in the PNT
Benefit Plans, Acquired Company Option Plans (including options to be granted
to directors of PNT pursuant to such PNT Benefit Plans and Acquired Company
Option Plans) and any dividend reinvestment or customer stock purchase plans
of PNT in effect as of the date hereof.
(g) Accounting. PNT shall not, nor shall it permit any of its Subsidiaries
to, make any changes in their accounting methods, principles or practices
except as required by law, rule, regulation or GAAP.
(h) No Shopping.
(1)PNT shall not, and shall not authorize or permit any of its (or any
of its Subsidiaries') officers, directors, agents, financial advisors,
attorneys, accountants or other representatives to, directly or indirectly,
solicit, initiate or encourage submission of proposals or offers from any
Person relating to, or that could reasonably be expected to lead to, a
Business Combination or participate in any negotiations or discussions
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regarding, or furnish to any other Person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person to do or seek a
Business Combination; provided, however, that, prior to the PNT Shareholders'
Approval, PNT may, in response to an unsolicited written proposal from a third
party with respect to a Business Combination that PNT's Board of Directors
determines, in its good faith judgment, after consultation with and the
receipt of the advice of its financial advisor and outside counsel with
customary qualifications, is a Superior Proposal, (i) furnish information to,
and negotiate, explore or otherwise engage in substantive discussions with
such third party, only if PNT's Board of Directors determines, in its good
faith judgment after consultation with its financial advisors and outside
legal counsel, that it is reasonably necessary in order to comply with its
fiduciary duties under applicable law and (ii) take and disclose to PNT's
shareholders a position with respect to another Business Combination proposal,
or amend or withdraw such position, pursuant to Rule 14d-9 and 14e-2 under the
Exchange Act, or make such disclosure to PNT's shareholders which in the good
faith judgment of PNT's Board of Directors is required by applicable law,
based on the advice of its outside counsel. Prior to furnishing any non-public
information to, entering into negotiations with or accepting a Superior
Proposal from such third party, PNT will (i) provide written notice to SUG to
the effect that it is furnishing information to or entering into discussions
or negotiations with such third party and (ii) receive from such third party
an executed confidentiality agreement containing substantially the same terms
and conditions as the Confidentiality Agreement. PNT will immediately cease
and cause to be terminated any existing solicitation, initiation,
encouragement, activity, discussion or negotiations with any parties conducted
heretofore by PNT or any of its representatives with respect to any Business
Combination.
(2)Except as expressly permitted by this Section 6.1(h), neither the
PNT Board of Directors nor any committee thereof may, (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to SUG, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, a Business Combination or (iii) cause PNT to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to any Business Combination. Notwithstanding the
foregoing, prior to the time at which the PNT Shareholders' Approval has been
obtained, in response to an unsolicited Business Combination proposal from a
third party, if PNT's Board of Directors determines, in its good faith
judgment, after consultation with and the receipt of the advice of its
financial advisor and outside counsel with customary qualifications, that such
proposal is a Superior Proposal and that failure to do any of the actions set
forth in clauses (i), (ii) or (iii) above would create a reasonable
possibility of a breach of the fiduciary duties of PNT's Board of Directors
under applicable law, PNT's Board of Directors may (i) withdraw or modify its
approval or recommendation of the Merger or this Agreement, approve or
recommend a Business Combination or cause PNT to enter into a Business
Combination and (ii) negotiate with a third party with respect to such
Business Combination proposal and, subject to PNT having paid to SUG the fees
described in Section 8.3(a) hereof and having entered into a definitive
agreement with respect to such Business Combination proposal, terminate this
Agreement; provided, however, that prior to entering into a definitive
agreement with respect to a Business Combination proposal, the Company shall
give SUG at least five (5) day's notice thereof, and shall cause its
representatives to, negotiate with SUG to make such adjustments in the terms
and conditions of this Agreement as would enable PNT to proceed with the
transactions contemplated herein on such adjusted terms; provided, further,
that if PNT and SUG are unable to reach an agreement on such adjustments
within five (5) days after such notice from PNT, PNT may enter into such
definitive agreement, subject to the provisions of Article VIII.
(3)PNT shall notify SUG orally and in writing of any such inquiries,
offers or proposals (including, without limitation, the material terms and
conditions of any such offer or proposal and the identity of the Person making
it), within one business day of the receipt thereof, shall use all reasonable
efforts to keep SUG informed of the status and details of any such inquiry,
offer or proposal and shall give SUG two (2) days advance notice of the first
delivery of non-public information to such Person. If any such inquiry, offer
or proposal is in writing, PNT shall promptly deliver to SUG a copy of such
inquiry, offer or proposal.
(4)For purposes of this Agreement, (i) "Business Combination" means
(other than the transactions contemplated or permitted by this Agreement) (A)
a merger, consolidation or other business combination, share exchange, sale of
shares of capital stock, tender offer or exchange offer or similar transaction
involving PNT or
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any of its Subsidiaries, (B) acquisition in any manner, directly or
indirectly, of a material interest in any capital stock of, or a material
equity interest in a substantial portion of the assets of, PNT or any of its
Subsidiaries, including any single or multi-step transaction or series of
related transactions that is structured to permit a third party to acquire
beneficial ownership of a majority or greater equity interest in PNT or any of
its Subsidiaries, or (C) the acquisition in any manner, directly or
indirectly, of any material portion of the business or assets (other than
immaterial or insubstantial assets or inventory in the ordinary course of
business or assets held for sale) of PNT or any of its Subsidiaries and (ii)
"Superior Proposal" means a proposed Business Combination involving at least
50% of the shares of capital stock or a material portion of the assets of PNT
that PNT's Board of Directors determines, after consulting with PNT's
financial advisors and outside counsel, is financially superior to the
transactions contemplated hereby and it appears that the party making the
proposal is reasonably likely to have the funds necessary to consummate the
Business Combination.
(i) Solicitation of Proxies; PNT Proxy Statement. Subject to Section
6.1(h), PNT shall use its reasonable best efforts to solicit from its
shareholders proxies in favor of the Merger and shall take all other action
necessary or, in the reasonable opinion of SUG, advisable to secure the PNT
Shareholders' Approval. PNT shall cause PG Energy and Honesdale to approve the
Honesdale Merger and the PG Energy Merger.
(j) PNT Shareholder Approval.
(1)Subject to the provisions of Section 6.1(h) and Section 6.1(j)(2),
PNT shall, as soon as reasonably practicable after the date hereof (i) take
all steps necessary to duly call, give notice of, convene and hold a meeting
of its shareholders (including all adjournments thereof, the "PNT Meeting")
for the purpose of securing the PNT Shareholders' Approval, (ii) distribute to
its shareholders the PNT Proxy Statement in accordance with applicable federal
and state law and with its Organizational Documents, (iii) subject to the
fiduciary duties of its Board of Directors, recommend to its shareholders the
approval of this Agreement and the transactions contemplated hereby and (iv)
cooperate and consult with SUG with respect to each of the foregoing matters.
(2)The PNT Meeting for the purpose of securing the PNT Shareholders'
Approval, including any adjournments thereof, will be held on such date or
dates as PNT and SUG mutually determine.
(k) Rule 145 Letters. PNT shall promptly identify to SUG all officers and
directors of any Acquired Company and any other persons who are "affiliates"
within the meaning of such term as used in Rule 145 under the Securities Act
("Rule 145 Affiliates"), and PNT shall use its reasonable efforts to provide
to SUG undertakings from such persons ("Rule 145 Letters") to the effect that
no disposition of shares of SUG Common Stock received in the Merger will be
made by such persons except within the limits and in accordance with the
applicable provisions of said Rule 145, as amended from time to time, or
except in a transaction which, in the opinion of legal counsel satisfactory to
SUG, is exempt from registration under the Securities Act.
(l) Financing Activities. PNT shall, and shall cause its Subsidiaries to,
cooperate, to the fullest extent commercially reasonable and practicable, with
SUG's requests with respect to refinancing by the Acquired Companies of the
current maturities of any of their indebtedness, and any repurchase,
redemption or prepayment by any of the Acquired Companies of any of its
indebtedness or preferred stock that may be required prior to or because of
the Mergers or that SUG may request that the Acquired Companies effect prior
to the Mergers, so as to permit SUG to have the maximum opportunity to
refinance, on or promptly after the Closing Date without any penalty except as
may be due pursuant to the terms of the Acquired Companies' indebtedness and
preferred stock as in effect on the date of this Agreement, any of the
Acquired Companies' indebtedness or preferred stock outstanding on the Closing
Date, including, but not limited to, the redemption or repurchase by PG Energy
(or purchase by PNT) by the Effective Time of all outstanding shares of PG
Preferred Stock; provided, however, that no Acquired Company shall be required
to consummate prior to the Effective Time any such refinancing, repurchase,
redemption or repayment requested by SUG.
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(m) PNT Disclosure Schedule. On the date hereof, PNT has delivered to SUG
the PNT Disclosure Schedule, accompanied by a certificate signed by an
executive officer of PNT stating the PNT Disclosure Schedule is being
delivered pursuant to this Section 6.1(m). The PNT Disclosure Schedule
constitutes an integral part of this Agreement and modifies the
representations, warranties, covenants or agreements of PNT contained herein
to the extent that such representations, warranties, covenants or agreements
expressly refer to the PNT Disclosure Schedule.
Section 6.2 Covenants of SUG. SUG agrees to observe and perform the
following covenants and agreements:
(a) Governmental Approvals; Third Party Consents. SUG will use its
reasonable best efforts at SUG's sole expense to obtain all necessary
consents, approvals and waivers from any Person required under any license,
lease, permit, Contract or agreement applicable to SUG, including, without
limitation, the approvals of the Missouri Public Service Commission, the
Florida Public Service Commission and the Pennsylvania Public Utility
Commission as described in Section 4.5 and as required by the HSR Act.
(b) Employees; Benefits. With respect to the employees (excluding unionized
employees) listed in Section 5.17(a) of the PNT Disclosure Schedule (or their
successors employed pursuant to Section 6.1(a)(7) above) (the "Employees"),
except as otherwise specified herein, SUG agrees as follows:
(1) During the 12 months immediately following the Closing Date, to make
available to the Employees who continue their service with the Surviving
Corporation or any Subsidiary of the Surviving Corporation Benefit Plans that
are no less favorable, in the aggregate, than the Benefit Plans listed in
Section 5.18 of the PNT Disclosure Schedule offered to the Employees
immediately prior to the Effective Time. Notwithstanding the foregoing, SUG's
obligations under PNT's Directors' Retirement Plan, Directors' 1995 Stock
Compensation Plan and Directors' Deferred Compensation Plan shall be limited
to obligations accrued through and including the Effective Time, including,
but not limited to, the change in control provisions contained in such plans.
(2) For purposes of eligibility, vesting and benefit accrual under all
benefit plans provided to the Employees after the Closing Date, SUG will
recognize the tenure of employment, as recognized by the Acquired Companies as
of the Closing Date.
(3) All vacation time earned by the Employees prior to the Closing Date
must be taken by the end of the calendar year of the Closing Date, except
where the Employee is requested by PNT or SUG to forego their vacation for
business-related reasons. For purposes of awarding vacation time at the
beginning of each calendar year following the Closing Date, SUG will recognize
the tenure of employment, as recognized by the Acquired Company as of the
Closing Date.
(4) SUG will permit each of the Employees to carry forward all days of
sick leave accrued prior to the Closing Date.
(c) Rule 16b-3. SUG will take all reasonable steps so that the acquisition
of the Merger Consideration by officers and directors of PNT (including Merger
Consideration with respect to PNT Common Stock held under PNT Benefit Plans),
and cash payments or substitute SUG options issued in exchange for PNT Options
in accordance with Section 3.4, will be exempt from Section 16(b) of the
Exchange Act by reason of Rule 16b-3 promulgated thereunder.
(d) Tax Matters. SUG will not take, or fail to take, any action before or
after the Closing Date that will adversely affect the qualification of the
Merger(s) as a reorganization under Section 368(a)(1)(A) of the IRC.
(e) Blue Sky Permits. SUG shall use its best efforts to obtain, prior to
the effective date of the Registration Statement, all necessary state
securities laws or "blue sky" permits and approvals required to carry out the
transactions contemplated by the Agreement, and will pay all expenses incident
thereto.
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(f) Listing Application. Prior to the Closing, SUG shall cause the shares
of SUG Common Stock constituting the Stock Consideration and any other such
shares required to be reserved for issuance in connection with the Merger to
be listed on the NYSE, subject to official notice of issuance thereof.
(g) Directors. After the Effective Time on the Closing Date, three
individuals to be selected prior to the Closing Date by SUG from the Board of
Directors of PNT immediately prior to the Effective Time shall be elected to
the Board of Directors of SUG as the Surviving Corporation, and thereafter
nominated and recommended for reelection if necessary such that each of them
shall have a term of at least three years from the Closing Date, and each such
individual shall hold office in accordance with the Certificate of
Incorporation and By-laws of SUG as the Surviving Corporation; provided that,
any such individual who is also an officer or employee of the Surviving
Corporation shall be required to resign as a director of the Surviving
Corporation if he resigns or is terminated as an officer or employee of the
Surviving Corporation.
(h) Technology: Pennsylvania Operations. SUG will give full consideration
to using or retaining PNT's technology and management systems for the PNT
operations after the Effective Time, if SUG determines that they are superior
to such technology and management systems being used by SUG in its other
operations and it is in the best interests of SUG and PNT's operations. SUG
intends to operate the Acquired Companies' utility operations in Pennsylvania
as a separate division of the Surviving Corporation headquartered in
Pennsylvania.
(i) Charitable Contributions. SUG will maintain PNT's charitable
contributions of at least the amount given and/or committed in 1998 for at
least the next three calendar years.
(j) Collective Bargaining Agreements. At the Effective Time, SUG agrees to
assume all collective bargaining agreements covering employees of any Acquired
Company, and shall discharge when due any and all liabilities of any Acquired
Company under such collective bargaining agreements relating to periods after
the Effective Time.
(k) Restrictions on Unusual Distributions; Anti-Dilution. Except for an
annual 5% stock dividend, SUG will not, prior to the Effective Time, declare
any stock dividend, stock split, reclassification, recapitalization,
combination or distribution of assets, securities or other property to holders
of, or affecting, SUG Common Stock.
(l) Solicitation of Proxies; SUG Proxy Statement. SUG shall use its
reasonable best efforts to solicit from SUG's shareholders proxies in favor of
the Merger and shall take all other action necessary or, in the reasonable
opinion of PNT, advisable to secure the SUG Shareholders' Approval. All
Lindemann family members who own shares of SUG Common Stock as of the date of
this Agreement have provided PNT with a commitment and irrevocable proxy to
vote all of their shares of SUG Common Stock in favor of the Merger, the form
of which is attached hereto as Schedule 6.2(l).
(m) SUG Shareholder Approval.
(1) Subject to the provisions of Section 6.2(m)(2), SUG shall, as soon as
reasonably practicable after the date hereof (i) take all steps necessary to
duly call, give notice of, convene and hold a meeting of its shareholders
(including all adjournments thereof, the "SUG Meeting") for the purpose of
securing the SUG Shareholders' Approval, (ii) distribute to its shareholders
the SUG Proxy Statement in accordance with applicable federal and state law
and with its Organizational Documents, (iii) subject to the fiduciary duties
of its Board of Directors, recommend to its shareholders the approval of this
Agreement and the transactions contemplated hereby and (iv) cooperate and
consult with PNT with respect to each of the foregoing matters.
(2) The SUG Meeting for the purpose of securing the SUG Shareholders'
Approval, including any adjournments thereof, will be held on such date or
dates as PNT and SUG mutually determine.
(n) SUG Disclosure Schedule. On the date hereof, SUG has delivered to PNT
the SUG Disclosure Schedule, accompanied by a certificate signed by an
executive officer of SUG stating that the SUG Disclosure Schedule is being
delivered pursuant to this Section 6.2(n). The SUG Disclosure Schedule
constitutes an integral part of this Agreement and modifies the
representations, warranties, covenants or agreements of SUG contained herein
to the extent that such representations, warranties, covenants or agreements
expressly refer to the SUG Disclosure Schedule.
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(o) Conduct of the Business Prior to the Closing Date. Except as
contemplated in this Agreement, as required by law or regulation or as
otherwise expressly consented to in writing by PNT which consent will not be
unreasonably withheld, prior to the Closing, SUG will:
(1) Not make or permit any material change in the general nature of its
business;
(2) Maintain its present operations in the Ordinary Course of Business in
accordance with prudent business judgment and consistent with past practice
and policy, and maintain its assets in good repair, order and condition,
reasonable wear and tear excepted, subject to retirements in the Ordinary
Course of Business;
(3) Preserve SUG as an ongoing business and use reasonable efforts to
maintain the goodwill associated with SUG; and
(4) Preserve all of SUG's franchises, tariffs, certificates of public
convenience and necessity, licenses, authorizations and other governmental
rights and permits.
(p) Access to SUG's Offices, Properties and Records; Updating Information.
(1) From and after the date hereof and until the Closing Date, SUG and its
Subsidiaries shall permit PNT and its Representatives to have, on reasonable
notice and at reasonable times, reasonable access to such of the offices,
properties and employees of SUG and its Subsidiaries, and shall disclose, and
make available to PNT and its Representatives all books, papers and records to
the extent that they relate to the ownership, operation, obligations and
liabilities of or pertaining to SUG, its Subsidiaries and their respective
businesses and assets. Without limiting the application of the Confidentiality
Agreement, all documents or information furnished by SUG and its Subsidiaries
hereunder shall be subject to the Confidentiality Agreement.
(2) SUG will notify PNT as promptly as practicable of any significant
change in the Ordinary Course of Business or operation of SUG or any of its
Subsidiaries and of any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) by any
Governmental Body, or the institution or overt threat or settlement of any
material Proceeding involving or affecting SUG or any of its Subsidiaries or
the transactions contemplated by this Agreement, and shall use reasonable
efforts to keep PNT fully informed of such events and permit PNT's
Representatives access to all materials prepared in connection therewith
consistent with any applicable Legal Requirement or Contract.
(3) As promptly as practicable after PNT's request, SUG will furnish such
financial and operating data and other information pertaining to SUG, its
Subsidiaries and their respective businesses and assets as PNT may reasonably
request; provided, however, that nothing herein will obligate SUG or any of
its Subsidiaries to take actions that would unreasonably disrupt its Ordinary
Course of Business or violate the terms of any Legal Requirement or Contract
to which SUG or any of its Subsidiaries is a party or to which any of its
assets is subject in providing such information, or to incur any costs with
respect to PNT's external auditors (or SUG's external auditors in the event a
report by such auditors is requested by PNT) providing accounting services
with respect to issuing an auditor's report required by or for PNT.
Section 6.3 Additional Agreements.
(a) The Registration Statement, the PNT Proxy Statement and the SUG Proxy
Statement. As soon as practicable after the date hereof, PNT and SUG shall
take such reasonable steps as are necessary for the prompt preparation and
filing with the SEC of (i) the PNT Proxy Statement by PNT, (ii) the SUG Proxy
Statement by SUG and (iii) the Registration Statement, which will include
information contained in the PNT Proxy Statement, by SUG. The foregoing shall
include without limitation: (i) obtaining and furnishing the information
required to be included therein, (ii) after consultation between PNT and SUG,
responding promptly to any comments made by the SEC with respect to the PNT
Proxy Statement, the SUG Proxy Statement and the Registration Statement and
any amendments and preliminary version thereof and (iii) causing the
Registration Statement to become effective, the PNT Proxy Statement to be
mailed to PNT's shareholders at the earliest practicable date and the SUG
Proxy Statement to be mailed to SUG's shareholders at the earliest practicable
date. PNT agrees, as to
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information with respect to PNT, its officers, directors, shareholders and
Subsidiaries contained in the Registration Statement, the PNT Proxy Statement
and the SUG Proxy Statement, and SUG agrees, as to information with respect to
SUG, its officers, directors, shareholders and Subsidiaries contained in the
Registration Statement, the PNT Proxy Statement and the SUG Proxy Statement,
that such information, in the case of the PNT Proxy Statement at the time of
the mailing of the PNT Proxy Statement and (as then amended or supplemented)
at the time of the PNT Meeting, in the case of the SUG Proxy Statement, at the
time of the mailing of the SUG Proxy Statement and (as then amended or
supplemented) at the time of the SUG Meeting or in the case of the
Registration Statement at the time of the mailing of the PNT Proxy Statement
(as then amended or supplemented), at the time of the PNT Meeting and at the
effective time of the Registration Statement, will not contain any untrue
statement of material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. No representation, warranty, covenant or agreement
is made by or on behalf of PNT with respect to information supplied by any
other party for inclusion in the PNT Proxy Statement, the SUG Proxy Statement
or the Registration Statement. No representation, warranty, covenant or
agreement is made by or on behalf of SUG with respect to information supplied
by any other party for inclusion in the PNT Proxy Statement, the SUG Proxy
Statement or the Registration Statement. No filing of, or amendment or
supplement to, the PNT Proxy Statement, the SUG Proxy Statement or the
Registration Statement shall be made by any party hereto without providing the
other party with the opportunity to review and comment thereon (except for any
ongoing SEC reporting required of SUG, PNT or PG Energy that will be
incorporated by reference). If at any time prior to the Effective Time any
information relating to any party hereto or any of their respective officers,
directors, shareholders or Subsidiaries, should be discovered by any party
hereto which should be set forth in an amendment or supplement to the PNT
Proxy Statement, the SUG Proxy Statement or the Registration Statement so that
the PNT Proxy Statement, the SUG Proxy Statement or the Registration Statement
would not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and an
appropriate amendment or supplement describing such information shall be
promptly prepared, filed with the SEC and, to the extent required by law,
disseminated to the shareholders of PNT and/or the shareholders of SUG, as may
be necessary.
(b) Further Assurances. Each of SUG, PNT and any Acquired Company agrees to
take all such reasonable and lawful action as may be necessary or appropriate
in order to effectuate the Merger in accordance with this Agreement as
promptly as possible. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purpose of this
Agreement and to vest PNT or SUG with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Acquired
Companies, PNT's shareholders and the officers and directors of the Acquired
Companies immediately prior to the Effective Time are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to SUG's Obligation to Effect the Merger. The
obligation of SUG to effect the transactions contemplated by this Agreement
shall be subject to fulfillment at or prior to the Closing of the following
conditions:
(a) Representations and Warranties True as of the Closing Date. PNT's
representations and warranties in this Agreement shall have been accurate in
all material respects as of the date of this Agreement and shall be accurate
in all material respects as of the Closing Date as if made on the Closing
Date, subject to changes expressly contemplated and permitted by this
Agreement; provided that, any such representation or warranty that is
qualified by any standard of materiality (including, but not limited to, PNT
Material Adverse Effect) shall have then been, and shall then be, accurate in
all respects.
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(b) Compliance with Agreements. The covenants, agreements and conditions
required by this Agreement to be performed and complied with by any of the
Acquired Companies shall have been performed and complied with in all material
respects prior to or at the Closing Date.
(c) Certificate. PNT shall execute and deliver to SUG a certificate of an
authorized officer of PNT, dated the Closing Date, stating that the conditions
specified in Sections 7.1(a) and 7.1(b) of this Agreement applicable to the
Acquired Companies have been satisfied.
(d) Governmental Approvals. All approvals, consents, opinions or rulings of
all Governmental Bodies required in order to consummate the transactions
contemplated hereby shall have been obtained by Final Order in such form as
is, and with no conditions that are, individually or in the aggregate,
reasonably likely to have a PNT Material Adverse Effect or a material adverse
effect on the business, operations, properties, financial condition or results
of operations of the Surviving Corporation. The applicable waiting period
under the HSR Act with respect to the transactions contemplated hereby shall
have expired or have been terminated.
(e) Third Party Consents. Each of the consents required under Section 5.4
of this Agreement shall have been obtained to the reasonable satisfaction of
SUG, other than any such consents which, if not obtained, are not,
individually or in the aggregate, reasonably likely to result in a PNT
Material Adverse Effect after the Closing. In addition, all consents and
approvals required, under the terms of any note, bond or indenture listed on
the schedule to be delivered pursuant to Section 5.4, to which any of the
Acquired Companies is a party, shall have been obtained.
(f) Injunctions. On the Closing Date, there shall be no Orders which
operate to restrain, enjoin or otherwise prevent the consummation of this
Agreement or the Mergers.
(g) Resignations. Each director of each Acquired Company shall, if
requested by SUG, resign any position as a director of an Acquired Company
effective as of the Closing Date in accordance with such Subsidiary's
Organizational Documents and applicable provisions of the PBCL; provided that,
such resignations shall not cause the termination of any such Person's
employment as an employee of an Acquired Company or reduce any such employee's
then current level of compensation.
(h) Opinion of Tax Counsel. On the Closing Date, SUG shall have received
from Roberts and Holland, L.L.P., special tax counsel to SUG, an opinion to
the effect that the Merger will constitute a "reorganization" within the
meaning of IRC Section 368(a)(1)(A), that the Honesdale Merger and the PG
Energy Merger will each constitute "reorganizations" within the meaning of IRC
Section 368(a)(1)(A) or "liquidations" within the meaning of IRC Section 332,
and that no gain or loss will be recognized by SUG or any of the Acquired
Companies with respect to the Mergers.
(i) Shareholder Approvals. The SUG Shareholders' Approval and the PNT
Shareholders' Approval shall have been obtained, and all of the outstanding
shares of the PG Preferred Stock shall have been redeemed in accordance with
the Organizational Documents of PG Energy, purchased by PNT or repurchased by
PG Energy.
(j) Dissenter's Rights. Demand for payment of dissenters' rights by
shareholders of PNT with respect to the Merger shall not equal or exceed seven
percent of the outstanding shares of PNT Common Stock entitled to vote
thereon.
(k) Rule 145 Letters. Each Rule 145 Affiliate shall have executed and
delivered to SUG a Rule 145 Letter, in form and substance reasonably
satisfactory to SUG and its counsel.
(l) Registration Statement. The Registration Statement shall have become
effective, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
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(m) Listing of SUG Common Stock. The shares of SUG Common Stock
constituting the Stock Consideration and any other shares of SUG Common Stock
required to be issued or reserved hereunder to consummate the transactions
contemplated by this Agreement shall have been authorized for listing, upon
official notice of issuance, on the NYSE.
Section 7.2 Conditions to PNT's Obligations to Effect the Mergers. The
obligation of PNT to effect the transactions contemplated by this Agreement
shall be subject to fulfillment at or prior to the Closing of the following
conditions:
(a) Representations and Warranties True as of the Closing Date. SUG's
representations and warranties in this Agreement shall have been accurate in
all material respects as of the date of this Agreement and shall be accurate
in all material respects as of the Closing Date as if made on the Closing
Date, subject to changes expressly contemplated and permitted by this
Agreement; provided that, any such representation or warranty that is
qualified by any standard of materiality (including, but not limited to, SUG
Material Adverse Effect) shall have then been, and shall then be, accurate in
all respects.
(b) Compliance with Agreements. The covenants, agreements and conditions
required by this Agreement to be performed and complied with by SUG shall have
been performed and complied with in all material respects prior to or at the
Closing Date.
(c) Certificate. SUG shall execute and deliver to PNT a certificate of an
authorized officer of SUG, dated the Closing Date, stating that the conditions
specified in Sections 7.2(a) and 7.2(b) of this Agreement applicable to SUG
have been satisfied.
(d) Governmental Approvals. All approvals, consents, opinions or rulings of
all Governmental Bodies required in order to consummate the transactions
contemplated hereby shall have been obtained by Final Order in such form as
is, and with no conditions that are, individually or in the aggregate,
reasonably likely to have a material adverse effect on the business,
operations, properties, financial condition or results of operations of the
Surviving Corporation. The applicable waiting period under the HSR Act with
respect to the transactions contemplated hereby shall have expired or have
been terminated.
(e) Injunctions. On the Closing Date, there shall be no Orders which
operate to restrain, enjoin or otherwise prevent the consummation of this
Agreement or the Mergers.
(f) Opinion of Counsel. On the Closing Date, PNT shall have received from
Hughes Hubbard & Reed LLP, counsel to PNT, an opinion to the effect that the
Merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of IRC Section 368(a), and that no gain or loss will be
recognized for federal income tax purposes by the shareholders of PNT upon
their receipt of the Merger Consideration, except that any realized gain will
be recognized to the extent of the amount of cash received.
(g) Shareholder Approvals. The SUG Shareholders' Approval and the PNT
Shareholders' Approval shall have been obtained.
(h) Registration Statement. The Registration Statement shall have become
effective, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(i) Listing of SUG Common Stock. The shares of SUG Common Stock
constituting the Stock Consideration and any other shares of SUG Common Stock
required to be issued or reserved hereunder to consummate the transactions
contemplated by this Agreement shall have been authorized for listing, upon
official notice of issuance, on the NYSE.
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ARTICLE VIII
TERMINATION
Section 8.1 Termination Rights. This Agreement may be terminated in its
entirety at any time prior to the Closing:
(a) By the mutual written consent of SUG and PNT;
(b) By PNT, on the one hand, or SUG, on the other hand, in writing if there
shall be in effect a non-appealable order of a court of competent jurisdiction
prohibiting the consummation of the Mergers in accordance with this Agreement;
(c) By PNT if there is a breach of any representation, warranty, covenant
or agreement of SUG, which breach cannot be cured and would cause the
conditions set forth in Section 7.2(a) to be incapable of being satisfied;
(d) By SUG if there is a breach of any representation, warranty, covenant
or agreement of PNT, which breach cannot be cured and would cause the
conditions set forth in Section 7.1(a) to be incapable of being satisfied;
(e) By PNT, by written notice to SUG in accordance with Section 6.1(h)(2);
provided, however, that the termination described in this clause (e) shall not
be effective unless and until PNT shall have paid SUG the fee described in
Section 8.3(a) and PNT has substantially contemporaneously entered into a
definitive agreement with respect to a Business Combination Proposal;
(f) By PNT, in writing if the PNT Shareholders' Approval is not obtained at
the PNT Meeting or the SUG Shareholders' Approval is not obtained at the SUG
Meeting or by SUG in writing if the PNT Shareholders' Approval is not obtained
at the PNT Meeting provided that there has not been a material
misrepresentation or a material breach of covenant, warranty or agreement
contained herein on the part of the party asserting its right to terminate
pursuant to this Section 8.1(f);
(g) By PNT, if the Average Trading Price of the SUG Common Stock as of the
Closing is lower than $17.30000;
(h) By SUG, by written notice to PNT, if the Board of Directors of PNT or
any committee thereof (i) withdraws or modifies, or proposes publicly to
withdraw or modify, in a manner adverse to SUG, the approval or recommendation
by the Board of Directors or such committee of the Merger or this Agreement,
(ii) approves or recommends, or proposes publicly to approve or recommend, a
Business Combination, (iii) causes PNT to enter into a definitive agreement
related to any Business Combination, (iv) resolves to take any of the actions
specified in clause (i), (ii) and (iii) above or (v) fails by the Effective
Time to cause PG Energy to redeem or repurchase all of the outstanding shares
of PG Preferred Stock;
(i) By SUG, by written notice to PNT, if a third party, including a group
(as defined under the Exchange Act) acquires securities representing greater
than 50% of the voting power of the outstanding voting securities of PNT; or
(j) By either party in writing at any time after 5:00 p.m., Eastern Time on
June 7, 2000, (the "Initial Termination Date") if the Closing has not occurred
prior thereto; provided, however, that the right to terminate this Agreement
under this Section 8.1(j) will not be available to any party that is in
material breach of its representations, warranties, covenants or agreements
contained herein; and provided, further, that if on the Initial Termination
Date (i) the conditions to closing set forth in Sections 7.1(d) and 7.2(d)
shall not have been fulfilled or (ii) any approval or authorization of any
Governmental Body required in connection with the consummation of the Mergers
shall have not been obtained and such approval or authorizations shall not
have become a Final Order, but all other conditions to Closing shall be
fulfilled or shall be capable of being fulfilled, then the Initial Termination
Date will be extended to December 7, 2000.
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Section 8.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 8.1, this Agreement shall be of no further force and effect and
there shall be no further liability hereunder on the part of any party or its
affiliates, directors, officers, shareholders, agents or other
representatives; provided, however, that no such termination shall relieve any
party of liability for any claims, damages or losses suffered by the other
party as a result of the negligent or willful failure of a party to perform
any obligations required to be performed by it hereunder on or prior to the
date of termination. Notwithstanding anything to the contrary contained
herein, the provisions of Section 8.2, Sections 10.1 through 10.6 and Sections
10.8 through 10.11 of this Agreement shall survive any termination of this
Agreement. Notwithstanding anything to the contrary contained herein, but
subject to Section 7.1(i), Section 8.1(h) and Section 8.2, the failure by PG
Energy to obtain the approval of the transactions contemplated by this
Agreement by the holders of either series of PG Preferred Stock in the event
such approval may be determined to be required shall not constitute a breach
by PNT of any of its representations, warranties or covenants contained
herein.
Section 8.3 Termination Fee; Expenses.
(a) Termination Fee. If this Agreement is terminated pursuant to Section
8.1(e), 8.1(h) or 8.1(i), then PNT shall pay to SUG promptly (but not later
than five business days after notice is received from PNT) an amount equal to
$10 million in cash.
(b) Expenses. The parties agree that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty. Notwithstanding
anything to the contrary contained in this Section 8.3, if PNT fails to pay
promptly to SUG the fee due under Section 8.3(a), in addition to any amounts
paid or payable pursuant to Section 8.3(a), PNT shall pay the costs and
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee calculated
using an annual percentage rate of interest equal to the prime rate published
in the Wall Street Journal on the date (or preceding business day if such date
is not a business day) such fee was required to be paid, compounded on a daily
basis using a 360-day year.
ARTICLE IX
INDEMNIFICATION; REMEDIES
Section 9.1 Directors' and Officer's Indemnification.
(a) Indemnification and Insurance. For a period of six years after the
Effective Time, the Surviving Corporation will indemnify and hold harmless the
present and former officers and directors of PNT and its Subsidiaries (the
"Indemnified Parties") in respect of acts or omissions occurring prior to the
Effective Time to the extent provided under PNT's certificate of incorporation
and bylaws in effect on the date hereof; provided, however, that if any claim
or claims are asserted or made within such six-year period, all rights to
indemnification in respect of such claims shall continue until the final
disposition of any and all such claims. For six years after the Effective
Time, the Surviving Corporation will use its reasonable best efforts to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such person
currently covered by PNT's officers' and directors' liability insurance policy
on terms with respect to coverage and amount no less favorable than those of
such policy in effect on the date hereof; provided that in satisfying its
obligation under this Section, if the annual premiums of such insurance
coverage exceed 200% of the previous year's premiums, the Surviving
Corporation will be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the Board of Directors of the
Surviving Corporation for a cost not exceeding such amount.
(b) Successors. In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person
and is not the continuing or surviving corporation or entity of such
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<PAGE>
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then and in either such case, proper
provisions must be made so that the successors and assigns of the Surviving
Corporation will assume the obligations set forth in this Section 9.1.
(c) Survival of Indemnification. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the
date hereof in favor of the employees, agents, directors and officers of any
Acquired Company with respect to their activities as such prior to the
Effective Time, as provided in their respective Organizational Documents in
effect on the date hereof, or otherwise in effect on the date hereof, will
survive the Mergers and will continue in full force and effect except for
amendments to make changes permitted by law that would enhance the rights of
past or present officers and directors to indemnification or advancement of
expenses in respect of acts or omissions occurring prior to the Effective
Time. for a period of not less than six years from the Effective Time (or, in
the case of matters occurring prior to the Effective Time which have not been
resolved prior to the sixth anniversary of the Effective Time, until such
matters are finally resolved).
Section 9.2 Representations and Warranties. Each and every representation
and warranty of either party shall expire at, and be terminated and
extinguished with, the Effective Time.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Expenses. Each of the parties will pay all costs and expenses
of its performance of and compliance with this Agreement, except (i) as
provided in Section 8.3 and as expressly provided otherwise herein, (ii) PNT
shall pay all fees and expenses of counsel for PNT, (iii) SUG will pay all
real estate transfer taxes and real estate recording fees, if any, including
expenses of counsel associated with real estate title, transfer and recording
issues in connection with the Mergers, and all filing and application fees
paid to Governmental Bodies in connection with the Mergers and (iv) SUG and
PNT will each pay half of the combined costs of printing and mailing to the
PNT stockholders the prospectus that is a part of the Registration Statement
and the Proxy Statement.
Section 10.2 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been given upon
receipt if either (a) personally delivered, (b) sent by prepaid first class
mail, and registered or certified and a return receipt requested or (c) by
facsimile telecopier with completed transmission acknowledged:
if to SUG, to:
Southern Union Company
504 Lavaca Street, Suite 800
Austin, Texas 78701
Attention: Peter H. Kelley
President and Chief Operating Officer
Telecopier: (512) 477-3879
with a copy to:
Fleischman and Walsh, L.L.P.
Suite 600
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Stephen A. Bouchard, Esq.
Telecopier: (202) 265-5706
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<PAGE>
if to PNT, to:
Pennsylvania Enterprises, Inc.
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Thomas F. Karam
President and Chief Executive Officer
Telecopier: (570) 829-8900
with a copy to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004-1482
Attention: Garett J. Albert, Esq.
Telecopier: (212) 422-4726
or at such other address or number as shall be given in writing by a party to
the other parties.
Section 10.3 Assignment. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties hereto.
Section 10.4 Successor Bound. Subject to the provisions of Section 10.3,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 10.5 Governing Law; Forum; Consent to Jurisdiction. This Agreement
shall be construed in accordance with and governed by the laws of the State of
New York except to the extent that the terms and consummation of the Mergers
are subject to the DGCL or the PBCL. Each party to this Agreement hereby
irrevocably and unconditionally (i) consents to submit to the exclusive
jurisdiction of the federal courts of the Southern District of New York in the
county of New York and the borough of Manhattan for any proceeding arising in
connection with this Agreement (and each such party agrees not to commence any
such proceeding, except in such courts), (ii) to the extent such party is not
a resident of the State of New York, agrees to appoint an agent in the State
of New York as such party's agent for acceptance of legal process in any such
proceeding against such party with the same legal force and validity as if
served upon such party personally within the State of New York, and to notify
promptly each other party hereto of the name and address of such agent, (iii)
waives any objection to the laying of venue of any such proceeding in the
federal courts of the Southern District of New York in the county of New York
and the borough of Manhattan, and (iv) waives, and agrees not to plead or to
make, any claim that any such proceeding brought in any federal court of the
Southern District of New York has been brought in an improper or otherwise
inconvenient forum.
Section 10.6 Waiver of Trial By Jury. EACH PARTY TO THIS AGREEMENT HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY SUCH PARTY MAY
BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO (i) THIS AGREEMENT, (ii)
THE MERGERS, (iii) THE CONFIDENTIALITY AGREEMENT OR (iv) ANY RELATED
DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH
PARTY HERETO, AND EACH SUCH PARTY HEREBY REPRESENTS AND WARRANTS THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON TO INDUCE THIS
WAIVER OR TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH
PARTY TO THIS AGREEMENT FURTHER REPRESENTS AND WARRANTS THAT EACH SUCH PARTY
HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF EACH SUCH PARTY'S OWN
FREE WILL, AND THAT EACH SUCH PARTY HAS HAD THE OPPORTUNITY TO DISCUSS THIS
WAIVER WITH COUNSEL.
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<PAGE>
Section 10.7 Cooperation; Further Documents.
(a) Each of the parties hereto agrees to use its reasonable best efforts to
take or cause to be taken all action, and to do or cause to be done all things
necessary, proper or advisable under applicable laws, regulations or
otherwise, to consummate and to make effective the transactions contemplated
by this Agreement, including, without limitation, the timely performance of
all actions and things contemplated by this Agreement to be taken or done by
each of the parties hereto.
(b) Each party shall cooperate with the other party in such other party's
discharge of the obligations hereunder, which shall include making reasonably
available to the other party such of its personnel as have relevant
information, with respect thereto.
Section 10.8 Construction of Agreement. The terms and provisions of this
Agreement represent the results of negotiations between PNT and SUG, each of
which has been represented by counsel of its own choosing, and neither of
which has acted under duress or compulsion, whether legal, economic or
otherwise. Accordingly, the terms and provisions of this Agreement shall be
interpreted and construed in accordance with their usual and customary
meanings, and PNT and SUG hereby waive the application in connection with the
interpretation and construction of this Agreement of any rule of law to the
effect that ambiguous or conflicting terms or provisions contained in this
Agreement shall be interpreted or construed against the party whose attorney
prepared the executed draft or any earlier draft of this Agreement.
Section 10.9 Publicity; Organizational and Operational Announcements. No
party hereto shall issue, make or cause the publication of any press release
or other announcement with respect to this Agreement or the transactions
contemplated hereby, or otherwise make any disclosures relating thereto,
without the consent of the other party, such consent not to be unreasonably
withheld or delayed; provided, however, that such consent shall not be
required where such release or announcement is required by applicable law or
the rules or regulations of a securities exchange, in which event the party so
required to issue such release or announcement shall endeavor, wherever
possible, to furnish an advance copy of the proposed release to the other
party.
Section 10.10 Waiver. Except as otherwise expressly provided in this
Agreement, neither the failure nor any delay on the part of any party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise or waiver of any such right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege available to each party at law
or in equity.
Section 10.11 Parties in Interest. This Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any Person,
other than the parties hereto and their successors and permitted assigns, any
rights or remedies hereunder, except that the parties hereto agree and
acknowledge that the agreements and covenants contained in Section 6.2(g) are
intended for the direct and irrevocable benefit of each director of PNT
selected by SUG prior to the Closing Date pursuant thereto, and that the
agreements and covenants contained in Section 9.1 are intended for the direct
and irrevocable benefit of the Indemnified Parties described therein and their
respective heirs or legal representatives (each such director or Indemnified
Party, a "Third Party Beneficiary"), and that each such Third Party
Beneficiary, although not a party to this Agreement, shall be and is a direct
and irrevocable third party beneficiary of such agreements and covenants and
shall have the right to enforce such agreements and covenants against the
Surviving Corporation in all respects fully and to the same extent as if such
Third Party Beneficiary were a party hereto.
Section 10.12 Specific Performance. The parties hereto agree that
irreparable damage would occur to a party in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that any
party shall be entitled to an injunction or injunctions to prevent breaches of
this agreement by any other party and to enforce specifically, to the fullest
extent available, the terms and provisions hereof, including each party's
obligation to close, in any court of the United States or any state having
jurisdiction, this being in addition to any other right or remedy to which any
party is entitled at law or in equity.
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<PAGE>
Section 10.13 Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
Section 10.14 Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
Section 10.15 Entire Agreement. This Agreement, the exhibits, annexes and
schedules hereto and the documents specifically referred to herein and the
Confidentiality Agreement constitute the entire agreement, understanding,
representations and warranties of the parties hereto.
Section 10.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
A-44
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
SOUTHERN UNION COMPANY
/s/ Peter H. Kelley
By: _________________________________
Name: Peter H. Kelley
Title:President and Chief Operating
Officer
PENNSYLVANIA ENTERPRISES, INC.
/s/ Thomas F. Karam
By: _________________________________
Name: Thomas F. Karam
Title:President and Chief Executive
Officer
A-45
<PAGE>
APPENDIX B
[Letterhead of Legg Mason Wood Walker, Incorporated]
June 7, 1999
The Board of Directors
Pennsylvania Enterprises, Inc.
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Thomas F. Karam
Members of the Board of Directors:
We are advised that Pennsylvania Enterprises, Inc. (collectively,
"Pennsylvania Enterprises" or the "Company") has entered into an Agreement of
Merger (the "Agreement") with Southern Union Company ("Southern Union"),
pursuant to which Pennsylvania Enterprises will merge into Southern Union and
each outstanding share of Pennsylvania Enterprises common stock will be
converted into the right to receive $32.00 in value of common stock of Southern
Union and $3.00 in cash on terms and conditions as more fully set forth in the
Agreement (the transaction is referred to herein as the "Transaction").
You have requested our opinion, as investment bankers, as to the fairness to
the shareholders of the Company, from a financial point of view, of the
consideration to be received by the shareholders of the Company in the
Transaction.
For purposes of rendering this opinion, we have, among other things:
(i) reviewed the form of the definitive Agreement and certain related
documents;
(ii) reviewed the audited consolidated financial statements of
Pennsylvania Enterprises for the twelve month periods ended December
31, 1998, 1997, 1996 and 1995;
(iii) reviewed the unaudited financial statements of Pennsylvania
Enterprises for the three month period ended March 31, 1999;
(iv) reviewed the audited consolidated financial statements of Southern
Union for the twelve month periods ended June 30, 1998, 1997, 1996
and 1995;
(v) reviewed the unaudited financial statements of Southern Union for the
nine month period ended March 31, 1999;
(vi) reviewed certain publicly available information concerning
Pennsylvania Enterprises and Southern Union;
(vii) reviewed forecast financial statements of Pennsylvania Enterprises
and Southern Union furnished to us by the senior management of
Pennsylvania Enterprises and Southern Union;
(viii) reviewed and analyzed certain publicly available financial and
stock market data with respect to operating statistics relating to
selected public companies that we deemed relevant to our inquiry;
(ix) reviewed the reported prices and trading activity of the publicly-
traded securities of Pennsylvania Enterprises and Southern Union;
(x) analyzed certain publicly available information concerning the terms
of selected merger and acquisition transactions that we considered
relevant to our inquiry;
(xi) held meetings and discussions with certain officers and employees of
Pennsylvania Enterprises and Southern Union concerning the
operations, financial condition and future prospects of Pennsylvania
Enterprises and Southern Union; and
(xii) conducted such other financial studies, analyses and investigations
and considered such other information as we deemed necessary or
appropriate for purposes of our opinion.
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<PAGE>
In connection with our review, we have assumed and relied upon the accuracy
and completeness of all financial and other information supplied to us by
Southern Union and Pennsylvania Enterprises or publicly available, as we have
not independently verified such information. We have further relied upon the
assurances of management of Southern Union and Pennsylvania Enterprises as they
are unaware of any facts that would make such information incomplete or
misleading. We also have relied upon the managements of Southern Union and
Pennsylvania Enterprises, as to the reasonableness and achievability of the
financial projections (and the assumptions and bases therein) provided to us or
prepared for Pennsylvania Enterprises and Southern Union, and we have assumed
that such projections have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management as to the future
operating performance of Pennsylvania Enterprises and Southern Union, including
without limitation the tax benefits, cost savings and operating synergy to be
enjoyed by Southern Union after the Transaction. Neither Southern Union nor
Pennsylvania Enterprises publicly discloses internal management projections of
the type provided to Legg Mason in connection with Legg Mason's review of the
Transaction. Such projections were not prepared with the expectation of public
disclosure. The projections were based on numerous variables and assumptions
that are inherently uncertain, including without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in such projections.
We have not been requested to make, and have not made, an independent
appraisal or evaluation of the assets, properties or liabilities of
Pennsylvania Enterprises and we have not been furnished with any such appraisal
or evaluation. We have not reviewed any of the books and records of
Pennsylvania Enterprises or assumed any responsibility for conducting a
physical inspection of the properties or facilities of Pennsylvania
Enterprises. Further, this opinion is based upon prevailing market conditions
and other circumstances and conditions existing on the date hereof. We have
assumed that the Transaction will be consummated on the terms and conditions
described in the form of the Agreement reviewed by us. It is understood that
subsequent developments may affect the conclusions reached in this opinion and
that we do not have any obligation to update, revise or reaffirm this opinion.
It is understood that this letter is directed to the Company's Board of
Directors. The opinion expressed herein is provided for the use of the
Company's Board of Directors in its evaluation of the proposed Transaction and
does not constitute a recommendation to any shareholder of the Company either
of the Transaction or as to how such shareholder should vote on or otherwise
respond to the Transaction. In addition, this letter does not constitute a
recommendation of the Transaction over any other alternative transaction which
may be available to the Company and does not address the underlying business
decision of the Board of Directors of the Company to proceed with or effect the
Transaction. This letter is not to be quoted or referred to, in whole or in
part, in any registration statement, prospectus or proxy statement, or in any
other document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purposes, without the prior written
consent of Legg Mason Wood Walker, Incorporated; provided that this Opinion may
be included in its entirety in any filing made by the Company with the
Securities and Exchange Commission with respect to the Transaction.
In the past, Legg Mason has provided investment banking services to
Pennsylvania Enterprises and received a fee for its services. In addition, Legg
Mason will receive a separate fee for providing this Opinion to the Board of
Directors of Pennsylvania Enterprises.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the consideration to be received by the shareholders of
Pennsylvania Enterprises in the Transaction is fair to such shareholders from a
financial point of view.
Very truly yours,
Legg Mason Wood Walker, Incorporated
By:
/s/ Alexsander M. Stewart
__________________________________
Alexsander M. Stewart
Managing Director
B-2
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APPENDIX C
[Letterhead of Donaldson, Lufkin & Jenrette Securities Corporation]
As of June 6, 1999
Board of Directors
Southern Union Company
504 Lavaca Street--Eighth Floor
Austin, Texas 78701
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Southern Union Company ("SUG" or the "Company") of the consideration to
be paid by the Company to the stockholders of Pennsylvania Enterprises, Inc.
("PNT") pursuant to the terms of the Agreement of Merger, to be dated as of
June 7, 1999 (the "Agreement"), by and between the Company and PNT and pursuant
to which PNT will be merged (the "Merger") with and into SUG.
Pursuant to the Agreement, at the effective time of the Merger, each issued
and outstanding share of PNT common stock (other than shares with respect to
which dissenter rights have been perfected under applicable law), together with
the associated stock purchase rights, will be converted into the right to
receive (i) that number of whole shares of SUG common stock equal to $32.00
divided by the Conversion Price (as defined in the Agreement) (the "Exchange
Ratio"), subject to a collar (the "Collar") which provides that the Conversion
Price shall not be more than $22.71 nor less than $19.46 (such amounts
representing 105% and 90%, respectively, of the closing price of SUG common
stock on June 4, 1999), with a cash payment to be made by SUG in lieu of any
fractional shares, and (ii) an amount in cash (the "Cash Consideration"),
without interest, equal to the sum of $3.00 plus, if the Conversion Price
(notwithstanding the operation of the Collar) is less than $19.46, the product
of (x) the amount, not to exceed $2.16, by which $19.46 exceeds the Conversion
Price and (y) the Exchange Ratio (the maximum cash amount potentially payable
pursuant to this clause (ii) being $6.55 per share of PNT common stock). The
Exchange Ratio, as bound by the Collar, and the Cash Consideration are
collectively referred to herein as the Merger Consideration.
In arriving at our opinion, we have reviewed the draft dated June 6, 1999 of
the Agreement. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company including information
provided during discussions with Company management. Included in the
information provided during discussions with management were certain financial
projections of PNT for the period beginning January 1, 1999 and ending December
31, 1999 prepared by the management of PNT and certain financial projections of
PNT and the Company for the period beginning January 1, 1999 and ending
December 31, 2003 prepared by the management of the Company. In addition, we
have compared certain financial and securities data of the Company and PNT with
various other companies whose securities are traded in public markets, reviewed
the historical stock prices and trading volumes of the common stock of PNT and
the Company, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and PNT or
their respective representatives, or that was otherwise reviewed by us and have
assumed that the Company is not aware of any information prepared by it or its
other advisors that might be material to our opinion that has not been made
available to us. In particular, we have relied upon the estimates of the
management of the Company of the operating synergies achievable as a result of
the Merger. With respect to the financial projections supplied to us, we have
relied on representations that they have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of PNT
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as to the future operating and financial performance of PNT and the best
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company and PNT. We
have not assumed any responsibility for making any independent evaluation of
any assets or liabilities or for making any independent verification of any of
the information reviewed by us. We have relied as to certain legal matters on
advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligations to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company's common stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ is
currently engaged by SUG to act as its exclusive financial advisor in
connection with another potential acquisition. DLJ expects to receive usual and
customary investment banking fees in connection with this assignment.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Merger Consolidation to be paid by the Company pursuant
to the Agreement is fair to the Company from a financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette Securities
Corporation
By:
/s/ John A. Cavalier
________________________________________
John A. Cavalier
Managing Director
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APPENDIX D
DISSENTERS RIGHTS PROVISIONS OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
SUBCHAPTER D--DISSENTERS RIGHTS
(S) 1571. Application and effect of subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
<TABLE>
<C> <S>
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
</TABLE>
(b) Exceptions.
(1)Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is
to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2)Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of fractional
shares.
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or
the effectuation of the transaction the affirmative vote of a majority
of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
D-1
<PAGE>
(3)The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholder to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1)A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2)A copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S) 1572. Definitions.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities under
this subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
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(S) 1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he dissents. In that
event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner,
whether or not the shares so owned by him are registered in his name.
(S) 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
(S) 1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and demand payment
of the fair value of their shares a notice of the adoption of the plan or other
corporate action. In either case, the notice shall:
(1)State where and when a demand for payment must be sent and certificates
for certificated shares must be deposited in order to obtain payment.
(2)Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.
(3)Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4)Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
(S) 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
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<PAGE>
(b) Restriction on uncertificated shares. If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S) 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance
under this section will be made. The remittance or notice shall be accompanied
by:
(1)The closing balance sheet and statement of income of the issuer of the
shares held or owned by the dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice together with the latest
available interim financial statements.
(2)A statement of the corporation's estimate of the fair value of the
shares.
(3)A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had
after making demand for payment of their fair value.
(S) 1578. Estimate by dissenter of fair value of shares.
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
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<PAGE>
(S) 1579. Valuation proceedings generally.
(a) General rule. Within 60 days after the latest of:
(1)Effectuation of the proposed corporate action;
(2)Timely receipt of any demands for payment under section 1575 (relating
to notice to demand payment); or
(3)Timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
(S) 1580. Costs and expenses of valuation proceedings.
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
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<PAGE>
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
(S) 1930. Dissenters rights.
(a) General rule. If any shareholder of a domestic business corporation that
is to be a party to a merger or consolidation pursuant to a plan of merger or
consolidation objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 (relating to dissenters rights),
the shareholder shall be entitled to the rights and remedies of dissenting
shareholders therein provided, if any. See also section 1906(c) (relating to
dissenters rights upon special treatment).
(b) Plans adopted by directors only. Except as otherwise provided pursuant
to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a
corporation that is a party to a merger or consolidation pursuant to section
1924(1)(i) (relating to adoption by board of directors).
(c) Cross references. See sections 1571(b) (relating to exceptions) and 1904
(relating to de facto transaction doctrine abolished).
D-6
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article TWELFTH of the Restated Certificate of Incorporation of Southern
Union eliminates personal liability of directors to the fullest extent
permitted by Delaware law. Section 145 of the Delaware General Corporation Law
provides that a Delaware corporation may indemnify any person against expenses,
fines and settlements actually and reasonably incurred by any such person in
connection with a threatened, pending or completed action, suit or proceeding
in which he is involved by reason of the fact that he is or was a director,
officer, employee or agent of such corporation, provided that (i) he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and (ii) with respect to any criminal
action or proceeding, he had no reasonable cause to believe his conduct was
unlawful. If the action or suit is by or in the name of the corporation, the
corporation may indemnify any such person against expenses actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no indemnification may be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation, unless and only
to the extent that the Delaware Court of Chancery or the court in which the
action or suit is brought determines upon application that, despite the
adjudication of liability but in the light of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expense as
the court deems proper.
The directors and officers of Southern Union are covered by insurance
policies indemnifying against certain liabilities, including certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), which might be incurred by them in such capacities and
against which they cannot be indemnified by Southern Union. Southern Union has
entered into an Indemnification Agreement with each member of its Board of
Directors. The Indemnification Agreement provides the Directors with the
contractual right to indemnification for any acts taken in their capacity as a
director of Southern Union to the fullest extent permitted under Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
(2) Plan of Acquisition
2.1 -- Agreement of Merger between Southern Union Company and Pennsylvania
Enterprises, Inc. dated as of June 7, 1999 (included in the Proxy
Statement/Prospectus forming a part of this Registration Statement as
Appendix A).
(3)(i) Articles of Incorporation
3.1 -- Restated Certificate of Incorporation of Southern Union Company.
(Filed as Exhibit 3(a) to Southern Union's Transition Report on Form
10-K for the year ended June 30, 1994 and incorporated herein by
reference.)
-- Form of Amendment to Restated Certificate of Incorporation of
Southern Union Company expected to be adopted at the time the
transactions described herein are to be approved by the Registrant's
3.2 voting stockholders.
(3)(ii) By-laws
3.3 -- Southern Union Company Bylaws, as amended. (Filed as Exhibit 3(b)
to Southern Union's Transition Report on Form 10-K for the year ended
June 30, 1994 and incorporated herein by reference.)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
4.1 -- Specimen Common Stock Certificate. (Filed as Exhibit 4(a) to
Southern Union's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference.)
4.2 -- Indenture between Chase Manhattan Bank, N.A., as trustee, and
Southern Union Company dated January 31, 1994. (Filed as Exhibit 4.1
to Southern Union's Current Report on Form 8-K dated February 15, 1994
and incorporated herein by reference.)
4.3 -- Officers' Certificate dated January 31, 1994 setting forth the
terms of the 7.60% Senior Debt Securities due 2024. (Filed as Exhibit
4.2 to Southern Union's Current Report on Form 8-K dated February 15,
1994 and incorporated herein by reference.)
4.4 -- Certificate of Trust of Southern Union Financing I. (Filed as
Exhibit 4-A to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.5 -- Certificate of Trust of Southern Union Financing II. (Filed as
Exhibit 4-B to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.6 -- Certificate of Trust of Southern Union Financing III. (Filed as
Exhibit 4-C to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.7 -- Form of Amended and Restated Declaration of Trust of Southern Union
Financing I. (Filed as Exhibit 4-D to Southern Union's Registration
Statement on Form S-3 (No. 33-58297) and incorporated herein by
reference.)
4.8 -- Form of Subordinated Debt Securities Indenture among Southern Union
Company and Chase Manhattan Bank, N.A., as Trustee. (Filed as Exhibit
4-G to Southern Union's Registration Statement on Form S-3 (No. 33-
58297) and incorporated herein by reference.)
4.9 -- Form of Supplemental Indenture to Subordinated Debt Securities
Indenture with respect to the Subordinated Debt Securities issued in
connection with the Southern Union Financing Preferred Securities.
(Filed as Exhibit 4-H to Southern Union's Registration Statement on
Form S-3 (No. 33-58297) and incorporated herein by reference.)
4.10 -- Form of Southern Union Financing I Preferred Security (included in
4.7 above.) (Filed as Exhibit 4-I to Southern Union's Registration
Statement on Form S-3 (No. 33-58297) and incorporated herein by
reference.)
4.11 -- Form of Subordinated Debt Security (included in 4.9 above.) (Filed
as Exhibit 4-J to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.12 -- Form of Guarantee with respect to Southern Union Financing I
Preferred Securities. (Filed as Exhibit 4-K to Southern Union's
Registration Statement on Form S-3 (No. 33-58297) and incorporated
herein by reference.)
4.13 -- Southern Union is a party to other debt instruments, none of which
authorizes the issuance of debt securities in an amount which exceeds
10% of the total assets of Southern Union. Southern Union hereby
agrees to furnish a copy of any of these instruments to the Commission
upon request.
(5) Opinion re Legality
-- Opinion of Fleischman and Walsh, L.L.P. including the consent of
5.1 such firm.
(8) Opinions re Tax Matters
-- Opinion of Roberts & Holland LLP including the consent of such
8.1 firm.
-- Opinion of Hughes Hubbard & Reed LLP including the consent of such
8.2 firm.
(10) Material Contracts
10.1 -- Revolving Credit Agreement (Long-Term Credit Facility) between
Southern Union Company and the Banks named therein dated November 10,
1998. (Filed as Exhibit 10(a) to Southern Union's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998 and incorporated
herein by reference.)
10.2 -- Revolving Credit Agreement (Short-Term Credit Facility) between
Southern Union Company and the Banks named therein dated November 10,
1998. (Filed as Exhibit 10.2 to Southern Union's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998 and incorporated
herein by reference.)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.3 -- Southern Union Company 1982 Incentive Stock Option Plan and form of
related Stock Option Agreement . (Filed as Exhibits 4.1 and 4.2 to
Form S-8 (File No. 2-79612) and incorporated herein by reference.)
10.4 -- Form of Indemnification Agreement between Southern Union Company
and each of the Directors of Southern Union Company. (Filed as Exhibit
10(i) to Southern Union's Annual Report on Form 10-K for the year
ended December 31, 1986 and incorporated herein by reference.)
10.5 -- Southern Union Company 1992 Long-Term Stock Incentive Plan, as
Amended. (Filed as Exhibit 10(l) to Southern Union's Annual Report on
Form 10-K for the year ended June 30, 1998 and incorporated herein by
reference.)*
10.6 -- Southern Union Company Director's Deferred Compensation Plan.
(Filed as Exhibit 10(g) to Southern Union's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated herein by
reference.)*
10.7 -- Southern Union Company Amended Supplemental Deferred Compensation
Plan with Amendments. (Filed as Exhibit 4 to Southern Union's Form S-8
filed March 27, 1999 and incorporated herein by reference.)*
10.8 -- Form of Warrant granted to Fleischman and Walsh, L.L.P. (Filed as
Exhibit 10(j) to Southern Union's Transition Report on Form 10-K for
the year ended June 30, 1994 and incorporated herein by reference.)
10.9 -- Renewal of Promissory Note Agreement between Peter H. Kelley and
Southern Union Company dated May 31, 1995. (Filed as Exhibit 10(i) to
Southern Union's Annual Report on Form 10-K for the year ended June
30, 1995 and incorporated herein by reference.)
10.10 -- Agreement and Irrevocable Proxy by and between Pennsylvania
Enterprises, Inc., George L. Lindemann, Dr. F.B. Lindemann, Adam M.
Lindemann, George Lindemann, Jr. and Sloan N. Lindemann dated June 7,
1999. (Filed as Appendix D to Southern Union's definitive proxy
statement on Schedule 14A for the 1999 Annual Meeting of Stockholders
and incorporated herein by reference.)
(21) Subsidiaries of the Company
21.1 -- Subsidiaries of the Company. (Filed as Exhibit 21 to Southern
Union's Annual Report on Form 10-K for the year ended June 30, 1999
and incorporated herein by reference.)
(23) Consent of Experts
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Legg Mason Wood Walker, Incorporated
23.5 -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation
(24) Power of Attorney
24.1 -- Power of Attorney of Directors of Registrant
(99) Additional Exhibits
99.1 -- Form of Proxy of Southern Union Company
99.2 -- Form of Proxy of Pennsylvania Enterprises, Inc.
</TABLE>
- --------
* Indicates Management Compensation Plan
All supporting schedules have been omitted because they are not required or
the information required to be set forth therein is included in the
consolidated financial statements or in the notes thereto.
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual
II-3
<PAGE>
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(B) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(C) The undersigned Registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(D) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(E) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(F) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on September 10, 1999.
SOUTHERN UNION COMPANY
/s/ Peter H. Kelley
_______________________________
Peter H. Kelley
President & Chief Operating Officer
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities indicated as of September 10, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<C> <S>
* Director and Chief Executive Officer
____________________________________
George L. Lindemann
/s/ Peter H. Kelley Director and Chief Operating Officer
____________________________________
Peter H. Kelley
* Director
____________________________________
John E. Brennan
* Director
____________________________________
Frank W. Denius
* Director
____________________________________
Aaron I. Fleischman
* Director
____________________________________
Kurt A. Gitter, M.D.
* Director
____________________________________
Adam M. Lindemann
* Director
____________________________________
Roger J. Pearson
* Director
____________________________________
George Rountree, III
* Director
____________________________________
Dan K. Wassong
/s/ Ronald J. Endres Executive Vice President & Chief
____________________________________ Financial Officer
Ronald J. Endres
/s/ David J. Kvapil Senior Vice President & Corporate
____________________________________ Controller (Principal Accounting Officer)
</TABLE> David J. Kvapil
/s/ Peter H. Kelley
*By: __________________________
Peter H. Kelley
Attorney-in-Fact
II-6
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
(2) Plan of Action
2.1 --Agreement of Merger between Southern Union Company and Pennsylvania
Enterprises, Inc. dated as of June 7, 1999 (included in the Proxy
Statement/ Prospectus forming a part of this Registration Statement
as Appendix A).
(3)(i) Articles of Incorporation
3.1 --Restated Certificate of Incorporation of Southern Union Company.
(Filed as Exhibit 3(a) to Southern Union's Transition Report on Form
10-K for the year ended June 30, 1994 and incorporated herein by
reference.)
3.2 --Form of Amendment to Restated Certificate of Incorporation of
Southern Union Company expected to be adopted at the time the
transactions described herein are to be approved by the Registrant's
voting stockholders.**
(3)(ii) By-laws
3.3 --Southern Union Company Bylaws, as amended. (Filed as Exhibit 3(b) to
Southern Union's Transition Report on Form 10-K for the year ended
June 30, 1994 and incorporated herein by reference.)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
4.1 --Specimen Common Stock Certificate. (Filed as Exhibit 4(a) to
Southern Union's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference.)
4.2 --Indenture between Chase Manhattan Bank, N.A., as trustee, and
Southern Union Company dated January 31, 1994. (Filed as Exhibit 4.1
to Southern Union's Current Report on Form 8-K dated February 15,
1994 and incorporated herein by reference.)
4.3 --Officers' Certificate dated January 31, 1994 setting forth the terms
of the 7.60% Senior Debt Securities due 2024. (Filed as Exhibit 4.2
to Southern Union's Current Report on Form 8-K dated February 15,
1994 and incorporated herein by reference.)
4.4 --Certificate of Trust of Southern Union Financing I. (Filed as
Exhibit 4-A to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.5 --Certificate of Trust of Southern Union Financing II. (Filed as
Exhibit 4-B to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.6 --Certificate of Trust of Southern Union Financing III. (Filed as
Exhibit 4-C to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
4.7 --Form of Amended and Restated Declaration of Trust of Southern Union
Financing I. (Filed as Exhibit 4-D to Southern Union's Registration
Statement on Form S-3 (No. 33-58297) and incorporated herein by
reference.)
4.8 --Form of Subordinated Debt Securities Indenture among Southern Union
Company and Chase Manhattan Bank, N.A., as Trustee. (Filed as Exhibit
4-G to Southern Union's Registration Statement on Form S-3 (No. 33-
58297) and incorporated herein by reference.)
4.9 --Form of Supplemental Indenture to Subordinated Debt Securities
Indenture with respect to the Subordinated Debt Securities issued in
connection with the Southern Union Financing Preferred Securities.
(Filed as Exhibit 4-H to Southern Union's Registration Statement on
Form S-3 (No. 33-58297) and incorporated herein by reference.)
4.10 --Form of Southern Union Financing I Preferred Security (included in
4.7 above). (Filed as Exhibit 4-I to Southern Union's Registration
Statement on Form S-3 (No. 33-58297) and incorporated herein by
reference.)
4.11 --Form of Subordinated Debt Security (included in 4.9 above.) (Filed
as Exhibit 4-J to Southern Union's Registration Statement on Form S-3
(No. 33-58297) and incorporated herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.12 --Form of Guarantee with respect to Southern Union Financing I
Preferred Securities. (Filed as Exhibit 4-K to Southern Union's
Registration Statement on Form S-3 (No. 33-58297) and incorporated
herein by reference.)
4.13 --Southern Union is a party to other debt instruments, none of which
authorizes the issuance of debt securities in an amount which exceeds
10% of the total assets of Southern Union. Southern Union hereby
agrees to furnish a copy of any of these instruments to the
Commission upon request.
(5) Opinion re Legality
5.1 --Opinion of Fleischman and Walsh, L.L.P. including the consent of
such firm.**
(8) Opinions re Tax Matters
8.1 --Opinion of Roberts & Holland LLP including the consent of such
firm.**
8.2 --Opinion of Hughes Hubbard & Reed LLP including the consent of such
firm.**
(10) Material Contracts
10.1 --Revolving Credit Agreement (Long-Term Credit Facility) between
Southern Union Company and the Banks named therein dated November 10,
1998. (Filed as Exhibit 10(a) to Southern Union's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998 and incorporated
herein by reference.)
10.2 --Revolving Credit Agreement (Short-Term Credit Facility) between
Southern Union Company and the Banks named therein dated November 10,
1998. (Filed as Exhibit 10.2 to Southern Union's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998 and incorporated
herein by reference.)
10.3 --Southern Union Company 1982 Incentive Stock Option Plan and form of
related Stock Option Agreement. (Filed as Exhibits 4.1 and 4.2 to
Form S-8 (File No. 2-79612) and incorporated herein by reference.)
10.4 --Form of Indemnification Agreement between Southern Union Company and
each of the Directors of Southern Union Company. (Filed as Exhibit
10(i) to Southern Union's Annual Report on Form 10-K for the year
ended December 31, 1986 and incorporated herein by reference.)
10.5 --Southern Union Company 1992 Long-Term Stock Incentive Plan, as
Amended. (Filed as Exhibit 10(l) to Southern Union's Annual Report on
Form 10-K for the year ended June 30, 1998 and incorporated herein by
reference.)*
10.6 --Southern Union Company Director's Deferred Compensation Plan. (Filed
as Exhibit 10(g) to Southern Union's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by
reference.)*
10.7 --Southern Union Company Amended Supplemental Deferred Compensation
Plan with Amendments. (Filed as Exhibit 4 to Southern Union's Form S-
8 filed March 27, 1999 and incorporated herein by reference.)*
10.8 --Form of Warrant granted to Fleischman and Walsh, L.L.P. (Filed as
Exhibit 10(j) to Southern Union's Transition Report on Form 10-K for
the year ended June 30, 1994 and incorporated herein by reference.)
10.9 --Renewal of Promissory Note Agreement between Peter H. Kelley and
Southern Union Company dated May 31, 1995. (Filed as Exhibit 10(i) to
Southern Union's Annual Report on Form 10-K for the year ended June
30, 1995 and incorporated herein by reference.)
10.10 --Agreement and Irrevocable Proxy by and between Pennsylvania
Enterprises, Inc., George L. Lindemann, Dr. F.B. Lindemann, Adam M.
Lindemann, George Lindemann, Jr. and Sloan N. Lindemann dated June 7,
1999. (Filed as Appendix D to Southern Union's definitive proxy
statement on Schedule 14A for the 1999 Annual Meeting of Stockholders
and incorporated herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
(21) Subsidiaries of the Company
21.1 --Subsidiaries of the Company. (Filed as Exhibit 21 to Southern
Union's Annual Report on Form 10-K for the year ended June 30, 1999
and incorporated herein by reference.)
(23) Consent of Experts
23.1 --Consent of PricewaterhouseCoopers LLP**
23.2 --Consent of PricewaterhouseCoopers LLP**
23.3 --Consent of Arthur Andersen LLP**
23.4 --Consent of Legg Mason Wood Walker, Incorporated**
23.5 --Consent of Donaldson, Lufkin & Jenrette Securities Corporation**
(24) Power of Attorney
24.1 --Power of Attorney of Directors of Registrant**
(99) Additional Exhibits
99.1 --Form of Proxy of Southern Union Company**
99.2 --Form of Proxy of Pennsylvania Enterprises, Inc.**
</TABLE>
- --------
* Indicates Management Compensation Plan
** To be filed herewith
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF RESTATED
CERTIFICATE OF INCORPORATION
OF
SOUTHERN UNION COMPANY
It is hereby certified that:
1. The name of the corporation (the "Corporation") is Southern Union
Company.
2. The restated certificate of incorporation of the Corporation is hereby
amended by striking out Article FOURTH thereof and by substituting in lieu of
said Article the following new Article FOURTH:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue shall be 206,000,000, 6,000,000
shares of which shall be Preferred Stock without par value (the "Preferred
Stock"), and 200,000,000 shares of which shall be common stock, par value
$1.00 per share (the "Common Stock").
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article FOURTH, to prescribe by resolution or
resolutions for the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of each such series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of each
series;
(c) Whether each series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether each series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of each series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether each series shall have a sinking fund for the redemption or
purchase of shares of each such series, and, if so, the terms and amount of
such sinking fund;
(g) The rights of the shares of each series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of each
series; and
(h) Any other relative rights, preferences and limitations of each
series."
<PAGE>
3. The restated certificate of incorporation of the Corporation is hereby
further amended by striking out Article EIGHTH thereof and by substituting in
lieu of said Article the following new Article EIGHTH:
"EIGHTH: The following additional provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation and for the creation, definition, limitation and regulation of
the powers of the Corporation, the directors and stockholders:
Subject to the rights of the holders of the Preferred Stock to elect
additional directors under specified circumstances, the number of
directors which shall constitute the whole Board of Directors shall be
not less than five (5) nor more than fifteen (15). Within such limits,
the number of directors shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board of Directors for adoption).
At the special meeting of stockholders at which this paragraph is
adopted, the directors shall be divided into three classes, designated
Class I, Class II and Class III (which at all times shall be as nearly
equal in number as possible), with the term of office of Class I
directors to expire at the 1985 annual meeting of stockholders, the
term of office of Class II directors to expire at the 1986 annual
meeting of stockholders, and the term of office of Class III directors
to expire at the 1987 annual meeting of stockholders. At each annual
meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election.
Subject to the rights of the holders of any class or series of
capital stock of the Corporation entitled to vote generally in the
election of directors (hereinafter referred to as the "Voting Stock")
then outstanding, any director, or the entire Board of Directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of a majority of the voting power of
all of the then outstanding shares of the Voting Stock, voting together
as a single class. Except as may otherwise be provided by law, cause
for removal shall be construed to exist only if the director whose
removal is proposed has been convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to
direct appeal, or has been adjudged by a court of competent
jurisdiction to be liable for negligence, or misconduct, in the
performance of his duty to the Corporation in a matter of substantial
importance to the Corporation, and such adjudication is no longer
subject to direct appeal.
Subject to the rights of the holders of any class or series of the
Voting Stock then outstanding, newly created directorships resulting
from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be
filled by a majority vote of the directors then in office, though less
than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires. No
decrease in the number of authorized directors constituting the entire
Board of Directors shall shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of the Preferred
Stock shall have the right to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of
vacancies, and other features of such directorships shall be governed
by the terms of this Restated Certificate of Incorporation applicable
thereto, and such directors so elected shall not be divided into
classes pursuant to this Article unless expressly provided by such
terms.
Subject to any voting rights created for the benefit of any series
of Preferred Stock by any resolution or resolutions of the Board of
Directors providing for the issue of Preferred Stock adopted as
authorized in Article FOURTH, the Board of Directors shall also have
power, without the assent or vote of the stockholders, from time to
time:
2
<PAGE>
(1) to fix the times for the declaration and payment of
dividends;
(2) to fix and vary the amount to be reserved as working capital
or for any other proper purpose or purposes;
(3) to authorize and cause to be executed mortgages and liens
upon all the property and assets of the Corporation, or any part
thereof, whether at the time owned or thereafter acquired, upon such
terms and conditions as it may determine;
(4) to determine the use and disposition of any surplus or net
assets in excess of capital;
(5) to make and alter by-laws of the Corporation, subject to the
right of the stockholders to make and alter by-laws of the
Corporation; provided, however, that the directors shall not modify
or repeal any by-law hereafter made by the stockholders;
(6) to pay for, in cash or property, any property or rights
acquired by the Corporation or to authorize the issue and exchange
therefor of shares of the capital stock of the Corporation or bonds,
debentures, notes or other obligations or other securities of the
Corporation, whether secured or unsecured; and
(7) to borrow or otherwise raise moneys, without limit to amount,
for any of the purposes of the Corporation; to authorize the issue
of bonds, debentures, notes or other obligations of the Corporation,
of any nature or in any manner, secured or unsecured, for moneys so
borrowed; to authorize the creation of mortgages upon, or the pledge
or conveyance or assignment in trust of, the whole or any part of
the property and assets of the Corporation, real or personal,
whether at the time owned or thereafter acquired, including
contracts, choses in action and other rights, to secure the payment
of any bonds, debentures or notes or other obligations of the
Corporation and the interest thereon; and to authorize the sale or
pledge or other disposition of the bonds, debentures, notes or other
obligations of the Corporation for its corporate purposes.
The Board of Directors shall also have power, with the consent in writing
of the holders of a majority of the stock issued and outstanding having voting
power, or upon the affirmative vote of the holders of a majority of the stock
issued and outstanding having voting power, to sell, lease, or exchange all of
the property and assets of the Corporation, including its goodwill and its
corporate franchises, upon such terms and conditions as the Board of Directors
deems expedient and for the best interests of the Corporation; subject,
however, to any voting rights created for the benefit of any series of
Preferred Stock by any resolution or resolutions of the Board of Directors
providing for the issue of Preferred Stock adopted as in Article FOURTH hereof
authorized.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the statutes of
Delaware, of the Restated Certificate of Incorporation, and amendments
thereto, and other contracts of the Corporation, and by-laws."
5. The amendments of the Restated Certificate of Incorporation herein
certified have been duly adopted in accordance with the provisions of Sections
141 and 242 of the General Corporation Law of the State of Delaware.
3
<PAGE>
IN WITNESS WHEREOF, Southern Union Company has, on this day of ,
1999, caused this certificate to be signed by Peter H. Kelley, its President,
and attested by Dennis K. Morgan, its Secretary, and the corporate seal of
Southern Union Company to be affixed to this certificate by the said Dennis K.
Morgan.
Southern Union Company
By: _________________________________
Peter H. Kelley
President
Attest:
By: _________________________________
Dennis K. Morgan
Secretary
4
<PAGE>
Exhibit 5.1
FLEISCHMAN AND WALSH, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
September 9, 1999
Southern Union Company 504 Lavaca Street Suite 800 Austin, Texas 78701
Gentlemen:
Southern Union Company, a Delaware corporation ("Southern Union"), has filed
a Registration Statement on Form S-4 ("Registration Statement"), under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of shares of common stock of Southern Union, par value $1.00 per
share ("Common Stock"), to be issued in connection with the transactions
contemplated in the Agreement of Merger ("Merger Agreement"), dated as of June
7, 1999, by and between Southern Union and Pennsylvania Enterprises, Inc., a
Pennsylvania corporation ("PEI"). Pursuant to the Merger Agreement, PEI will
merge with and into Southern Union, with Southern Union being the surviving
corporation.
As counsel to Southern Union, we have examined the following documents,
corporate records and matters of law:
(i) Southern Union's Restated Certificate of Incorporation;
(ii) Amendment to Southern Union's Restated Certificate of Incorporation
("Charter Amendment") expected to be adopted at the time the transactions
described in the Merger Agreement are to be approved by Southern Union's
stockholders;
(iii) Southern Union's Bylaws;
(iv) Resolutions adopted by Southern Union's Board of Directors on June
4, 1999, as of August 9, 1999 and as of August 26, 1999;
(v) The Registration Statement and exhibits thereto; and
(vi) Such other documents, corporate records and matters of law as we
have considered necessary for the purpose of rendering this opinion.
In our examinations, we have assumed the genuineness of all signatures, the
authenticity of all original or certified copies and the conformity to original
or certified copies of all copies submitted to us as conformed or reproduction
copies. We also have assumed, with respect to all parties to agreements or
instruments relevant to the transactions contemplated by the Merger Agreement
other than Southern Union, that such parties had the requisite power and
authority (corporate or otherwise) to execute, deliver and perform such
agreements or instruments, that such agreements or instruments have been duly
authorized by all requisite action (corporate or otherwise), executed and
delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. As to various
questions of fact relevant to the opinion expressed herein, we have relied
upon, and have assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials, officers or
representatives of Southern Union, and others.
EX5--1
<PAGE>
Assuming the Charter Amendment is adopted by Southern Union's stockholders
at the time they approve the transactions described in the Merger Agreement,
based on the foregoing and subject to the limitations set forth herein, we are
of the opinion that the shares of Common Stock to be registered under the
Registration Statement, or any portion thereof, when issued in accordance with
the Merger Agreement, including any amendments thereto, and as described in the
Registration Statement, will be validly issued, fully paid and nonassessable
and will not be subject to preemptive or other rights to subscribe for or
purchase Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as a part thereof. We also consent to the reference
to our firm under the caption "Legal Matters" in the prospectus that forms a
part of the Registration Statement. In giving this consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act.
Please be advised that Aaron I. Fleischman, Senior Partner of Fleischman and
Walsh, L.L.P., is a director of Southern Union, and that he and certain other
attorneys with Fleischman and Walsh, L.L.P. have a beneficial interest in
shares of Common Stock. Questions with respect to this opinion should be
directed to Stephen A. Bouchard, a partner with this firm.
Sincerely,
/s/ Fleischman and Walsh, L.L.P.
EX5--2
<PAGE>
Exhibit 8.1
[ROBERTS & HOLLAND LLP LETTERHEAD]
September 7, 1999
Southern Union Company 504 Lavaca Street Suite 800 Austin, Texas 78701
Gentlemen:
Reference is made to the Registration Statement, on Form S-4 (the
"Registration Statement"), intended to be filed by Southern Union Company with
the Securities and Exchange Commission on September 10, 1999, and to the Proxy
Statement/Prospectus which forms a part of the Registration Statement (the
"Prospectus"). Any capitalized term used and not defined herein has the same
meaning as under the Prospectus.
We have participated in the preparation of the description set forth in the
section of the Prospectus entitled "The Merger--Significant U.S. Federal Income
Tax Consequences of the Mergers." Assuming the accuracy of all factual
statements contained in the Prospectus, in our opinion, such description,
insofar as it relates to the federal income tax consequences of the mergers to
Southern Union, PEI, PG Energy and Honesdale, is correct in all material
respects.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
references to us contained in the Registration Statement. In giving such
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ Roberts & Holland, LLP
<PAGE>
Exhibit 8.2
[HUGHES HUBBARD & REED LLP LETTERHEAD]
September 9, 1999
Pennsylvania Enterprises, Inc.
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Ladies and Gentlemen:
Reference is made to the Registration Statement of Southern Union Company, a
Delaware corporation ("SUG"), on Form S-4 (the "Registration Statement"), as
amended or supplemented through the date hereof, and the proxy
statement/prospectus included therein (the "Proxy Statement/Prospectus"),
relating to the merger (the "Merger") of Pennsylvania Enterprises, Inc., a
Pennsylvania corporation, with and into SUG.
We have participated in the preparation of the discussion set forth in the
section of the Proxy Statement/Prospectus entitled "The Merger--Significant
U.S. Federal Income Tax Consequences of the Mergers." In our opinion, such
discussion, insofar as it relates to the federal income tax consequences of the
Merger, is accurate in all material respects.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
references to us contained in the Registration Statement. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hughes Hubbard & Reed LLP
EDC:sem
1
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated February 17, 1999 appearing on page
33 of Pennsylvania Enterprises, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
_____________________________________
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 9, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Southern Union Company ("Southern Union") of our
report dated August 12, 1999, except for Note XVI as to which the date is
September 3, 1999, relating to the consolidated financial statements, which
appears in Southern Union's 1999 Annual Report to Shareholders, which is
incorporated by reference in its Annual Report on Form 10-K for the year ended
June 30, 1999. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
_____________________________________
PricewaterhouseCoopers LLP
Austin, Texas
September 9, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 19, 1997
included in Pennsylvania Enterprises, Inc.'s Form 10-K for the year ended
December 31, 1998 and to all references to our Firm included in this
Registration Statement. It should be noted that we have not audited any
financial statements of the company subsequent to December 31, 1996 or
performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
_____________________________________
Arthur Andersen LLP
New York, New York
September 9, 1999
<PAGE>
Exhibit 23.4
LEGG MASON WOOD WALKER, INCORPORATED
CONSENT
We hereby consent to (i) the inclusion of our opinion letter, dated June 7,
1999, to the Board of Directors of Pennsylvania Enterprises, Inc. ("PEI") as
Appendix B to the Proxy Statement/Prospectus of PEI and Southern Union Company
("Southern Union") relating to the proposed merger between Southern Union and
PEI and (ii) all references to Legg Mason in the section captioned "The
Merger--Opinion of PEI's Financial Advisor" of the Proxy Statement/Prospectus
which forms a part of this Registration Statement on Form S-4. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of, and we do not admit that we are
"experts" for purposes of, the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
/s/ Alexsander M. Stewart
_____________________________________
Legg Mason Wood Walker, Incorporated
Baltimore, Maryland
September 9, 1999
<PAGE>
Exhibit 23.5
[DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION LETTERHEAD]
We hereby consent to (i) the inclusion of our opinion letter, dated as of
June 6, 1999, to the Board of Directors of Southern Union Company (the
"Company") as Appendix C to the Proxy Statement/Prospectus of the Company and
Pennsylvania Enterprises, Inc. relating to the proposed merger between the
Company and Pennsylvania Enterprises, Inc. and (ii) all references to DLJ in
the section captioned "The Merger--Opinion of Southern Union's Financial
Advisor" of the Proxy Statement/Prospectus which forms a part of this
Registration Statement on Form S-4. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under,
and we do not admit that we are "experts" for purposes of, the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.
/s/ Donaldson, Lufkin &
Jenrette Securities Corporation
________________________________________________
Donaldson, Lufkin & Jenrette Securities
Corporation
New York, New York
August 19, 1999
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Peter H. Kelley, Ronald J. Endres and David J.
Kvapil, or any of them, as such person's true and lawful attorney-in-fact and
agent, with full power of substitution and revocation, for any such person and
in such person's name, place and stead, in any and all capacities, to sign the
Southern Union Company Registration Statement on Form S-4 for the merger of
Southern Union Company and Pennsylvania Enterprises, Inc. and to file the same
with all exhibits thereto, other documents in connection therewith including
any amendments thereto, with the Securities and Exchange Commission and the New
York Stock Exchange.
Dated: August 31, 1999
/s/ John E. Brennan /s/ George L. Lindemann
_____________________________________ _____________________________________
John E. Brennan George L. Lindemann
/s/ Frank W. Denius /s/ Roger J. Pearson
_____________________________________ _____________________________________
Frank W. Denius Roger J. Pearson
/s/ Aaron I. Fleischman /s/ George Rountree, III
_____________________________________ _____________________________________
Aaron I. Fleischman George Rountree, III
/s/ Adam M. Lindemann /s/ Dan K. Wassong
_____________________________________ _____________________________________
Adam M. Lindemann Dan K. Wassong
/s/ Kurt A. Gitter
_____________________________________
Kurt A. Gitter, M.D.
<PAGE>
EXHIBIT 99.1
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SOUTHERN UNION COMPANY
FOR THE OCTOBER 19, 1999
ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints John E. Brennan and Frank W. Denius, or
either of them, with power of substitution in each, proxies for the undersigned,
to represent the undersigned and to vote all the Common Stock of the Company
which the undersigned would be entitled to vote, as fully as the undersigned
could vote and act if personally present, at the Annual Meeting of Stockholders
to be held on October 19, 1999 at 2:00 p.m. Eastern Time, at the Plaza Hotel,
Fifth Avenue at Central Park South, New York, New York or at any adjournment or
postponement thereof.
The Proxies are authorized to vote in their discretion upon all matters properly
brought before the meeting, including any matter of which Management was not
aware a reasonable time before the solicitation of this proxy. The Board of
Directors recommends a vote "FOR" each proposal.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[SEE REVERSE] [SEE REVERSE]
SIDE SIDE
- -------------------------------------------------------------------------------
/\ DETACH HERE/\
<PAGE>
[X] Please mark your votes as in this example.
- ---------------------------------------------------------------------------
1. Election of the following nominees as Class III Directors
Nominees: George L. Lindemann, Peter H. Kelley, and Dan K. Wassong
FOR WITHHOLD MARK HERE FOR [ ]
[ ] [ ] ADDRESS CHANGE
AND NOTE BELOW
[ ]------------------------------------------------------------------------
Withheld for the following only (write the name of the nominee(s) on the
space above)
Date:
- --------------------------------------- -----------
SIGNATURE
Please return your signed proxy at once in the enclosed envelope which requires
no postage if mailed in the United States, even though you expect to attend the
meeting in person.
Please date and sign above. If joint account, each owner should sign. When
signing in a representative capacity, please give title. Please sign here
exactly as name appears to the left.
FOR AGAINST ABSTAIN
2. Proposal to approve (a) the Agreement of Merger [ ] [ ] [ ]
between the Company and Pennsylvania Enterprises,
Inc. (PEI) dated as of June 7, 1999 whereby PEI
will merge with and into the Company with the
Company being the surviving corporation and (b)
the issuance of shares of the Company's common
stock pursuant to the merger agreement.
FOR AGAINST ABSTAIN
3. Proposal to approve the following amendments to [ ] [ ] [ ]
the Company's Restated Certificate of Incorporation:
(a) to increase the number of authorized shares of
the Company's common stock from 50,000,000 to
200,000,000; (b) to grant the Board of Directors
authority to issue 6,000,000 shares of preferred stock
in series the Board of Directors deems appropriate
and to establish from time to time the number of
shares to be included in each such series and to fix
the designations, powers,preferences and rights of
the shares of each such series and the qualifications,
limitations or restrictions thereof; and (c) to repeal
the rights, powers, the privileges and preferences of
the Company's currently authorized cumulative preferred
stock.
FOR AGAINST ABSTAIN
4. Proposal to approve an amendment to the Company's [ ] [ ] [ ]
Restated Certificate of Incorporation to increase
the maximum number of directors from 12 to 15.
FOR AGAINST ABSTAIN
5. Proposal to approve an additional 3,000,000 [ ] [ ] [ ]
shares of the Company's common stock to be
eligible for grant under the Company's 1992
Long-Term Stock Incentive Plan.
DATE:
- --------------------------------- ----------------
SIGNATURE
- --------------------------------------------------------------------------------
/\FOLD AND DETACH HERE/\
<PAGE>
EXHIBIT 99.2
PENNSYLVANIA ENTERPRISES, INC.
Solicited by the Board of Directors of the Company
Stockholder's Proxy
The undersigned hereby appoints Vincent A. Bonaddio, John F. Kell, Jr., and
Donna M. Abdalla, or any one or more of them, each with full power of
substitution, the proxy or proxies of the undersigned to vote the shares of
Common Stock of Pennsylvania Enterprises, Inc. which the undersigned would be
entitled to vote if personally present at the Special Meeting of Stockholders of
Pennsylvania Enterprises, Inc. to be held on October 19, 1999, at The Plaza
Hotel, Fifth Avenue at Central Park South, New York, New York, at 10:00 a.m.
(Eastern Time), and at any and all adjournments or postponements thereof.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
- -------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE>
Please mark
your votes as [X]
indicated in
this example
The Board of Directors Recommends a Vote "FOR the Agreement of Merger" in
Item 1.
The shares represented by this proxy, which revokes all prior proxies, will be
voted as directed by the stockholder. If no direction is given, such shares will
be voted "FOR the Agreement of Merger" in Item 1.
FOR the AGAINST the
Item 1 - Approval and adoption of the Agreement Agreement Agreement
of Merger by and between the Company of Merger of Merger ABSTAIN
and Southern Union Company: [ ] [ ] [ ]
Item 2 - In their discretion, the Proxies are authorized to vote upon such
other matters as may properly come before the meeting.
If you plan to attend the Special
[ ] Meeting, please check this box in [ ]
[ ] order to receive an admission ticket.
[ ]
Date ,1999
-------------------------------------
----------------------------------------------
Signature
----------------------------------------------
Signature
Please mark, date and sign your name exactly as
it appears to the left and return promptly in
the enclosed envelope. For joint accounts, each
joint owner should sign. When signing as an
attorney, executor, administrator, trustee,
guardian or other officer of a corporation,
please give your full title as such. If stock is
owned by a partnership or corporation, please
indicate your capacity in signing the proxy.
[ *** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW *** ]
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE>
[graphic] VOTE BY TELEPHONE [graphic]
QUICK *** EASY *** IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
You will be asked to enter a Control Number which is located in the box in the
lower right hand corner of this form.
To vote FOR the Agreement of Merger and to authorize the Proxies to vote in
their discretion upon such matters as may properly come before the meeting,
press 1; to vote AGAINST the Agreement of Merger and to withhold discretionary
authority from the Proxies, press 9.
When asked, please confirm your vote by Pressing 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU VOTED BY PHONE.
Call ** Toll Free ** On a Touch-Tone Telephone
1-800-840-1208 - ANYTIME
[ ]
There is NO CHARGE to you for this call.
