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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 7)
COLUMBIA ENERGY GROUP
(NAME OF SUBJECT COMPANY)
COLUMBIA ENERGY GROUP
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01
(TITLE OF CLASS OF SECURITIES)
197648108
(CUSIP NUMBER OF CLASS OF SECURITIES)
MICHAEL W. O'DONNELL
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
COLUMBIA ENERGY GROUP
13880 DULLES CORNER LANE
HERNDON, VIRGINIA 20171
(703) 561-6000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE
PERSON(S) FILING STATEMENT)
COPY TO:
NEIL T. ANDERSON, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
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This Amendment No. 7 amends and supplements the Solicitation/
Recommendation Statement on Schedule 14D-9 filed with the Securities and
Exchange Commission on July 6, 1999, and as subsequently amended July 6, 1999,
July 9, 1999, July 12, 1999, July 15, 1999, July 16, 1999 and July 20, 1999 (as
so amended, the "Schedule 14D-9"), by Columbia Energy Group, a Delaware
corporation (the "Company"), relating to the tender offer by NiSource Inc., an
Indiana corporation, to purchase for cash through its wholly-owned subsidiary,
CEG Acquisition Corp., a Delaware corporation, all of the outstanding common
shares, par value $0.01 per share, of the Company (the "Offer"). Capitalized
terms used but not defined herein have the meaning ascribed to them in the
Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
In its First Amended Complaint for Declaratory and Injunctive Relief,
filed in the United States District Court for the District of Delaware (the
"Amended Complaint"), NiSource has alleged that the Company made materially
false and misleading statements and omissions in its Schedule 14D-9, including
allegations that (i) the Company's opinion that the Offer price is inadequate -
which is supported by two investment banker opinions - should have been
accompanied by a statement that the Offer price represented a substantial
premium over the Company's then-current average trading price over a 20 trading
day period and discussion of certain unspecified financial "benchmarks"; (ii)
mention of the potential advantages of the Company's new non-traditional
business opportunities should not have been made without disclosing other market
risks; (iii) the Company's statement that NiSource's bid is likely to face a
negative reaction from regulators because of its reliance on $5.7 billion in
borrowings should also discuss NiSource's purported plan for a subsequent equity
infusion after completing the acquisition and rating agency confirmations of
NiSource's bond ratings; (iv) the Company's discussion of its management
performance since taking charge on January 1, 1995 through the present should
also discuss management's performance over subsets of this timeframe; and (v)
the Company's statements regarding the disruptive effect of the Offer on the
Company's employees, suppliers, customers and the communities in which the
Company operates were misleading since NiSource has stated that it does not
presently plan any layoffs at Columbia's operating companies.
The Company has disclosed fully all of the reasons behind its decisions
and statements. The Company does not believe any of the allegations in the
Amended Complaint have merit and it will continue to vigorously contest all such
allegations.
The foregoing description of the Amended Complaint is qualified in its
entirety by reference to the full text of the Amended Complaint, which is
attached hereto as Exhibit (a)(11).
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby supplemented and amended by adding the following:
Exhibit (a)(11) - NiSource's First Amended Complaint for Declaratory
and Injunctive Relief filed in the United States
District Court for the District of Delaware.
Exhibit (a)(12) - Leter to Gary Neale, dated July 22, 1999.
Exhibit (a)(13) - Letter to Shareholders of the Company regarding the
13e-1 Transaction Statement, dated July 22, 1999.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
COLUMBIA ENERGY GROUP
By: /s/ Patricia A. Hammick
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Name: Patricia A. Hammick
Title: Senior Vice President Strategy and
Communications, Columbia Energy Group
Service Corporation
Dated: July 22, 1999
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Exhibit List
Exhibit (a)(11) - NiSource's First Amended Complaint for Declaratory and
Injunctive Relief filed in the United States District
Court for the District of Delaware.
Exhibit (a)(12) - Leter to Gary Neale, dated July 22, 1999.
Exhibit (a)(13) - Letter to Shareholders of the Company regarding the 13e-1
Transaction Statement, dated July 22, 1999.
Exhibit (a)(11)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
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NISOURCE INC. AND :
CEG ACQUISITION CORP., :
:
:
Plaintiffs, : C.A. No. 99-400-GMS
:
:
COLUMBIA ENERGY GROUP, :
RICHARD F. ALBOSTA, ROBERT H. :
BEEBY, WILSON K. CADMAN, JAMES P. :
HEFFERNAN, KAREN L. HENDRICKS, :
MALCOLM T. HOPKINS, J. BENNETT :
JOHNSTON, MALCOLM JOZOFF, :
WILLIAM E. LAVERY, GERALD B. MAYO, :
DOUGLAS E. OLESEN, AND OLIVER G. :
RICHARD III, :
:
Defendants. :
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FIRST AMENDED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs NiSource Inc. and CEG Acquisition Corp. (hereinafter
"NiSource" or "Plaintiffs"), by their undersigned attorneys, for their First
Amended Complaint against Defendants allege, upon knowledge as to those
allegations which pertain to themselves and otherwise upon information and
belief as follows:
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JURISDICTION AND VENUE
1. The claims asserted herein arise under and pursuant to Sections
20(a) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C.
ss.ss.78aa and 78t(a), and common law.
2. This Court has subject matter jurisdiction over this action pursuant
to Section 27 of the Exchange Act, 15 U.S.C. ss.ss. 78aa, and 28 U.S.C. ss.ss.
1331, 1367 and 2201, and principles of pendent and supplemental jurisdiction.
3. This Court also has subject matter jurisdiction over Counts 2, 3 and
4 of the Complaint pursuant to 28 U.S.C. ss. 1332 because diversity of
citizenship exists between Plaintiffs and the Director Defendants and the amount
in controversy exceeds $75,000, exclusive of costs and interest.
4. Venue lies in this District under Section 27 of the Exchange Act, 15
U.S.C. ss. 78aa and 28 U.S.C. ss. 1391(b) and (c).
THE PARTIES
5. Plaintiff NiSource Inc. (formerly known as NIPSCO Industries, Inc.)
is an Indiana corporation with its principal place of business at 801 East 86th
Avenue, Merrillville, Indiana 46410, and its registered office at 5265 Hohrnan
Avenue, Hammond, Indiana 46320. NiSource, by its affiliates, is a stockholder of
Columbia Energy Group.
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6. Plaintiff CEG Acquisition Corp. is a Delaware corporation with its
principal place of business at 801 East 86th Avenue, Merrillville, Indiana
46410. CEG Acquisition Corp. is a wholly-owned subsidiary of NiSource.
7. Defendant Columbia Energy Group ("CEG") (originally incorporated as
Columbia Gas & Electric Corporation and formerly known as The Columbia Gas
System, Inc.) is a Delaware corporation with its principal place of business at
13880 Dulles Corner Lane, Herndon, Virginia 20171. CEG's common stock is
registered pursuant to Section 12-b of the Exchange Act, 15 U.S.C. ss. 78, and
listed and traded on the New York Stock Exchange.
8. Defendant Oliver O. Richard III ("Richard") is a citizen of Virginia
and at all relevant times has been the Chief Executive Officer, Chairman,
President and a director of Defendant CEG.
9. Defendant Richard F. Albosta ("Albosta") is a citizen of New Jersey
and at all relevant times has been a director of Defendant CEG.
10. Defendant Robert H. Beeby ("Beeby") is a citizen of Connecticut and
at all relevant times has been a director of Defendant CEG.
11. Defendant Wilson K. Cadman ("Cadman") is a citizen of Kansas and at
all relevant times has been a director of Defendant CEG.
12. Defendant James P. Heffernan ("Heffernan") is a citizen of New York
and at all relevant times has been a director of Defendant CEG.
13. Defendant Karen L. Hendricks ("Hendricks") is a citizen of Ohio and
at all relevant times has been a director of Defendant CEG.
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14. Defendant Malcolm T. Hopkins ("Hopkins") is a citizen of North
Carolina and at all relevant times has been a director of Defendant CEG.
15. Defendant J. Bennett Johnston ("Johnston") is a resident of the
District of Columbia and at all relevant times has been a director of Defendant
CEG.
16. Defendant Malcolm Jozoff ("Jozoff") is a citizen of Arizona and at
all relevant times has been a director of Defendant CEG.
17. Defendant William E. Lavery ("Lavery") is a citizen of Virginia and
at all relevant times has been a director of Defendant CEG.
18. Defendant Gerald E. Mayo ("Mayo") is a citizen of South Carolina
and at all relevant times has been a director of Defendant CEG.
19. Defendant Douglas E. Olesen ("Olesen") is a citizen of Ohio and at
all relevant times has been a director of Defendant CEG.
20. Defendants Albosta, Beeby, Cadman, Heffernan, Hendricks, Hopkins,
Johnston, Jozoff, Lavery, Mayo, Olesen and Richard are collectively referred to
herein as the "Director Defendants."
BACKGROUND OF THE ACTION
21. By this action, Plaintiffs seek to stop Defendants from
disseminating a series of false and misleading statements about Plaintiff's
offer to purchase the stock of CEG. Defendants continue to repeat such false and
misleading statements in public securities filings with the Securities and
Exchange Commission ("SEC"), in press releases and in interviews widely
disseminated in the media. Specifically, this action seeks declaratory as well
as injunctive
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relief in connection with an offer first announced by NiSource on June 7, 1999
and a subsequent tender offer ("Tender Offer") announced by NiSource on June 24,
1999 and commenced on June 25, 1999 for all outstanding shares of Defendant CEG.
22. CEG's current directors and management have made a number of
statements intended to unfairly disparage any possible transaction with
Plaintiffs and have taken a series of actions intended to prevent the
shareholders of CEG from considering the Tender Offer, and these Defendants have
now improperly rejected the repeated overtures from NiSource seeking a
negotiated business combination of the two companies.
23. Unless enjoined, Defendants will continue (i) to deprive CEG's
shareholders from having a meaningful opportunity to consider the Tender Offer,
(ii) to publish false and misleading statements and omissions concerning the
June 7 offer and subsequent Tender Offer, and (iii) to take other steps in
breach of their fiduciary duties.
24. On April 13 1999, Gary L. Neale, the Chairman and Chief Executive
Officer of NiSource, met with Defendant Richard, the Chairman and Chief
Executive Officer of CEG, to discuss a possible merger of their two companies.
During this meeting, Mr. Neale proffered a letter to Mr. Richard proposing an
all-cash, all shares acquisition of CEG by NiSource at a premium price of $63
per share. The letter provided the proposed terms of the deal and expressed
NiSource's desire "to discuss this proposal at greater length." Mr. Richard's
response to the letter was a request that NiSource withdraw the offer and that
the two meet on April 16, 1999 for further discussions. NiSource agreed to do so
based on Mr. Richard's representation that he was willing to meet and talk.
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25. However, on April 15, 1999, the day before the scheduled meeting
between NiSource and CEG, Mr. Richard unilaterally canceled the meeting with Mr.
Neale, without providing any explanation.
26. On April 16, 1999 Mr. Neale wrote again to Mr. Richard, once again
indicating NiSource's desire to discuss a friendly merger of CEG and NiSource,
and proposing immediate discussions to address how the merger could be
structured on a negotiated basis.
27. On April 18, 1999, Mr. Richard dismissed NiSource's offer
indicating that CEG was not for sale and stating the desire for CEG to "remain
[ ] independent." Mr. Richard went so far as to state that "there is no interest
in negotiating any transaction with [NiSource]." Instead, in an effort to
deflect NiSource's advances and prevent another company from acquiring control
of CEG, on or about April 18 CEG took the extraordinary step of commencing a bid
to acquire Consolidated Natural Gas Company ("CNG"), which already had entered
into a definitive and binding merger agreement with another company, Dominion
Resources, Inc. ("Dominion"). CEG's unsolicited bid to break up the friendly
merger between CNG and Dominion ultimately failed.
28. Against this background, CEG held its annual meeting of
shareholders on May 19, 1999. CEG's Restated Certificate of Incorporation
requires the corporation to have a Board of Directors of not less than 13
directors divided into three classes, each to serve a three-year term. At the
time of the May 19, 1999 annual meeting, the class of directors to be elected in
1999 consisted of five directors. One of those directors was retiring and chose
not to stand for reelection. In contravention of CEG's corporate charter,
however, CEG's Board of Directors
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proposed a slate of only four directors for shareholder vote. The effect of
Defendants' actions, in failing to provide the shareholders with an opportunity
to elect a successor for the fifth expiring director, was to ensure that the
Director Defendants would not be confronted with the independent judgment of a
non-incumbent director during a time when the Director Defendants were committed
to presenting a unified front to resist NiSource's advances, which the Director
Defendants anticipated NiSource would continue to pursue.
29. NiSource's bankers subsequently sought to contact the bankers for
CEG to pursue the potential for a negotiated merger of the companies. On May 28,
1999, CEG's bankers advised that CEG was unwilling to engage in further
discussions.
30. Neither Mr. Richard, nor anyone else from CEG, has adequately
responded to the repeated invitations from NiSource or explained the basis for
the refusal to engage in substantive discussions.
31. On June 7, 1999, Mr. Neale again wrote to Mr. Richard advising of
NiSource's continued interest in exploring a merger on negotiated terms and
proposing an acquisition of CEG by NiSource for an increased premium price of
$68 per share. Mr. Neale again offered to discuss the terms of such a proposal
with Mr. Richard and indicated NiSource's preference for "work[ing] together
with [Mr. Richard] and [the CEG] Board to complete a transaction."
32. By letter dated June 7, 1999, Mr. Richard responded to Mr. Neale
advising that CEG was not for sale and that CEG "is not interested in any merger
transactions in which
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another company acquires control of Columbia." Nevertheless, Mr. Richard stated
that in light of the formal offer by NiSource, he would present the offer to the
rest of CEG's board.
33. On June 10, 1999, the CEG board met ostensibly to consider the
NiSource offer. Despite having taken only 72 hours to consider the offer after
it was made, and without adequate consideration of the offer or even discussing
the offer with NiSource or exploring alternative proposals with NiSource, CEG's
board flatly rejected the offer. In a June 10, 1999 letter to Mr. Neale
describing the rejection of the NiSource offer, Mr. Richard stated that the
board had concluded that the proposed consideration was inadequate, even though
the offer represented a premium of 31% above the average trading price of CEG's
stock for the twenty trading day period preceding the offer. Mr. Richard's
letter foreclosed any further discussion of the offer from NiSource and flatly
stated that the "decision not to pursue [NiSource's] proposal is final." The
contents of the June 10 letter also were widely disseminated by CEG in a press
release which contained the additional false and misleading claim that
"NiSource's public statements, including their expectations as to the regulatory
timing and the potential benefits of their strategy for a combined company, are
simply not realistic."
34. In subsequent public statements, CEG continued to falsely and
misleadingly claim that NiSource "does not provide a good fit" for CEG, that
the NiSource bid is "inadequate" and "insufficient" while reiterating that the
position of its board remains that the company is not for sale and not
interested in any merger in which another company acquires control of CEG. On
June 22, 1999, CEG issued a public statement further disparaging NiSource,
asserting, among other things, that "the board [has] determined the NiSource
offer was
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inadequate," and that NiSource is "attempting a 1980s-style, hostile leveraged
buyout of our company" in an effort to purchase CEG "cheaply."
35. Despite NiSource's continued desire to conclude a negotiated
transaction, CEG's lack of a constructive response combined with CEG's
definitive statement that it would not consider a transaction with NiSource led
NiSource to commence its Tender Offer on June 25, 1999 in order to ensure that
its premium bid of $68 would be brought to CEG's shareholders for their
consideration.
36. Pursuant to the Tender Offer, NiSource seeks to purchase for cash
all outstanding shares of CEG at $68 per share. The price NiSource is offering
CEG's shareholders represents a premium of 22% above the reported closing price
of CEG's common stock on June 4, 1999, the day before NiSource publicly offered
to acquire CEG, and is 31% above the average trading price of CEG's stock for
the twenty trading day period preceding the offer.
37. The Tender Offer is made in contemplation of a business combination
between plaintiffs and CEG at $68 per share (the "Merger"). The Tender Offer is
not "front-end loaded" - that is, the consideration offered is not part cash and
part stock, and it does not offer a higher price than non-tendering shareholders
would receive in the Merger. Nor is the Tender Offer coercive, as it offers all
cash consideration and treats all CEG shareholders equally.
38. Consistent with the requirements of Section 14(d)-(e) of the
Securities Exchange Act of 1934, 15 U.S.C. ss. 78n(d)-(e) (the Williams Act),
and the rules and regulations promulgated thereunder by the SEC, the Tender
Offer, which is a significant transaction in interstate commerce, is scheduled
to expire on August 6, 1999.
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39. CEG's shareholders - the owners of the company - have an undeniable
right to consider NiSource's premium offer without interference from Defendants,
and without being confused or misled by Defendants' false and misleading
statements. Defendants should permit the shareholders to make their own,
fully-informed decisions as to the long-term direction of the company. The
Tender Offer in no way threatens the interests of CEG or its shareholders.
Accordingly, there is no justification for Defendants' efforts to obstruct and
interfere with NiSource's premium bid.
DEFENDANTS' RULE 14D-9 STATEMENT
40. Pursuant to SEC Rule 14d-9, the management of a company subject to
a tender offer must publicly state its position with respect to the tender offer
within ten business days of the date the tender offer is first published or made
to security holders. The position of the management of the company subject to
the tender offer must be set forth in a Schedule 14D-9
Solicitation/Recommendation Statement ("14D-9"). The 14D-9 must set forth, among
other things, whether the management of the company subject to the tender offer
recommends that security holders accept or reject the offer, or state that
management expresses no opinion or is unable to take a position concerning the
offer. The 14D-9 must be filed with the SEC, which requires, among other things,
that all statements in the 14D-9 be true and not misleading.
41. On July 6, 1999, CEG filed its 14D-9 in response to the Tender
Offer. In that 14D-9, CEG has continued to make materially false and misleading
statements and omissions concerning NiSource's Tender Offer in an effort to
undermine shareholder support.
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42. The 14D-9 is materially false and misleading in stating that
NiSource's offer is "inadequate, and not in the best interests of the company
and its shareholders." In fact, NiSource's offer provides a substantial premium
to CEG shareholders and utilizes multiples that are very similar to the
multiples CEG used in its recent offer to purchase CNG. Moreover, the 14D-9 is
materially misleading because it states the conclusion that NiSource's offer is
"inadequate from a financial point of view" without ever disclosing the
benchmark against which the financial adequacy of NiSource's offer is being
measured. For instance, CEG never states that it has any basis to believe that
the share price of CEG stock will rise above $68 in any specified time frame.
43. The 14D-9 also contains the materially false and misleading
assertion that the NiSource offer "is an attempt to take advantage of short-term
business and market factors." This statement is completely unfounded and belied
by and omits to tell shareholders the fact that CEG's shares have never traded
at an amount approaching the price offered by NiSource, as well as the fact that
NiSource's offer presents a substantial premium over the average trading price
of CEG's stock over the twenty trading day period preceding the Tender Offer.
Moreover, while opining on the potential future profitability of CEG, Defendants
omit to inform their shareholders when, if at all, the future value of CEG
shares would exceed the $68 per share price provided in NiSource's Tender Offer.
In addition, this statement also is materially misleading because it touts the
potential advantages of CEG's "new, non-traditional business opportunities" and
its "evolving competitive markets," without disclosing that there are market and
other risks
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associated with these "opportunities" and that these risks might negatively
affect CEG's future profitability.
44. The 14D-9 also is materially misleading because it states that
since January 1, 1995, CEG's "total rate of return to shareholders was
approximately 258% or 33.5% on an annual basis" and that those returns
"substantially exceeded returns on the Standard & Poor's 500 and the S&P Natural
Gas Indices during the same time period." This statement omits to inform
shareholders that the base period used for that analysis begins during CEG's
bankruptcy and that CEG underperforms the Standard & Poor's 500 and the S&P
Natural Gas Indices when other periods are utilized.
45. The 14D-9 is also materially false and misleading in that it states
that the offer is likely to face "negative reaction from numerous state and
federal regulators." In fact, CEG lacks any good faith basis for this assertion.
NiSource does not foresee any major regulatory obstacles to consummating a
merger with CEG.
46. Similarly, CEG's statement that there is a substantial risk that
regulators will not approve NiSource's proposal in light of NiSource's need to
borrow $5.7 billion to consummate the offer is materially false and misleading.
CEG fails to acknowledge that the financing of this transaction will, within 1
year of the close, result in a capital structure of approximately 55% debt and
45% equity, a capital structure which has been commonly used in the utility
industry and approved by regulators. In addition, NiSource's bond ratings have
already been reaffirmed by the various rating agencies, who expressed no concern
over the
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financing plan to consummate the proposed merger with CEG. This reaffirmation
was publicly disclosed, and therefore was known to CEG, before CEG submitted its
14D-9.
47. The 14D-9 also is materially false and misleading in that it
discounts NiSource's $68 per share offer to $60.53 per share based on the
assertion that it supposedly is NiSource's "own stated view" that the required
regulatory approvals "may take as long as 18 months." In point of fact, as
NiSource disclosed in its 14D-1, with Defendants' cooperation the required
regulatory approvals are expected to be completed within 6 to 9 months.
NiSource's 14D-1 stated that these approvals may take between 12 and 18 months
only if Defendants refuse to cooperate with NiSource. Moreover, Defendants
utilized a high-end discount rate of 9.5% in an effort to portray NiSource's
offer as less valuable to CEG shareholders. Finally, CEG provides no comparable
discounting of its stock price in the future. Thus, CEG shareholders are misled
in assessing the NiSource tender.
48. The 14D-9 is further materially false and misleading because it
states that the consummation of the offer may have a "disruptive effect . . . on
the Company's employees, suppliers and customers and the communities where the
Company operates." This statement fails to inform CEG's shareholders that in
fact, there is almost no overlap between the markets in which NiSource and CEG
operate, and that NiSource has made clear that it does not plan any layoffs at
the operating companies upon consummation of the offer. Moreover, this statement
is misleading because it falsely implies that the effect on those constituencies
is a relevant consideration to shareholders. NiSource's offer is an all-cash
offer, not a stock offer, and tendering shareholders will have no continuing
equity interest in the merged company. Thus, the
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only relevant consideration to CEG shareholders is the financial adequacy of an
all-cash Tender Offer.
49. The 14D-9 also falsely and misleadingly states that on April 1,
1999 CEG's Chief Executive Officer, Defendant Richard, requested that NiSource
withdraw its April 1, 1999 letter and proposal because "the idea of a written
proposal pursuant to which NiSource would acquire Columbia was inappropriate at
that time." In fact, Defendant Richard requested that NiSource withdraw its
April 1, 1999 letter, stating that he did not want the proposal disclosed to
CEG's shareholders and the public.
50. Also included as an Exhibit to CEG's 14D-9 is a press release
widely disseminated by Defendants on the same day further disparaging NiSource's
Tender Offer. The press release contains a statement by Defendant Richard that
the "various unsolicited merger proposals from NiSource have been for the wrong
price, at the wrong time, and with the wrong company" and the statement that a
"merger of our two companies is not compelling." These statements are false and
misleading in that, among other things, they fail to include the fact that the
idea for a strategic combination of the two companies was first proposed in
November 1998 by Defendant Richard. Moreover, Defendants falsely and
misleadingly stated therein that the Tender Offer "is not in the best interests
of Columbia Energy Group and its shareholders," is "inadequate," is
"substantially dilutive," and is likely to face "negative reaction of numerous
state and federal regulators."
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51. Despite the fact that the 14D-9 purportedly identifies "all
material factors" considered by the Board in rejecting the Tender Offer,
Defendants have further misled and confused CEG shareholders by including
additional false and misleading statements in their press release concerning
CEG's 14D-9. These statements include various statements falsely disparaging
NiSource's business prospects and the skills of its management team - namely
that "NiSource's existing businesses appear to consist primarily of high-cost
generation assets serving low-growth markets" and that "NiSource has yet to
prove its ability to compete successfully in an increasingly deregulated energy
market." These statements are materially false. Moreover, they are materially
misleading to shareholders because, by making them, CEG implies that such
considerations are relevant to shareholders' consideration of the all-cash
Tender Offer. In fact, NiSource's future prospects have no bearing on whether
CEG shareholders should sell their CEG shares for cash.
52. CEG's press release also stated that NiSource is "attempting a
1980s-style hostile takeover," implied that NiSource is "quietly planning
massive layoffs or rate increases," and stated that NiSource has characterized
its own Tender Offer and related lawsuits as a "costly and disruptive . . .
waste of valuable resources." These statements are false and misleading. CEG
made them, as well as the false statements in the previous paragraph, only to
disparage NiSource and to undermine the Tender Offer.
53. Even after the filing of CEG's 14D-9, Defendants continue to make
disparaging, false and misleading public statements about the Tender Offer in
press releases and interviews widely disseminated in the media. For example, in
statements made to the Dow Jones
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Newswires on July 6, 1999, Defendants falsely and misleadingly claimed that
NiSource's Tender Offer was "very inadequate," that "the transaction would be
dilutive," that NiSource's proposal would face "serious regulatory obstacles and
a drawn out timetable," and that "regulators probably will pause at NiSource's
need to borrow $5.7 billion for the transaction."
54. In light of CEG's continued rejection of NiSource's proposals for a
negotiated transaction and disparaging statements about NiSource's Tender Offer,
and in light of CEG's above-described extensive history of protection of its
incumbent directors and officers, including its most recent failure to comply
with the requirement under its corporate charter to propose a slate of five
directors, CEG's current directors and management are likely to persist in
making determined and continuing efforts to deprive CEG's shareholders of the
substantial benefits of NiSource's bid.
55. This action is brought to oppose and prevent such acts. This action
seeks declaratory and injunctive relief concerning (i) the Defendants' false and
misleading statements concerning NiSource's offer and violations of the Williams
Act arising out of their false and misleading statements and omissions
concerning material aspects of the Tender Offer, (ii) the applicability of the
Delaware Business Combination Act, 8 Del. C. ss. 203, and (iii) the legality of
a number of the measures adopted by Defendants and of their conduct in which
they have acted and continue to act in derogation of their duty to exercise
informed and loyal business judgment, in an improper attempt to prevent CEG
shareholders from freely considering the merits of NiSource's all cash, equal
treatment premium offer.
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THE WILLIAMS ACT'S REGULATION OF INTERSTATE TENDER OFFERS
56. The Williams Act establishes a comprehensive, uniform system for
regulating interstate tender offers. In enacting the Williams Act, Congress
unequivocally recognized the economic benefits created by tender offers, which
include providing investors with an opportunity to sell their shares at
advantageous premiums over prevailing market prices and/or providing a mechanism
for the removal of entrenched management failing to generate maximum returns on
shareholders' equity investments.
57. The Williams Act reflects Congress' judgment and philosophy that
shareholders themselves should be able to determine when it is in their best
interests to tender their shares to an offeror. Thus, the Williams Act
deliberately strikes a neutral balance, favoring neither an offeror nor
incumbent management, so that shareholders' interests receive maximum
protection.
58. To achieve these ends, the Williams Act requires that shareholders
be given specific information deemed by the SEC to be material to their
intelligent decision to sell their securities or to decline an offer. Removing
all artificial barriers to the exercise of shareholder choice, the Williams Act
is specifically designed to enable shareholders to take advantage of tender
offers that maximize their economic interests.
59. Pursuant to its authority under ss. 23(a) of the Exchange Act, the
SEC has promulgated comprehensive rules and regulations governing interstate
tender offers in furtherance of Congress' purposes. The SEC regulations are
designed to "ensure a balance between the interests of the person making a
tender offer and the management of the company
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whose securities are being sought while providing disclosure and substantive
protections to shareholders making investment decisions." (Exchange Act Release
No. 1).
THE DELAWARE BUSINESS COMBINATION STATUTE
60. While intended to grant management the ability to consider tender
offers, the Delaware Business Combination Act is being misapplied to the Tender
Offer by Defendants in an effort to entrench current management in derogation of
the shareholders' right to elect management. The legislative history of 8 Del.
C. ss. 203 makes clear that it was intended to protect shareholders from the
coercive aspects of some tender offers, in particular, the coerciveness
inherent in the possibility of second-step freezeouts at a lower price. However,
in the present case, the Tender Offer in no way threatens the interests of CEG
shareholders or implicates the purpose of the Delaware Act, insofar as it
presents an all cash, equal treatment premium offer. Defendants' actions in
obstructing shareholder consideration of the offer are fundamentally
inconsistent with the Williams Act, which seeks to regulate tender offers in a
comprehensive and neutral fashion favoring neither an offeror nor incumbent
management.
61. Pursuant to 8 Del. C. ss. 203(a) and (c)(5), a holder (other than
the corporation and any direct or indirect majority-owned subsidiary of the
corporation) of 15% or more of the outstanding voting stock of a company (an
"interested stockholder" as used in this paragraph) may not engage in any
business combination with the corporation for a period of 3 years following the
date that such stockholder became an interested stockholder, unless (i) the
transaction receives board approval prior to the holder becoming an interested
stockholder, (ii) the interested stockholder owns 85% of the outstanding shares
of the corporation at the time
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it becomes an interested stockholder, excluding those shares owned by directors,
officers and certain ESOPs, or (iii) the transaction is subsequently approved by
the corporation's board of directors and authorized by the vote of at least two
thirds of the outstanding voting stock which is not owned by the interested
stockholder.
62. The Defendants, by rejecting the repeated efforts of Plaintiffs to
discuss a proposed negotiated merger and by rejecting the Tender Offer and
disseminating disparaging statements about the same, have effectively
demonstrated that they will not approve of the Tender Offer or any other offer
by Plaintiffs pursuant to 8 Del. C. ss. 203(a)(l). Defendant Richard's letters
to NiSource of April 18, 1999, June 10, 1999 and July 6, 1999 confirm that CEG
will not give fair consideration to any proposal from NiSource. Indeed, up until
immediately before announcing the Tender Offer, Plaintiffs continued to try to
initiate discussions with Defendants, but to no avail.
63. The effects on the proposed merger resulting from Defendants'
refusal to fairly consider any offer from NiSource is magnified by the
substantial regulatory approval process associated with mergers involving public
utility companies. Prior to the consummation of any merger between NiSource and
CEG, it will be necessary to obtain both federal and state regulatory approval.
Absent CEG's cooperation, NiSource will face enormous obstacles as a hostile
bidder, undoubtedly including resistance from CEG and its directors. Taken
together with the Defendants' defensive actions, the regulatory approval process
for merger transactions in the utilities industry makes it very unlikely that
NiSource would be able to consummate a successful merger with CEG.
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<PAGE>
64. The Complaint seeks, among other things, an order (i) requiring
Defendants to take all actions necessary to exempt the Tender Offer from the
restrictions of 8 Del. C. ss. 203, and (ii) preliminarily and permanently
enjoining the Defendants, their employees, agents and all persons acting on
their behalf or in concert with them from taking any actions to impede or
interfere with the sale, transfer or disposition of CEG stock to Plaintiffs or
from entering into any other extraordinary corporate transaction to impede the
Tender Offer.
COUNT I
(Injunctive Relief As Against All Defendants:
Violations of the Williams Act)
65. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 64 as if set forth in full herein.
66. Through their dissemination of the 14D-9 and press releases,
interviews and other statements to the public and CEG shareholders, Defendants
made statements in connection with NiSource's offer to purchase the outstanding
shares of CEG.
67. Defendants knew that, at the time the statements were disseminated,
they contained false and misleading misstatements.
68. Defendants knew that, at the time the statements were disseminated,
they omitted facts necessary to make the statements not materially false and
misleading and it is likely that Defendants will continue to make such
statements concerning the Tender Offer.
69. Defendants' dissemination of false and misleading statements to CEG
shareholders and the public at large constitutes a violation of the Williams
Act.
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<PAGE>
70. Defendants' violation of the Williams Act irreparably harmed
Plaintiffs by creating misperceptions concerning the Tender Offer among
shareholders of CEG common stock, and thereby threatening the viability of the
Tender Offer.
71. By reason of the foregoing, Plaintiffs, pursuant to the Williams
Act, seek a preliminary and permanent injunction (i) enjoining Defendants from
making any further false or misleading statements or omissions concerning the
Tender Offer; and (ii) ordering Defendants to issue a communication to all CEG
shareholders correcting all of its false or misleading statements concerning the
Tender Offer.
COUNT II
(Injunctive Relief As Against The Individual Director Defendants:
The Delaware Business Combination Statute)
72. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 71 as if fully set forth herein.
73. The Director Defendants may exempt the Tender Offer from the
restrictions of 8 Del. C. ss. 203 by approving the Tender Offer and the
contemplated Merger prior to Plaintiffs' acceptance for payment of shares
tendered pursuant to the offer.
74. The Director Defendants owe fiduciary duties of care, good faith
and loyalty to the CEG shareholders.
75. Should the Director Defendants fail to take all actions necessary
to exempt the Tender Offer from the requirements of 8 Del. C. ss. 203(a), the
Director Defendants will be in breach of their fiduciary duties by failing to
permit the CEG shareholders to receive the benefit of
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<PAGE>
NiSource's all-cash, premium offer and by favoring the incumbent management's
present course of action.
76. The offer contains a contingency for CEG's exemption from the
Delaware Business Combination statute. Should the Director Defendants fail to
provide such exempt status, the shareholders of CEG likely will be deprived of
the ability to tender their shares. The Director Defendants' failure to provide
such exempt status is certain to have a significant chilling effect on the
Tender Offer in light of the contingency, thereby rendering it extremely
unlikely that NiSource would be able to obtain the threshold 85% of CEG's
outstanding shares necessary to avoid the provisions of 8 Del. C. ss. 203(a).
77. Accordingly, if 8 Del. C. ss. 203(a) is deemed applicable to the
Tender Offer and the Director Defendants fail to exempt the Offer from these
requirements, Plaintiffs and the other CEG shareholders will suffer irreparable
harm.
78. Plaintiffs have no adequate remedy at law.
79. Unless the Court enjoins the Director Defendants, the actual,
threatened and potential enforcement by Defendants of the Delaware Business
Combination statute will cause immediate, serious and irreparable injury to
Plaintiffs and to the other shareholders of CEG in the following respects, among
others:
a. Plaintiffs will be deprived of the opportunity to acquire
control of and to enter into a business combination with CEG, a unique business
opportunity that may never recur; and
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b. CEG shareholders will be deprived of an opportunity to tender
their shares at the significant premium pursuant to the Tender Offer.
COUNT III
(Injunctive Relief As Against The Individual Director Defendants:
Other Unlawful Defensive Maneuvers)
80. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 79 as if set forth in full herein.
81. The Director Defendants have a history of acts which are intended
to prevent the shareholders of the company from having a fair and free
opportunity to consider tender offers and to otherwise exercise their ownership
rights over the corporation. As evidenced by their prior conduct, Director
Defendants are imminently likely to take further actions that would irreparably
injure Plaintiffs in their attempt to acquire CEG.
82. The Director Defendants owe fiduciary duties of care, good faith
and loyalty to the CEG shareholders.
83. Should the Director Defendants take further actions to prevent the
negotiated acquisition by NiSource of the shares of CEG, these Defendants will
be in breach of their fiduciary duties by failing to permit the CEG shareholders
to receive the benefit of NiSource's all-cash, premium offer and by favoring the
incumbent management's present course of action.
84. Plaintiffs have no adequate remedy at law.
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<PAGE>
85. Unless the Court enjoins the Director Defendants, the actual,
threatened and potential improper defensive maneuvers will cause immediate,
serious and irreparable injury to Plaintiffs and to the other shareholders of
CEG in the following respects, among others:
a. Plaintiffs will be deprived of the opportunity to acquire
control of and to enter into a business combination with CEG, a unique business
opportunity that may never recur; and
b. CEG shareholders will be deprived of an opportunity to tender
their shares at the significant premium pursuant to the Tender Offer.
86. Defendants and their assigns and successors, agents, employees,
attorneys, servants, and all persons acting in concert or participation with the
Director Defendants should also be enjoined from commencing or participating in
any legal action or proceeding in any state or federal court, or before any
state or federal administrative agency, which in any manner seeks to affect,
impede, restrain or concern in any manner the Tender Offer and all related
activities.
COUNT IV
(Injunctive Relief As Against The Individual Director Defendants:
Violations of Section 20 of the Exchange Act)
87. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 86 as if set forth in full herein.
88. By virtue of their positions as directors of CEG, the Director
Defendants are controlling persons of CEG within the meaning of Section 20 of
the Exchange Act.
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<PAGE>
89. Accordingly, Director Defendants are liable for the wrongs of CEG
as alleged in this Complaint.
WHEREFORE, Plaintiffs respectfully request that this Court enter an
Order:
1. Requiring the Director Defendants to take all actions necessary to
exempt the Tender Offer from the restrictions of 8 Del. C. ss. 203;
2. Declaring and adjudging the Director Defendants to be in breach of
their fiduciary duties if they fail to exempt the Tender Offer from the
restrictions of 8 Del. C. ss. 203(a);
3. Declaring that the Tender Offer is a non-coercive, valid and
legitimate offer, in complete compliance with the requirements of the Williams
Act;
4. Preliminarily and permanently enjoining Defendants and their assigns
and successors, agents, employees, attorneys, servants, and all persons in
active concert or participation with them, from refusing to take actions that
may be necessary under the Delaware Business Combination Act to effect a
business combination between Plaintiffs and CEG;
5. Preliminarily and permanently enjoining the Defendants, their
employees, agents and all persons acting on their behalf or in concert with them
from taking any actions to impede or interfere with the sale, transfer or
disposition of CEG stock to Plaintiffs or from entering into any other
extraordinary corporate transaction to impede the Tender Offer;
6. Preliminarily and permanently enjoining the Defendants, their
employees, agents and all persons acting on their behalf or in concert with them
from commencing or participating in any legal action or proceeding in any state
or federal court, or before any state or
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federal administrative agency, which in any manner seeks to affect, impede,
restrain, or concern in any manner the Tender Offer;
7. Preliminarily and permanently enjoining Defendants and their assigns
and successors, agents, employees, attorneys, servants, and all persons in
active concert or participation with them, from taking any action prohibited by
applicable provisions of state or federal law in an effort to improperly impede
the Tender Offer;
8. Awarding Plaintiffs the costs and disbursement of this action,
including reasonable attorneys' fees, accountants' and experts' fees; and
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9. Such further relief as the Court deems just and proper.
Of Counsel: POTTER ANDERSON & CARROON LLP
Paul E. Dengel
SCHIFF HARDIN & WAITE ____________________________________
6600 Sears Tower Robert K. Payson (#274)
Chicago, IL 60606 Arthur L. Dent (2491)
(312) 258-5500 Philip A. Rovner (#3215)
Hercules Plaza
Michael J. Chepiga 1313 N. Market Street
SIMPSON THACHER & BARTLETT P.O. Box 951
425 Lexington Avenue Wilimington, Delaware 19899
New York, NY 10017
(212) 455-2000 Attorneys for Plaintiffs
NiSource Inc. and CEG Acquisition Corp.
Dated: July 8, 1999
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July 22, 1999
Mr. Gary Neale
Chairman, President and Chief Executive Officer
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
Dear Gary:
This letter is in response to your letter dated July 19, 1999 in which,
among other things, you accused me and Columbia's Chief Financial Officer Mike
O'Donnell of "mischaracterizing" the financing for NiSource's offer.
Gary, we have taken the high road over the course of the past two
months, even in the face of NiSource's repeated and widely publicized
complaining and innuendo. However, NiSource's various assertions recently have
been straying too far from the truth and it is time to put them to rest.
Additionally, you should know that we will continue to vigorously defend each
and every court action brought by NiSource, no matter how frivolous.
Behind all of the hype, Gary, the fact remains that NiSource's offer is
a highly conditional one that requires approvals from numerous regulators. Based
on my past experience as a regulator, I believe regulators will view your offer
as patently hostile and highly leveraged.
YOUR FINANCING AND REGULATORY APPROVALS
Your claims that we have "mischaracterized" NiSource's financing miss
the substance of what we are saying. As you know, your offer and its financing
are conditioned on many things. These include NiSource obtaining all of the
numerous state and federal regulatory approvals, in each case without, to quote
your financing commitment letter, "the imposition of any materially burdensome
or adverse conditions." No Columbia shareholder will receive a single penny from
your offer until all such approvals are obtained on such terms. These regulatory
approvals can be obtained only after consideration of the details of your offer
by state and federal regulators. Three key factors will stand out in all such
regulatory consideration:
<PAGE>
o The debt-to-capitalization ratio (84% debt) upon closing, without some
prearranged sale of assets that would result from NiSource's acquisition of
Columbia, would be substantially higher than that of any energy utility in
America. To our knowledge, no regulatory body has ever approved an
acquisition that would result in this high a debt-to-capitalization ratio.
o We assume, based upon materials which NiSource has publicly distributed,
that you do not intend to sell assets, have significant layoffs or rate
increases. Therefore, in order to bring this exceptionally high
debt-to-capitalization ratio down to a more acceptable level (yet still a
relatively high level) NiSource would need to complete an equity offering
significantly larger than any previous offering ever completed by a U.S.
energy utility. You have assumed this offering will be at a price
significantly higher than NiSource's current trading price. If the
assumptions regarding asset sales, significant layoffs and rate increases
are not correct, you owe it to your shareholders and ours to make
NiSource's intentions known in writing and to file them with the Securities
and Exchange Commission.
Would any regulator approve this deal knowing that there is major
uncertainty about the ability to meet such lofty equity financing goals
after completion of the acquisition? Would regulators leave ratepayers and
shareholders subject to all of the risks of a leveraged structure
collapsing like a house of cards? We do not believe these risks have been
explained to your own shareholders or ours.
o The regulatory approval process for the NiSource tender offer would be
unique in the history of the United States energy utility industry - it
would be the first energy utility acquisition of a hostile nature to obtain
regulatory approval.
It is therefore disingenuous to characterize the necessary regulatory
approvals in this situation as "usual."
You have repeatedly alluded to the fact that $68 in cash per share
currently awaits Columbia shareholders under your offer. Columbia shareholders
would only get the $68 cash per share you are offering - which, as we keep
telling you, is inadequate - after waiting for a period of up to 18 months. Even
that timing assumes successful completion of a process fraught with uncertainty.
To date, NiSource has only filed for Hart Scott Rodino clearance - the only
regulatory approval for which receipt is clearly not an issue.
COLUMBIA'S EMPLOYMENT AGREEMENTS
As you well know, the "change of control" arrangements approved by our
Board are standard ones. Indeed, I understand from your proxy statement that
NiSource itself has such arrangements. The fact that Columbia did not feel the
need to implement such arrangements until now is a testament to the loyalty and
commitment of our staff.
<PAGE>
NiSource summarized its own substantially similar "parachutes" in its
1999 proxy statement by stating: "[NiSource] believes that these [change of
control] Agreements and related shareholder rights protections are in the best
interests of the shareholders, to insure that in the event of extraordinary
events, totally independent judgment is enhanced to maximize shareholder value."
Columbia's arrangements underwrite the loyalty and commitment of its
staff in the face of hostile actions, and these change of control arrangements
were described in detail in an amendment to our SEC filing the day after their
approval by our Board.
Consistent with our commitment to file all relevant information, we
would suggest NiSource too should publicly file the fees you have paid and will
pay to your advisers, Credit Suisse First Boston and Wasserstein Perella in your
attempt to acquire Columbia.
Gary, you claim to be "talking straight" to Columbia's shareholders -
but telling half the story is not "straight talk." We have "mischaracterized"
nothing in our attempt to set the record straight on the inadequate, highly
conditional and strategically ill-advised nature of NiSource's offer.
Sincerely,
/s/ Oliver G. Richard III
Oliver G. Richard III
Chairman, President and Chief Executive Officer
July 22, 1999
Dear Shareholder:
Enclosed you will find a Schedule 13e-1 Transaction Statement that
Columbia Energy Group filed with the Securities and Exchange Commission on July
16, 1999.
In a press release on July 15, 1999, your company announced a $400
million increase in its open market share repurchase program to provide
shareholders with short-term investment goals with some liquidity, while
enhancing value for investors with a longer-term view. Your board considers
Columbia's stock a good long-term investment and your company is excited to move
forward with its expanded share repurchase program.
The attached 13e-1 Transaction Statement is required by the Securities
and Exchange Commission to be filed with them and also mailed to shareholders
before share repurchases can begin in a hostile tender offer situation such as
the one your company now faces. The attached statement provides a brief
explanation of the share repurchase program and we urge you to read it
carefully. You need not take any action in connection with the attached - it is
simply intended to provide shareholders with complete information regarding your
company's share repurchase plans.
Thank you once again for your support.
Sincerely,
/s/ Oliver G. Richard III
OLIVER G. RICHARD III
Chairman, President and Chief Executive Officer
