<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) of the Securities
Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
PROVIDENCE ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share ("Providence Energy Common
Stock"), of Providence Energy Corporation in connection with the
transaction.
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
6,447,952, being the maximum number of shares of Providence Energy
Common Stock to be converted into the right to receive $42.50 in cash.
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The per unit price is $42.50 per share of Providence Energy Common
Stock.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $274,037,960.00
- --------------------------------------------------------------------------------
(5) Total fee paid: $54,807.00
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid: $54,702.95
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: PREM14A
- --------------------------------------------------------------------------------
(3) Filing Party: Providence Energy Corporation
- --------------------------------------------------------------------------------
(4) Date Filed: February 29, 2000
- --------------------------------------------------------------------------------
<PAGE> 2
PROVENERGY LOGO
April 6, 2000
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
Providence Energy Corporation which we will hold on Monday, May 22, 2000, at
10:00 a.m., at the Marriott Hotel, One Orms Street, Providence, Rhode Island.
As you may know, on November 15, 1999, Providence Energy Corporation
entered into a merger agreement with Southern Union Company and a subsidiary of
Southern Union Company pursuant to which Providence Energy Corporation and each
of its gas utility subsidiaries will be merged into Southern Union Company. The
purpose of this special meeting is to approve the mergers described in the
merger agreement.
In the initial merger of Providence Energy Corporation with a subsidiary of
Southern Union Company, your shares of Providence Energy Corporation common
stock will be exchanged for $42.50 in cash.
We believe this transaction represents an exciting strategic combination
and will provide substantial value to Providence Energy Corporation
shareholders. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
MERGERS ARE IN THE BEST INTERESTS OF PROVIDENCE ENERGY CORPORATION AND ITS
SHAREHOLDERS AND RECOMMENDS THAT YOU APPROVE THE MERGER AGREEMENT WITH SOUTHERN
UNION COMPANY AND THE TRANSACTIONS CONTEMPLATED THEREBY.
PLEASE REVIEW CAREFULLY THIS ENTIRE DOCUMENT.
In order to vote at the special meeting, please either attend the special
meeting or complete, sign and date the enclosed proxy and return it in the
accompanying postage-paid envelope.
Sincerely,
/s/ James H. Dodge
James H. Dodge
Chief Executive Officer
This document is dated April 6, 2000 and was first mailed to
shareholders on or about April 10, 2000.
<PAGE> 3
PROVENERGY LOGO
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2000
We will hold a special meeting of shareholders of Providence Energy
Corporation on Monday, May 22, 2000, at 10:00 a.m., at the Marriott Hotel, One
Orms Street, Providence, Rhode Island for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of November 15, 1999, among Southern Union Company, GUS
Acquisition Corporation, a subsidiary of Southern Union Company, and
Providence Energy Corporation. In the initial merger GUS Acquisition
Corporation will merge into Providence Energy Corporation, and then
Providence Energy Corporation and each of its gas utility subsidiaries will
be merged into Southern Union. Each outstanding share of Providence Energy
Corporation common stock will be converted into a right to receive $42.50
in cash in the initial merger.
Shareholders of record at the close of business on March 31, 2000 are
entitled to vote their shares at the special meeting and any adjournments or
postponements of it. Each share of Providence Energy Corporation common stock
outstanding on the record date will entitle the record holder to one vote on
each matter put to a vote at the special meeting.
We cannot complete the mergers unless the holders of a majority of the
outstanding shares of Providence Energy Corporation common stock approve the
merger agreement.
For more information about the mergers, please review the accompanying
document and the merger agreement attached as Annex 1.
YOUR VOTE IS VERY IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING. THE ACCOMPANYING ENVELOPE REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES. IF YOU DO NOT SPECIFY YOUR VOTE ON YOUR SUBMISSION, YOUR
SHARES WILL BE VOTED FOR THE APPROVAL OF THE MERGER AGREEMENT. IF YOU FAIL TO
SUBMIT A PROXY OR IF YOU ABSTAIN FROM VOTING, IT WILL HAVE THE EFFECT OF A VOTE
AGAINST THE APPROVAL OF THE MERGER AGREEMENT. YOU MAY REVOKE YOUR PROXY AND VOTE
IN PERSON IF YOU DECIDE TO ATTEND THE SPECIAL MEETING.
Please do not send in any stock certificates at this time.
By action of the Board of Directors,
/s/ Susann G. Mark
Susann G. Mark
Secretary
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions & Answers about the Mergers....................... 1
Summary..................................................... 3
Cautionary Statement Regarding Forward-Looking Statements... 8
The Special Meeting......................................... 9
The Mergers................................................. 11
The Merger Agreement........................................ 23
The Companies............................................... 34
Stock Ownership of Management, Directors and 5%
Shareholders.............................................. 38
Proposals for 2001 Annual Meeting........................... 39
Independent Public Accountants.............................. 39
Where You Can Find More Information......................... 39
Incorporation of Some Information by Reference.............. 39
Annex 1 Agreement and Plan of Merger
Annex 2 Opinion of Salomon Smith Barney Inc.
</TABLE>
i
<PAGE> 5
QUESTIONS & ANSWERS ABOUT THE MERGERS
Q: WHY IS PROVIDENCE ENERGY PROPOSING THE MERGERS?
A: Providence Energy believes that the mergers offer Providence Energy
shareholders an opportunity to receive significant value for their shares of
Providence Energy common stock and that the financial strength of the combined
companies will enhance the ability of Providence Energy to meet the rapidly
changing needs of its customers while creating new and exciting opportunities
for its employees.
To review the reasons for the mergers in greater detail, see pages 23 through
33.
Q: WHAT WILL PROVIDENCE ENERGY SHAREHOLDERS RECEIVE IN THE INITIAL MERGER?
A: You will receive $42.50 in cash for each share of Providence Energy
Corporation common stock that you own.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE INITIAL MERGER?
A: The initial merger will be a taxable transaction for all Providence Energy
shareholders. The cash you receive in the initial merger in exchange for your
shares of Providence Energy common stock will be subject to federal income tax
and also may be taxed under applicable state, local and other tax laws. In
general, you will recognize gain (or loss) equal to the difference between
- the cash you receive and
- the tax basis of your shares of Providence Energy common stock exchanged
in the initial merger.
You should consult your tax advisor regarding the specific tax consequences
of the initial merger applicable to you.
Q: WHAT DOES THE PROVIDENCE ENERGY BOARD RECOMMEND?
A: The Providence Energy board of directors believes that the terms of the
mergers and the merger agreement are fair to and in the best interests of
Providence Energy and its shareholders and unanimously recommends that
Providence Energy shareholders vote FOR the approval of the merger agreement and
the transactions contemplated thereby. To review the background and reasons for
the mergers, see "The Mergers -- Background of the mergers" on page 11 and "The
Mergers -- Recommendation of the Providence Energy board of directors; Reasons
for the mergers" on page 13.
Q: WHEN WILL SHAREHOLDERS RECEIVE THE MERGER CONSIDERATION?
A: Within eight business days after the closing of the initial merger, Southern
Union will mail instructions to you on how to receive your cash payment in
exchange for your shares of Providence Energy common stock. You must return your
Providence Energy stock certificates as described in the instructions. You will
receive your cash promptly after you return your certificates in accordance with
the instructions.
Q: WHAT DO I NEED TO DO NOW?
A: After you carefully read and consider the information contained in this
document, please indicate on the enclosed proxy card how you want to vote. Sign
and mail the proxy card in the enclosed return envelope as soon as possible so
your shares can be represented at the special meeting.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES?
A: Your broker will not vote your shares unless you follow the directions your
broker provides to you regarding how to vote your shares.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You may change your vote by sending the Secretary of Providence Energy a
written notice of revocation at any time prior to the special meeting. You may
also change your vote by attending the meeting in person and voting or by giving
the Secretary written notice of revocation at the special meeting.
<PAGE> 6
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGERS?
A: We are working toward completing the mergers as quickly as possible and are
targeting the late summer of 2000 for the closing, provided that we can obtain
the approvals and consents necessary for the mergers by that time.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: Investor Relations -- Timothy Green
1-800-227-8000 ext. 2049
Proxy Solicitor -- Morrow & Co., Inc.
1-800-566-9061
2
<PAGE> 7
SUMMARY
This summary highlights selected information from this proxy statement. It
does not contain all of the information that is important to you. We urge you to
read carefully the entire proxy statement and the other documents referred to in
this proxy statement to fully understand the mergers. For a guide as to where
you can obtain more information, see "Where You Can Find More Information" on
page 39.
OVERVIEW
Southern Union Company, Providence Energy Corporation and a wholly owned
subsidiary of Southern Union entered into a merger agreement on November 15,
1999. This merger agreement sets forth the terms and conditions and the details
of the transactions through which Southern Union proposes to acquire Providence
Energy. Under the terms of the merger agreement, at the closing, each
outstanding share of Providence Energy common stock will be converted into the
right to receive $42.50 in cash. Upon completion of the transactions
contemplated by the merger agreement, Providence Energy and each of its gas
utility subsidiaries will be merged into Southern Union and will operate as a
division of Southern Union. We are asking you to approve this merger agreement.
THE COMPANIES
Providence Energy Corporation (Page 34)
Providence Energy is a distributor and marketer of natural gas, heating oil
and petroleum products, as well as a marketer of electricity and energy
services. Providence Energy serves approximately 186,000 customers in Rhode
Island, Massachusetts and Connecticut. Its principal subsidiaries within its
regulated operations include The Providence Gas Company and North Attleboro Gas
Company.
Southern Union Company (Page 36)
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 by
customer count. Southern Union serves more than 1.2 million customers through
its four natural gas divisions in Texas, Missouri, Pennsylvania 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, operates natural gas
pipeline systems and is engaged in electricity generation and marketing.
Southern Union completed a merger with Pennsylvania Enterprises, Inc. on
November 4, 1999. On October 4 and November 30, 1999, Southern Union entered
into merger agreements with Fall River Gas Company and Valley Resources, Inc.,
respectively, which, when completed, will add approximately 111,000 additional
customers to Southern Union's natural gas utility business.
WHAT YOU WILL RECEIVE IN THE INITIAL MERGER
(PAGE 11)
When we complete the initial merger, each share of Providence Energy common
stock will be canceled and you will receive $42.50 in cash for each share you
own.
TAX CONSEQUENCES (PAGE 20)
The initial merger will be a taxable transaction for all Providence Energy
shareholders. The cash you receive in the initial merger in exchange for your
shares of Providence Energy common stock will be subject to federal income tax
and also may be taxed under applicable state, local and other tax laws. In
general, you will recognize gain (or loss) equal to the difference between
- the cash you receive and
- the tax basis of your shares of Providence Energy common stock exchanged
in the initial merger.
You should consult your tax advisor regarding the specific tax consequences
of the initial merger applicable to you.
BOARD RECOMMENDATION
Your board of directors unanimously recommends that you vote FOR the
proposal to approve the merger agreement and the transactions contemplated
thereby.
3
<PAGE> 8
OPINION OF FINANCIAL ADVISOR
Salomon Smith Barney Inc. delivered an opinion to the board of directors
that, based upon and subject to the factors and assumptions set forth in its
opinion, and other factors Salomon Smith Barney Inc. deemed relevant, as of
November 15, 1999, the merger consideration was fair, from a financial point of
view, to the holders of Providence Energy common stock. We have attached the
Salomon Smith Barney opinion to this proxy statement as Annex 2. You should read
the Salomon Smith Barney opinion carefully in its entirety.
INTERESTS OF MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT IN THE MERGERS
(PAGE 18)
Some Providence Energy directors, officers and executives have interests in
the mergers that may be different from, or in addition to, the interests of
other Providence Energy shareholders. These interests include employment
agreements and stock options. In addition, some Providence Energy executives
will become Southern Union directors or executives after the mergers. You should
be aware of these interests because they may conflict with yours. These
interests include:
- the Chief Executive Officer of Providence Energy will be elected to the
board of directors of Southern Union,
- Mr. James H. Dodge will serve as Chief Executive Officer and President,
and Mr. James DeMetro will serve as Executive Vice President, Energy
Services, of the Providence Energy division of Southern Union and all
other energy-related businesses of Southern Union conducted in New
England,
- each performance share held by employees under a Providence Energy
incentive plan will be fully earned and converted into a right to receive
$42.50 in cash,
- all stock options will be deemed fully vested and will be converted into
a right to receive a cash payment, and
- Mr. James H. Dodge and Mr. James DeMetro will receive enhanced
compensation and other benefits.
RECORD DATE FOR VOTING; REQUIRED VOTE
You can vote at the special meeting of Providence Energy shareholders if
you owned Providence Energy common stock at the close of business on March 31,
2000. The approval of 3,073,813 shares, a majority of the shares outstanding on
the record date of Providence Energy common stock, is required to approve the
merger agreement.
CONDITIONS TO THE COMPLETION OF THE MERGERS (PAGE 31)
The completion of the mergers depends on the satisfaction or waiver of a
number of conditions, including the following:
- obtaining required governmental approvals by final order in such form as
are not, and with no conditions that are, individually or in the
aggregate, reasonably likely to have a Providence Energy material adverse
effect or a material adverse effect on the business, financial condition
or results of operations of Southern Union, or which would otherwise, in
Southern Union's reasonable determination, be unduly burdensome to
Southern Union in a manner that would, individually or in the aggregate,
be reasonably likely to have a Providence Energy material adverse effect
or a material adverse effect on the business, financial condition or
results of operations of Southern Union. To facilitate obtaining the
approval of the transaction by the Massachusetts Department of
Telecommunications and Energy, Southern Union intends to seek the
approval of the transaction by holders of two-thirds of the outstanding
shares of Southern Union common stock,
- obtaining the approval of holders of a majority of the outstanding shares
of Providence Energy common stock,
- obtaining the consent of holders of at least 80% in aggregate principal
amount of all First Mortgage Bonds of The Providence Gas Company
outstanding to each of the amendments to the Providence Gas Indenture set
forth on Schedule 6.1(n) to the merger agreement,
- obtaining to the reasonable satisfaction of Southern Union the necessary
third party
4
<PAGE> 9
consents to the merger agreement except for those which, if not obtained,
are not, individually or in the aggregate, reasonably likely to result in
a Providence Energy material adverse effect after the closing,
- the accuracy of representations and warranties (as of the date of the
merger agreement and as of the closing date), except for such
inaccuracies as would not be reasonably likely to result in a material
adverse effect,
- material compliance with covenants and agreements,
- obtaining Letters of Tax Good Standing for Providence Energy and The
Providence Gas Company from the Rhode Island Department of Taxation, and
- resignations of directors of Providence Energy and its subsidiaries as
requested by Southern Union.
TERMINATION OF THE MERGER AGREEMENT; FEES PAYABLE (PAGE 32)
The merger agreement can be terminated at any time prior to the closing:
- by mutual written consent of Providence Energy and Southern Union,
- by either Providence Energy or Southern Union if there is a
non-appealable court order prohibiting the consummation of the mergers,
- by either Providence Energy or Southern Union if there is a breach by the
other party of any representation or warranty, which breach cannot be
cured, except for inaccuracies which would not be reasonably likely to
result in a material adverse effect,
- by Providence Energy as a result of a superior proposal, provided
Providence Energy has paid the termination fee,
- by either Providence Energy or Southern Union if the approval of
Providence Energy shareholders is not obtained,
- by Southern Union if the board of directors of Providence Energy
withdraws or modifies the approval or recommendation of the board in
favor of the merger, approves or recommends (or proposes to do so)
certain business combinations, causes Providence Energy to enter into a
definitive agreement with respect to certain business combinations or
resolves to do any of the foregoing,
- by Southern Union if a third party or group acquires more than 50% of the
voting power of the outstanding voting securities of Providence Energy,
or
- by either Providence Energy or Southern Union if the closing has not
occurred on November 15, 2000; provided, that if all conditions to
closing have been fulfilled except for approvals by any governmental
body, then the termination date will be extended until April 1, 2001.
Termination Fee
Providence Energy is required to pay Southern Union a $7.5 million
termination fee in cash if the merger agreement is terminated under specified
circumstances after a third party makes a proposal to acquire Providence Energy
or if a third party or group acquires more than 50% of the voting power of the
outstanding voting securities of Providence Energy.
REGULATORY MATTERS (PAGE 20)
The completion of the mergers is subject to obtaining required regulatory
approvals from several state public utility commissions and the Federal Energy
Regulatory Commission. The completion of the mergers is also subject to the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act. On March 31, 2000, the Federal Trade Commission
issued a request for additional information (a "Second Request") to the parties.
As a result, the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act before the mergers can be completed will be extended until
twenty days after the parties comply with the Federal Trade Commission's
request, which could be extended with the consent of the parties.
Subsequent to the execution of the merger agreement, the issue arose as to
whether Southern Union was required under Massachusetts law to obtain the
approval of the transaction by holders of two-thirds of the outstanding shares
of Southern Union common stock in connection with obtaining the approval of the
transaction by the Massachusetts Department of Telecommunications and Energy. In
order to eliminate any uncertainty concerning this issue and to facilitate the
closing of the transaction, Southern Union has
5
<PAGE> 10
advised Providence Energy and the Massachusetts Department of Telecommunications
and Energy that it intends to seek such approval.
Providence Energy has received a commitment and an irrevocable proxy from
George Lindemann, the Chairman of the Board and Chief Executive Officer of
Southern Union, and members of his immediate family to vote all of the shares of
Southern Union common stock that they beneficially own and are entitled to vote
in favor of the approval of the merger agreement and the transactions
contemplated thereby. As of February 29, 2000, those Lindemann family members
beneficially owned and were entitled to vote approximately 26.4% of the shares
of Southern Union common stock then outstanding.
Southern Union has advised Providence Energy that each of Southern Union's
directors and executive officers has advised Southern Union that they intend to
vote their shares of Southern Union common stock in favor of the approval of the
merger agreement and the transactions contemplated thereby. As of February 29,
2000, those directors and executive officers (other than the Lindemanns, who
have signed the proxy referred to above) beneficially owned and were entitled to
vote approximately 6.5% of the shares of Southern Union common stock then
outstanding. Together with the Lindemanns' proxy, this represents a total of
approximately 32.9% of the shares of Southern Union common stock outstanding as
of February 29, 2000. Southern Union has advised Providence Energy that it will
call a meeting of its stockholders to vote on this merger agreement as soon as
practicable and currently anticipates that the meeting will be held in the late
summer of 2000.
ACCOUNTING TREATMENT (PAGE 20)
The mergers will be accounted for using the purchase method of accounting.
NO APPRAISAL RIGHTS (PAGE 22)
Under the Rhode Island Business Corporation Act, Providence Energy
shareholders are not entitled to appraisal rights in connection with the
mergers.
6
<PAGE> 11
MARKET PRICES AND DIVIDENDS
Providence Energy common stock is listed on the New York Stock Exchange
under the symbol "PVY."
The table below shows, for the fiscal quarters indicated, the reported high
and low sale prices of Providence Energy common stock as reported on the New
York Stock Exchange Composite Transactions Tape, and the dividends declared on
the stock.
<TABLE>
<CAPTION>
PROVIDENCE ENERGY COMMON
STOCK
------------------------------
MARKET PRICE CASH
-------------- DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
FISCAL 1998
First Quarter............................................. $22 3/8 $17 5/8 $0.27
Second Quarter............................................ 21 1/4 20 1/2 $0.27
Third Quarter............................................. 21 3/8 19 1/2 $0.27
Fourth Quarter............................................ 21 9/16 19 3/16 $0.27
FISCAL 1999
First Quarter............................................. 21 1/2 19 11/16 $0.27
Second Quarter............................................ 22 7/16 18 3/8 $0.27
Third Quarter............................................. 27 18 $0.27
Fourth Quarter............................................ 30 1/8 26 1/16 $0.27
FISCAL 2000
First Quarter............................................. 38 1/2 27 1/4 $0.27
Second Quarter............................................ 38 35 7/8 $0.27
</TABLE>
The following table presents trading information for Providence Energy
common stock on November 12, 1999 and April 5, 2000. November 12, 1999 was the
last full trading day before our announcement of the signing of the merger
agreement. April 5, 2000 was the last practicable trading day for which
information was available before the date of this document. Providence Energy
shareholders are encouraged to obtain current market quotations for Providence
Energy common stock.
<TABLE>
<CAPTION>
PROVIDENCE ENERGY
COMMON STOCK
-----------------
<S> <C>
Closing price on November 12, 1999.......................... $32 7/8
Closing price on April 5, 2000.............................. $38 9/16
</TABLE>
7
<PAGE> 12
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Providence Energy and its subsidiaries and their representatives may from
time to time make written or oral statements, including statements contained in
filings with the Securities and Exchange Commission, which constitute
forward-looking statements.
All statements other than statements of historical facts included in this
proxy statement regarding Providence Energy's financial position and strategic
initiatives and addressing industry developments are forward-looking statements.
Providence Energy may use the words "believe," "anticipate," "expect," "intend"
and similar expressions to identify forward-looking statements. When, in any
forward-looking statement, Providence Energy expresses an expectation or belief
as to future results, this expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
Forward-looking statements are subject to a number of risks, assumptions
and uncertainties. The following are some of the factors which may cause actual
results to differ materially from those anticipated:
- general economic, financial and business conditions,
- changes in government regulations,
- effectiveness of hedging strategies,
- competition in the energy services sector,
- regional weather conditions,
- the availability and cost of natural gas and oil,
- development and operating costs,
- the success and costs of advertising and promotional efforts,
- the availability and terms of capital,
- unanticipated environmental liabilities,
- the ability to grow through acquisitions and/or significant customer
growth,
- the costs and effects of unanticipated legal proceedings,
- the impacts of unusual items resulting from ongoing evaluations of
business strategies and asset valuations, and
- changes in business strategy.
This list provides only an example of some of the risks, uncertainties and
assumptions that may affect forward-looking statements. If any of these risks or
uncertainties materialize or fail to materialize, as applicable, or if the
underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements.
8
<PAGE> 13
THE SPECIAL MEETING
GENERAL
We are furnishing this document to shareholders of Providence Energy common
stock for use at a special meeting of Providence Energy shareholders and any
adjournments or postponements of the special meeting.
DATE, TIME AND PLACE
We will hold a special meeting of Providence Energy shareholders on Monday,
May 22, 2000, at 10:00 a.m., local time, at the Marriott Hotel, One Orms Street,
Providence, Rhode Island, subject to any adjournments or postponements thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, Providence Energy shareholders will be asked to
consider and vote on a proposal to approve the merger agreement. You are urged
to read the copy of the merger agreement attached to this document as Annex 1.
RECORD DATE
Only holders of record of Providence Energy common stock at the close of
business on March 31, 2000 will be entitled to receive notice of and to vote at
the special meeting. As of the record date, there were 6,147,625 shares of
Providence Energy common stock outstanding.
VOTE REQUIRED
The affirmative vote of 3,073,813 shares, a majority of the shares of
Providence Energy common stock outstanding on the record date, is required in
order to approve the merger agreement. Therefore, if you fail to submit a proxy
or if you abstain from voting, it will have the effect of a vote against the
approval of the merger agreement. Each share of Providence Energy common stock
is entitled to one vote. Holders of a majority of the shares of Providence
Energy common stock entitled to vote at the special meeting, present in person
or by proxy, will constitute a quorum for the transaction of business at the
special meeting.
As of the record date, Providence Energy's current directors and executive
officers beneficially owned a total of approximately 56,937 shares of Providence
Energy common stock, or approximately 1% of the outstanding shares of Providence
Energy common stock on that date.
The shareholders present at the special meeting, in person or by proxy, may
by a majority vote adjourn the meeting despite the absence of a quorum. In the
event of an absence of a quorum, Providence Energy expects that the meeting will
be adjourned or postponed to solicit additional proxies.
HOW SHARES WILL BE VOTED AT THE SPECIAL MEETING
All shares of Providence Energy common stock represented by properly
executed proxies received before or at the special meeting of Providence Energy
shareholders, and not revoked, will be voted as specified in the proxies.
Properly executed proxies that do not contain voting instructions will be voted
FOR the approval of the merger agreement.
Providence Energy will count a properly executed proxy marked "ABSTAIN" as
present for purposes of determining whether there is a quorum at the Providence
Energy special meeting. Abstentions, however, will have the same effect as a
vote against the approval of the merger agreement.
Under New York Stock Exchange rules, your broker cannot vote your shares of
Providence Energy common stock without specific instructions from you. Unless
you follow the directions your broker provides to you regarding how to instruct
your broker to vote your shares, your shares will not be voted and will have the
effect of a vote against the approval of the merger agreement.
9
<PAGE> 14
The board of directors of Providence Energy is not currently aware of any
other business to be brought before the special meeting. If, however, other
matters are properly brought before the special meeting or any adjournment or
postponement of the meeting, the people appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment.
The people named as proxies by a shareholder may propose and vote for one
or more adjournments of the special meeting to permit further solicitations of
proxies in favor of approval of the merger agreement; except that no proxy which
is voted against the approval of the merger agreement will be voted in favor of
any adjournment.
VOTING AT THE SPECIAL MEETING
Whether or not you plan to attend the special meeting, please take the time
to vote your shares as soon as possible. Your prompt voting may save Providence
Energy the expense of a second mailing. Each proxy which is properly completed
will be voted at the special meeting. If you return a proxy and do not specify
your vote, your shares will be voted as recommended by the Providence Energy
board of directors. Specifically, if your proxy does not specify a choice, your
shares will be voted FOR the approval of the merger agreement.
HOW TO REVOKE A PROXY
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy.
You may revoke your proxy at any time before its use by giving the
Secretary of Providence Energy written notice of revocation or by attending the
special meeting and voting in person. Attendance at the Providence Energy
special meeting will not itself constitute the revocation of a proxy.
SOLICITATION OF PROXIES
Providence Energy will pay the cost of solicitation of proxies for the
special meeting. Solicitation of proxies will be by mail, except for some
personal solicitations which may be made by regular officers and employees of
the corporation, without special compensation.
Providence Energy will arrange for brokerage houses and other custodians,
nominees and fiduciaries to send the proxy materials to beneficial owners, and
Providence Energy will, upon request, reimburse the brokerage houses and
custodians for their reasonable expenses. Providence Energy has retained Morrow
& Co., Inc. to aid in the solicitation of proxies and to verify some of the
records related to the solicitations. Morrow & Co., Inc. will receive customary
fees and expense reimbursement for its services. To the extent necessary in
order to ensure sufficient representation at its meeting, Providence Energy or
its representatives may request the return of proxy cards. The extent to which
this will be necessary depends entirely on how promptly proxy cards are
returned.
We urge you to send in your proxies as soon as possible.
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THE MERGERS
WHAT YOU WILL RECEIVE IN THE INITIAL MERGER
In the initial merger, each share of Providence Energy common stock,
including restricted stock, and each associated stock purchase right, will be
converted into the right to receive $42.50 in cash.
In addition, each Providence Energy performance share awarded under a
Providence Energy incentive plan at the effective time of the initial merger
will be treated as fully earned and will be converted into a right to receive
$42.50 in cash.
Also, each outstanding Providence Energy stock option will be deemed fully
vested and will be converted into a right to receive a cash payment for each
share of Providence Energy common stock subject to option in an amount equal to
the amount by which
- $42.50 exceeds
- the exercise price of such option (if the exercise price is less than
$42.50).
BACKGROUND OF THE MERGERS
In light of the rapid changes in the energy industry in recent years,
including industry consolidation, it had become the practice of the Providence
Energy board of directors to review periodically with senior management
Providence Energy's position in the industry, changes in the competitive
landscape and the strategic alternatives available to Providence Energy to
enhance shareholder value. In connection with this ongoing review, Providence
Energy had determined to pursue various strategic initiatives, including the
development of high value market niches, providing excellent local service,
developing long-lasting customer relationships and the expansion of its
non-regulated businesses, and from time to time considered possible business
combination transactions. In furtherance of these deliberations, from time to
time Providence Energy has had contact with various parties to explore on a
preliminary basis possible business combination transactions, including some
discussions with one or more parties during the time periods described below.
Providence Energy also had engaged Salomon Smith Barney Inc. on March 31, 1997
to act as its exclusive financial advisor in connection with any possible
acquisition by Providence Energy of other companies, possible sale of Providence
Energy, "merger of equals" transaction between Providence Energy and another
energy company, and other combinations, alliances and joint ventures.
In late July, 1999, Mr. Thomas F. Karam, the President and Chief Executive
Officer of Pennsylvania Enterprises, Inc., an energy company that had agreed to
be acquired by Southern Union (and was subsequently acquired on November 4,
1999), telephoned Mr. James Dodge, the Chairman, Chief Executive Officer and
President of Providence Energy, to propose a meeting to discuss Southern Union's
interest in acquiring Providence Energy. Mr. Dodge and Mr. Karam met in
Providence on August 2, 1999 for preliminary discussions. Mr. Dodge, Mr. James
DeMetro, the Executive Vice President of Providence Energy, Mr. Karam and Mr.
Peter H. Kelley, the President and Chief Operating Officer of Southern Union,
met on August 10, 1999 and discussed their respective views of the industry,
strategic directions and management philosophies of each company, and the
potential benefits of a business combination transaction involving the
companies. On September 13, 1999, Mr. Dodge, Mr. DeMetro, and Mr. Kenneth Hogan,
the Vice President and Chief Financial Officer and Treasurer of Providence
Energy, met with Mr. Karam, Mr. Ronald Simms, Chairman of Pennsylvania
Enterprises, Mr. Kelley and other members of Southern Union's senior management
in Austin, Texas to continue discussions about a possible acquisition of
Providence Energy by Southern Union. On September 22, 1999, Mr. Dodge met in
White Sulphur Springs, West Virginia with George L. Lindemann, the Chairman of
the Board and Chief Executive Officer of Southern Union, and Messrs. Karam and
Kelley to discuss the prospective business strategy and management organization
of a combined entity.
At Providence Energy's regularly scheduled board of directors meeting on
September 23, 1999, Mr. Dodge reported on the discussions with Southern Union
and communications with other third parties
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concerning potential business combination transactions. The Providence Energy
board of directors authorized senior management to pursue discussions with
Southern Union.
On September 24, 1999, Hughes Hubbard & Reed LLP, Southern Union's legal
advisor, delivered an initial draft of a merger agreement to Providence Energy
and Simpson Thacher & Bartlett, Providence Energy's legal advisors.
During the next three weeks there were various meetings and discussions
among representatives of Southern Union and Providence Energy and their advisors
regarding the transaction structure, the form and amount of the merger
consideration, the management of the combined company and other material terms.
During this time the parties also executed a confidentiality agreement and
commenced due diligence investigations and discussions with respect to each
other, and Providence Energy retained Keegan, Werlin & Pabian as its regulatory
counsel.
On October 21, 1999, the Providence Energy board of directors met to
discuss the current status of the proposed transaction with Southern Union.
Senior management and Simpson Thacher & Bartlett reported on the current status
of the discussions and negotiations and the current draft of the merger
agreement, including the proposed form and amount of the merger consideration,
the proposed conditions to Southern Union's obligation to complete the merger,
the proposed non-solicitation and termination provisions, and the employment
arrangements offered by Southern Union to Messrs. Dodge and DeMetro. Senior
management also reported on the regulatory approvals required to complete the
merger based on the advice of Keegan, Werlin & Pabian. Salomon Smith Barney
updated its prior presentations to the board of directors on the state of the
utility industry and recent consolidation activity and advised the board of
directors on Providence Energy's position in the industry and Salomon Smith
Barney's preliminary evaluations of Providence Energy stock. Salomon Smith
Barney also reported to the board of directors on the preliminary results of
their financial analyses of Southern Union. Simpson Thacher & Bartlett also
advised the board of directors regarding its fiduciary duties and other matters
relevant to the board of directors' consideration of the Southern Union
proposal. In addition, the board of directors was informed of the status of any
communications with other potential acquirors and received a preliminary report
concerning the ongoing due diligence investigation of Southern Union by
Providence Energy. The Providence Energy board of directors discussed the
information presented, and directed Providence Energy's senior management to
complete the due diligence investigation of Southern Union and to continue to
negotiate with Southern Union.
During the next three weeks there were numerous meetings and telephone
calls among the senior management and legal advisors of Southern Union and
Providence Energy and Salomon Smith Barney concerning the proposed merger
agreement and the proposed employment agreements between Southern Union and
Messrs. Dodge and DeMetro. During this time the parties completed their due
diligence investigations and it was agreed, among other things, that the merger
consideration would be paid entirely in cash. Mr. Dodge contacted members of the
Providence Energy board of directors during this period to update them on recent
discussions and receive their advice.
On November 11, 1999, members of senior management of Southern Union and
Providence Energy and representatives of Simpson Thacher & Bartlett, Hughes
Hubbard & Reed and Salomon Smith Barney met in New York City to finalize the
terms of the merger agreement, the employment agreements and related
documentation. The primary terms discussed were the purchase price, the
termination fee and the conditions to closing. Following the meeting,
representatives of Southern Union and Providence Energy continued to finalize
the terms of the merger agreement, the employment agreements and related
documentation.
On the evening of November 14, 1999, the Providence Energy board of
directors met with Messrs. Kelley and Karam in Providence, Rhode Island.
On the morning of November 15, 1999, the Providence Energy board of
directors held a special meeting to review and consider the proposed transaction
with Southern Union. Representatives of Simpson Thacher & Bartlett reviewed the
principal terms of the merger agreement, the employment agreements
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and related documentation, including any changes negotiated to the drafts of
those documents sent to the board of directors in advance of the meeting.
Representatives of Salomon Smith Barney reviewed in detail their financial and
valuation analyses of the merger proposal and related information, including
their analyses of Southern Union's ability to finance the transaction and issues
related to the assumption of Providence Energy's debt, and rendered their
opinion that the merger consideration was fair, from a financial point of view,
to the holders of Providence Energy common stock. After further discussion and
consideration, the Providence Energy board of directors unanimously determined
that it was in the best interests of Providence Energy and its shareholders, as
well as for the community, customers and employees of Providence Energy, for
Providence Energy to merge with Southern Union and determined that the terms of
the merger agreement and the transactions contemplated thereby were fair to and
in the best interests of Providence Energy and its shareholders and approved the
merger agreement and the transactions contemplated thereby. Following the
Providence Energy board of directors meeting, the merger agreement, the
employment agreements and related documentation were executed and delivered, and
the parties issued a joint press release announcing the transaction.
RECOMMENDATION OF THE PROVIDENCE ENERGY BOARD OF DIRECTORS; REASONS FOR THE
MERGERS
The Providence Energy board of directors carefully considered the terms of
the proposed merger and determined that the terms of the mergers and the merger
agreement are fair to and in the best interests of Providence Energy and its
shareholders and provided benefits to the customers and employees of Providence
Energy. The Providence Energy board of directors unanimously recommends that you
vote FOR the proposal to approve the merger agreement and the transactions
contemplated thereby.
The board of directors believes that the merger agreement and the
transactions contemplated thereby offer Providence Energy shareholders an
opportunity to receive significant value for their shares of Providence Energy
common stock and that the financial strength of the combined companies will
enhance the ability of Providence Energy to meet the rapidly changing needs of
its customers while creating new and exciting opportunities for its employees.
Specifically, the board of directors believes that the following represent
benefits to be realized because of the mergers and reasons for the Providence
Energy shareholders to vote FOR the proposal to approve the merger agreement and
the transactions contemplated thereby:
- the $42.50 per share cash price to be paid in the initial merger for
Providence Energy common stock represents a premium of approximately 29%
over the per share price of the common stock on November 12, 1999, the
last trading day before the public announcement of the execution of the
merger agreement, and a greater premium over the historical trading
prices of Providence Energy common stock,
- the absence of any financing contingency to Southern Union's offer and
the advice of Providence Energy's financial advisor, Salomon Smith
Barney, that Southern Union had the ability to finance the merger
transactions,
- the ability of Providence Energy, subject to specified conditions, (a) to
negotiate with, or provide information to, a third party which has made
an unsolicited acquisition proposal and (b) to terminate the merger
agreement, subject to the payment of a termination fee and other
specified conditions, if the board of directors has entered into a
definitive agreement with respect to a superior business combination
proposal,
- the agreement that for at least three years after the effective time of
the initial merger Providence Energy and its gas utility subsidiaries
will exist as a division of Southern Union and will continue to be
headquartered in Rhode Island,
- the Chief Executive Officer of Providence Energy will be elected to the
board of directors of Southern Union; Mr. James H. Dodge will serve as
Chief Executive Officer and President, and Mr. James DeMetro will serve
as Executive Vice President, Energy Services, of the Providence Energy
division of Southern Union and all other energy-related businesses of
Southern Union conducted in New England; the current service territories
of Providence Energy will continue to be
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served by the same Providence Energy personnel who currently service
those territories and who know and understand local needs; and it is not
anticipated that will be any material changes to the operations of
Providence Energy, and
- the benefits to employees of Providence Energy as well as the communities
served by Providence Energy, including continuation of local community
support and outreach programs and employee benefit plans.
In the course of its deliberations, the Providence Energy board of
directors reviewed with Providence Energy's management and financial, legal and
other advisors a number of relevant factors, including:
- the strategic and financial alternatives available to Providence Energy
in the energy industry, including remaining an independent company or
entering into another business combination, the value to shareholders of
such alternatives, and the timing and likelihood of actually achieving
additional values from those alternatives,
- the likelihood of the consummation of the mergers, including an
assessment of the risks associated with obtaining necessary federal and
state regulatory approvals and the possibility of the mergers not being
consummated even if approved by Providence Energy shareholders,
- the current and prospective economic and competitive environment facing
the energy industry generally and Providence Energy specifically,
particularly in light of pending and recently completed business
combination transactions among other New England energy companies,
- historical information concerning Providence Energy's businesses,
financial performance and condition, operations, management, competitive
position and prospects,
- current financial market conditions and historical market prices and
trading information with respect to Providence Energy common stock,
- detailed financial analyses and other information presented to Providence
Energy by its financial advisor, Salomon Smith Barney, including the
opinion of Salomon Smith Barney that, as of November 15, 1999, and based
upon and subject to the factors and assumptions set forth in the opinion,
the merger consideration was fair, from a financial point of view, to the
holders of Providence Energy common stock,
- reports from Providence Energy's management and outside advisors as to
the results of their due diligence investigation of Southern Union,
- presentations by and discussions with Providence Energy's management and
legal and financial advisors regarding the terms of the merger agreement,
and
- the interests that some Providence Energy directors, officers and
executives have in the mergers that may be different from, or in addition
to, the interests of other Providence Energy shareholders generally.
The Providence Energy board of directors noted that the mergers are
expected to be a taxable transaction and accounted for using the purchase method
of accounting.
The Providence Energy board of directors believed that these factors
supported the board's recommendation of the mergers when viewed together with
the potential benefits and negative factors concerning the mergers.
The Providence Energy board of directors also identified and considered
some potentially negative factors in its deliberations, including:
- Providence Energy shareholders will not continue to have an equity
interest in the combined company and, therefore, will not share in any
future appreciation in its value unless they reinvest their merger
consideration in Southern Union common stock,
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- the no solicitation and termination provisions of the merger agreement
could have the effect of discouraging an otherwise interested third party
from making a competing offer for Providence Energy, and
- the obligation of Southern Union to consummate the mergers is subject to
the receipt of regulatory approvals and other conditions that are not
within the control of Southern Union or Providence Energy.
The Providence Energy board of directors concluded that these potentially
negative factors did not, individually or in the aggregate, outweigh the
benefits of the merger.
The preceding discussion is not an exhaustive list of all factors
considered by the Providence Energy board of directors. In light of the variety
of factors considered by the board of directors in its evaluation of the
proposed merger, the board of directors did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the individual factors
considered in reaching its determination. In addition, individual members of the
board of directors may have given different weights to different factors. For a
discussion of the interests of some members of the board of directors, see "The
Mergers -- Interests of members of the board of directors and management in the
mergers."
OPINION OF FINANCIAL ADVISOR
Salomon Smith Barney was retained by Providence Energy on March 31, 1997 to
render financial advisory and investment banking services. In connection with
this engagement, Providence Energy requested that Salomon Smith Barney evaluate
the fairness, from a financial point of view, of the consideration to be
received in the merger by the holders of Providence Energy common stock. At a
meeting of the Providence Energy board of directors held on November 15, 1999 to
evaluate the proposed transaction, Salomon Smith Barney delivered to the
Providence Energy board of directors its oral opinion, which was accompanied by
a written opinion dated November 15, 1999 (the date of execution of the merger
agreement), to the effect that, as of the date of its opinion and based upon and
subject to certain matters stated in the opinion, the merger consideration was
fair, from a financial point of view, to the holders of Providence Energy common
stock.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY DATED NOVEMBER
15, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS ANNEX 2.
YOU SHOULD READ THE OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION OF SALOMON
SMITH BARNEY IS DIRECTED TO THE PROVIDENCE ENERGY BOARD OF DIRECTORS AND RELATES
ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW.
THE OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS OR RELATED
TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO
HOW SUCH SHAREHOLDER SHOULD VOTE ON ANY MATTER RELATING TO THE PROPOSED
TRANSACTION. THE SUMMARY OF THE OPINION OF SALOMON SMITH BARNEY SET FORTH IN
THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
In arriving at its opinion, Salomon Smith Barney reviewed the merger
agreement and held discussions with certain senior officers and other
representatives and advisors of Providence Energy concerning the business,
operations and prospects of Providence Energy and its subsidiaries. Salomon
Smith Barney examined certain publicly available business and financial
information relating to, as well as certain financial forecasts and other
information and data for, Providence Energy and its subsidiaries which were
provided to or otherwise discussed with Salomon Smith Barney by Providence
Energy management. Salomon Smith Barney reviewed the financial terms of the
mergers as set forth in the merger agreement in relation to, among other things:
the current and historical market prices and trading volumes of Providence
Energy common stock; the historical and projected earnings and other operating
data of Providence Energy and its subsidiaries; and the capitalization and
financial condition of Providence Energy and its subsidiaries. Salomon Smith
Barney considered, to the extent publicly available, the financial terms of
other transactions recently effected which Salomon Smith Barney considered
relevant in evaluating the mergers and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations Salomon Smith Barney considered relevant in
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evaluating those of Providence Energy. In addition to the foregoing, Salomon
Smith Barney conducted such other analyses and examinations and considered such
other financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion. Salomon Smith Barney noted that its
opinion was necessarily based upon information available, and financial, stock
market and other conditions and circumstances existing and disclosed, to Salomon
Smith Barney as of the date of its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with Salomon Smith Barney, Providence Energy management advised
Salomon Smith Barney that such forecasts and other information and data were
reasonably prepared reflecting the best currently available estimates and
judgments of Providence Energy management as to the future financial performance
of Providence Energy and its subsidiaries. Salomon Smith Barney did not make and
was not provided with an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Providence Energy or its subsidiaries
nor did Salomon Smith Barney make any physical inspection of the properties or
assets of Providence Energy or its subsidiaries. In connection with the merger,
Salomon Smith Barney was not requested to, and did not, solicit third party
indications of interest in all or a part of Providence Energy. Salomon Smith
Barney was not requested to consider, and its opinion does not address, the
relative merits of the mergers as compared to any alternative business
strategies that might exist for Providence Energy or its subsidiaries or the
effect of any other transaction in which Providence Energy or its subsidiaries
might engage.
Although Salomon Smith Barney evaluated the merger consideration from a
financial point of view, Salomon Smith Barney was not asked to and did not
recommend the specific amount of consideration payable, which was determined
through negotiation between Providence Energy and Southern Union. Salomon Smith
Barney provided assistance to Providence Energy and participated on Providence
Energy's behalf in such negotiations. No other instructions or limitations were
imposed by Providence Energy on Salomon Smith Barney with respect to the
investigations made or procedures followed by Salomon Smith Barney in rendering
its opinion.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of such analyses does not purport to be a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion.
No company, transaction or business used in Salomon Smith Barney's analyses
as a comparison is identical to Providence Energy, Southern Union or the
mergers, nor is an evaluation of the results of such analyses entirely
mathematical; rather, 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
companies, transactions or business segments being analyzed. In its analyses,
Salomon Smith Barney made numerous assumptions with respect to Providence
Energy, Southern Union, industry performance, weather conditions, general
business, economic, and financial market conditions and other matters, many of
which are beyond the control of Providence Energy and Southern Union. The
estimates contained in Salomon Smith Barney's analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
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Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the board of directors in its evaluation of the mergers and should
not be viewed as determinative of the views of the board of directors or
management with respect to the merger consideration or the proposed merger.
Introduction. Salomon Smith Barney derived equity reference ranges for
Providence Energy based on selected companies analysis, discounted cash flow
analysis and selected merger and acquisition transactions analysis. Salomon
Smith Barney also derived an equity reference range for Providence Energy based
on a premiums analysis by applying a control premium to the selected companies
analysis equity reference range. The merger consideration was then compared
against each derived equity reference range.
Selected Companies Analysis. Using publicly available information, Salomon
Smith Barney analyzed the market values and trading multiples of eight selected
publicly traded natural gas distribution utilities, consisting of Cascade
Natural Gas Corporation, Chesapeake Utilities Corporation, Laclede Gas Company,
New Jersey Resources Corporation, NUI Corporation, SEMCO Energy, Inc., South
Jersey Industries, Inc. and Valley Resources, Inc. (collectively, the "Selected
Companies").
All multiples were based on closing stock prices on November 11, 1999,
which was the next to last trading day prior to the delivery of Salomon Smith
Barney's opinion to the Providence Energy board of directors. Estimated
financial data for the Selected Companies were based on research analysts'
estimates. Salomon Smith Barney calculated market value multiples of estimated
earnings for the twelve-month periods ended September 30, 1999 and ending
September 30, 2000 for the Selected Companies. Salomon Smith Barney also
calculated a market value multiple of book value as of June 30, 1999 for the
Selected Companies. Salomon Smith Barney then applied a range of selected
multiples derived for the Selected Companies to corresponding financial data for
Providence Energy which resulted in an equity reference range for Providence
Energy of approximately $20.00 to $24.00 per share.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of the projected unlevered free cash flows of Providence
Energy based on estimates of Providence Energy management. The stand-alone
discounted cash flow analysis of Providence Energy was performed by
- adding the present value of the projected unlevered free cash flows of
Providence Energy over the five-year period from fiscal 2000 to fiscal
2004 and the present value of the estimated terminal value, as described
in the next paragraph, of Providence Energy in year 2004, and
- subtracting the current net debt of Providence Energy.
Salomon Smith Barney derived an estimated terminal value range for Providence
Energy at the end of the five-year period by applying a range of selected
terminal value multiples, based on the current values of the Selected Companies,
of 14.0 to 16.0 to the estimated 2004 net income, which was then added to the
estimated 2004 net debt. The unlevered free cash flows and terminal values of
Providence Energy were then discounted to September 30, 1999 using discount
rates, based on a calculation of the weighted average costs of capital for the
Selected Companies, ranging from 7.0% to 8.0% to derive an equity reference
range for Providence Energy of approximately $29.50 to $36.00 per share.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Salomon Smith Barney analyzed the implied purchase price
multiples paid in 11 selected recent acquisitions of natural gas distribution
utilities in the northeastern United States, consisting of (target/acquiror)
Berkshire Energy Resources/Energy East Corporation, Eastern Enterprises/Keyspan
Corporation, Fall River Gas Company/Southern Union Company, EnergyNorth,
Inc./Eastern Enterprises, CTG Resources, Inc./ Energy East Corporation, Yankee
Energy System, Inc./Northeast Utilities, Pennsylvania Enterprises, Inc./
Southern Union Company, Connecticut Energy Corporation/Energy East Corporation,
Colonial Gas Company/Eastern Enterprises, Essex County Gas Company/Eastern
Enterprises and Bay State Gas Company/NIPSCO Industries, Inc. (collectively, the
"Selected Transactions").
All multiples for the Selected Transactions were based on information
available at the time of announcement of the relevant transaction and discounted
based on the actual or estimated time to close the transaction. Salomon Smith
Barney calculated purchase price multiples of earnings for the twelve-
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month period immediately preceding the announcement, estimated annual one-year
and two-year forward earnings relative to announcement, and most recently
reported book value relative to announcement for the Selected Transactions.
Salomon Smith Barney then applied a range of selected multiples derived for the
Selected Transactions to corresponding financial data for Providence Energy in
order to derive an equity reference range for Providence Energy of approximately
$33.00 to $40.00 per share.
Premium Analysis. Salomon Smith Barney analyzed the premiums paid or
proposed to be paid in the Selected Transactions. The average premium paid or
proposed to be paid in the Selected Transactions based on the closing stock
price of the acquired company one day, five days, and one month prior to the
public announcement of these transactions was approximately 25.6%, 36.1% and
43.0%, respectively. Based on this information and its judgement of appropriate
premium levels, Salomon Smith Barney applied a 35% control premium to the equity
reference range derived from the analysis described above under the caption
"Selected Companies Analysis." This resulted in an equity reference range for
Providence Energy of approximately $27.00 to $32.40 per share.
Other Factors. In rendering its opinion, Salomon Smith Barney considered
other factors, including a review of the historical and projected financial
results of Providence Energy, the history of trading prices and volume of
Providence Energy's common stock, the relationship between movements in
Providence Energy's common stock and movements in an index consisting of the
common stock of the Selected Companies and Berkshire Energy Resources, and the
relationship between movements in Providence Energy's common stock and movements
in the prices of other New England natural gas distributors that were publicly
traded as of the beginning of 1999.
Miscellaneous. Pursuant to the terms of Salomon Smith Barney's engagement,
Providence Energy has agreed to pay Salomon Smith Barney for its services in
connection with the mergers an aggregate financial advisory fee based on a
percentage of the total consideration payable in connection with the mergers.
The fee payable to Salomon Smith Barney is currently estimated to be
approximately $3,275,000. Providence Energy also has agreed to reimburse Salomon
Smith Barney for reasonable travel and other out-of-pocket expenses incurred by
Salomon Smith Barney in performing its services, including the reasonable fees
and expenses of its legal counsel, and to indemnify Salomon Smith Barney and
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised Providence Energy that, in the ordinary
course of business, Salomon Smith Barney and its affiliates may actively trade
or hold the securities of Providence Energy and Southern Union for their own
account or for the account of customers and, accordingly, may at any time hold a
long or short position in such securities. Salomon Smith Barney has in the past
provided investment banking services to Providence Energy unrelated to the
proposed merger, for which services Salomon Smith Barney has received
compensation. In addition, Salomon Smith Barney and its affiliates, including
Citigroup Inc. and its affiliates, may maintain relationships with Providence
Energy, Southern Union and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by Providence Energy based on its experience, expertise
and familiarity with Providence Energy and its business. Salomon Smith Barney
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
INTERESTS OF MEMBERS OF PROVIDENCE ENERGY BOARD OF DIRECTORS AND MANAGEMENT IN
THE MERGERS
When you consider the recommendation of the board of directors that you
vote for the approval of the merger agreement, you should be aware that certain
directors and executive officers of Providence Energy have interests in the
mergers in addition to their interests solely as Providence Energy shareholders,
as described below. These interests may create potential conflicts of interest.
The Providence
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Energy board of directors was aware of these interests when it considered and
approved the merger agreement and the mergers.
For a discussion of the benefits of the mergers for all employees, see "The
Merger Agreement -- Employee benefits."
Employment Agreements
In connection with the merger agreement, Southern Union entered into an
employment agreement with Mr. James H. Dodge, which will become effective upon
the consummation of the initial merger. The employment agreement provides for an
initial three year term, with automatic extensions so that the agreement
continuously has a three year remaining term until Mr. Dodge attains age 62, at
which time the term shall become fixed at three years. The agreement provides
Mr. Dodge with a base salary of $400,000, continues his opportunity to earn an
annual incentive bonus (which must be equal to at least 50% of his base salary),
and enhances his retirement benefits. Mr. Dodge will receive a $1,000,000 bonus
payable at the effective time of the initial merger and two subsequent annual
bonuses of $500,000. If Mr. Dodge's employment is terminated without "cause" or
if Mr. Dodge terminates his employment for "good reason" (as such terms are
defined in the employment agreement), Mr. Dodge will receive payment of all
unpaid bonuses and incentive awards for the remainder of the three year term, as
well as continued provision of company health, life and disability benefits
until Mr. Dodge reaches age 65 (or for three years following his termination, if
later), with post-retirement health benefits provided to Mr. Dodge and his
spouse thereafter.
In connection with the merger agreement, Southern Union entered into an
amendment to the employment agreement of Mr. James DeMetro, which will become
effective upon the consummation of the initial merger. This amendment provides
Mr. DeMetro with a $500,000 bonus payable at the effective time of the initial
merger, enhances his retirement benefits and expands the definition of good
reason to include the failure to renew his employment agreement.
Board of directors and officers of Southern Union
Immediately after the effective time of the initial merger on the closing
date, Mr. James H. Dodge, the Chief Executive Officer of Providence Energy, will
be elected to the board of directors of Southern Union and thereafter will be
nominated for reelection, if necessary, so that he will have a term of at least
three years from the closing date.
In addition, from the effective time of the initial merger until the
earlier of their resignation or removal by the President of Southern Union:
- Mr. James H. Dodge will serve as Chief Executive Officer and President of
the Providence Energy division of Southern Union and all other
energy-related businesses of Southern Union conducted in New England, and
- Mr. James DeMetro will serve as Executive Vice President, Energy
Services, of the Providence Energy division of Southern Union and all
other energy-related businesses of Southern Union conducted in New
England.
See "The Merger Agreement -- Officers of the Providence Energy division of
Southern Union" which sets forth the positions of other Providence Energy
executives after the mergers.
Indemnification and insurance
Under the merger agreement, Southern Union agreed for a period of six years
after the effective time of the initial merger to indemnify and hold harmless
the present and former officers and directors of Providence Energy and its
subsidiaries in respect of acts or omissions occurring prior to the effective
time to the extent provided under Providence Energy's articles of incorporation
and bylaws. In addition, subject to specified limitations, Southern Union agreed
to use its reasonable best efforts to provide officers' and
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directors' liability insurance for acts and omissions occurring before the
merger on terms with respect to coverage and amount that are no less favorable
to the terms in effect on the date of the merger agreement. See "The Merger
Agreement -- Indemnification and insurance."
SOME FEDERAL INCOME TAX CONSEQUENCES
We have summarized below the material federal income tax consequences of
the initial merger to the holders of Providence Energy common stock. This
summary is based on current law, which is subject to change at any time,
possibly with retroactive effect. This summary is not a complete description of
all tax consequences of the initial merger and, in particular, does not address
all of the federal income tax consequences applicable to the personal
circumstances of Providence Energy shareholders or to taxpayers who acquired
their Providence Energy common stock by exercising employee stock options or
through other compensation arrangements or who are foreign persons. In addition,
this summary does not address the tax consequences of the initial merger under
applicable state, local or foreign laws. YOU SHOULD CONSULT WITH YOUR OWN TAX
ADVISOR ABOUT THE TAX CONSEQUENCES OF THE MERGERS IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICATION OF ANY STATE, LOCAL OR FOREIGN LAW.
The receipt of the merger consideration in the initial merger will be a
taxable transaction for federal income tax purposes (and also may be a taxable
transaction under applicable state, local and other income tax laws). In
general, for federal income tax purposes, a holder of Providence Energy common
stock will recognize gain or loss equal to the difference between
- his or her adjusted tax basis in the Providence Energy common stock
exchanged in the initial merger, and
- the amount of cash merger consideration received.
The gain or loss will be capital gain or loss if the Providence Energy common
stock is held as a capital asset, and will be a long-term capital gain or loss
if, at the effective time of the initial merger, the Providence Energy common
stock was held for more than one year. Capital losses are subject to limitations
on deductibility for federal income tax purposes.
ANTICIPATED ACCOUNTING TREATMENT
The mergers will be accounted for using the purchase method of accounting.
Under this method of accounting, the purchase price to be paid by Southern Union
will be allocated to the fair value of the net assets acquired, and Providence
Energy's results will be included in Southern Union's financial statements from
and after the effective time of the mergers.
REGULATORY APPROVALS
Public Utility approvals
It is a condition to the mergers that the approvals of
- the Massachusetts Department of Telecommunications and Energy,
- the Federal Energy Regulatory Commission, and
- if necessary, the Rhode Island Division of Public Utilities and Carriers
be obtained by final order in such form as are not, and with no conditions that
are, individually or in the aggregate, reasonably likely to have a Providence
Energy material adverse effect or a material adverse effect on the business,
financial condition or results of operations of Southern Union, or which would
otherwise, in Southern Union's reasonable determination, be unduly burdensome to
Southern Union in a manner that would, individually or in the aggregate, be
reasonably likely to have a Providence Energy material adverse effect or a
material adverse effect on the business, financial condition or results of
operations of Southern Union.
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When we say "material adverse effect" above, we mean a material adverse
effect:
- on the business, financial condition or results of operations of a party
and its subsidiaries, taken as a whole, or
- on the ability of a party and its subsidiaries to complete the mergers in
accordance with the merger agreement.
Subsequent to the execution of the merger agreement, the issue arose as to
whether Southern Union was required under Massachusetts law to obtain the
approval of the transaction by holders of two-thirds of the outstanding shares
of Southern Union common stock in connection with obtaining the approval of the
transaction by the Massachusetts Department of Telecommunications and Energy. In
order to eliminate any uncertainty concerning this issue and to facilitate the
closing of the transaction, Southern Union has advised Providence Energy and the
Massachusetts Department of Telecommunications and Energy that it intends to
seek such approval.
Providence Energy has received a commitment and an irrevocable proxy from
George Lindemann, the Chairman of the Board and Chief Executive Officer of
Southern Union, and members of his immediate family to vote all of the shares of
Southern Union common stock that they beneficially own and are entitled to vote
in favor of the approval of the merger agreement and the transactions
contemplated thereby. As of February 29, 2000, those Lindemann family members
beneficially owned and were entitled to vote approximately 26.4% of the shares
of Southern Union common stock then outstanding.
Southern Union has advised Providence Energy that each of Southern Union's
directors and executive officers has advised Southern Union that they intend to
vote their shares of Southern Union common stock in favor of the approval of the
merger agreement and the transactions contemplated thereby. As of February 29,
2000, those directors and executive officers (other than the Lindemanns, who
have signed the proxy referred to above) beneficially owned and were entitled to
vote approximately 6.5% of the shares of Southern Union common stock then
outstanding. Together with the Lindemanns' proxy, this represents a total of
approximately 32.9% of the shares of Southern Union common stock outstanding as
of February 29, 2000. Southern Union has advised Providence Energy that it will
call a meeting of its stockholders to vote on this merger agreement as soon as
practicable and currently anticipates that the meeting will be held in the late
summer of 2000.
It is also a condition to the merger that the approvals of
- the Missouri Public Service Commission,
- the Pennsylvania Public Utility Commission, and
- Florida Public Service Commission
be obtained by final order.
Hart-Scott-Rodino Antitrust Improvements Act
We cannot complete the mergers until we give notification and furnish
information to the Federal Trade Commission and the Antitrust Division of the
Department of Justice and the specified waiting period requirements have been
satisfied. We filed the required notification and report forms with the Federal
Trade Commission and the Antitrust Division on March 1, 2000. On March 31, 2000,
the Federal Trade Commission issued a request for additional information (a
"Second Request") to the parties. As a result, the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act before the mergers can be completed
will be extended until twenty days after the parties comply with the Federal
Trade Commission's request, which could be extended with the consent of the
parties. At any time before or after the effective time of the mergers, and
notwithstanding that the waiting period has terminated or the mergers may have
been consummated, the Federal Trade Commission, the Antitrust Division or any
state could take any action under the applicable antitrust or competition laws
as it deems necessary or desirable. This action could include seeking to enjoin
the completion of the mergers. Private parties may also institute legal actions
under the antitrust laws under some circumstances.
See "The Merger Agreement -- Conditions to completion of the mergers."
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NO APPRAISAL RIGHTS
Under the Rhode Island Business Corporation Act, Providence Energy
shareholders are not entitled to dissenters' appraisal rights in connection with
the mergers because the Providence Energy common stock was listed on the New
York Stock Exchange on the record date for the Providence Energy special
meeting.
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THE MERGER AGREEMENT
This section is a summary of the material terms of the merger agreement, a
copy of which is attached as Annex 1 to this document. The following description
does not purport to be complete and is qualified in its entirety by reference to
the merger agreement. You should refer to the full text of the merger agreement
for details of the mergers and the terms and conditions of the merger agreement.
THE MERGERS
On the closing date, GUS Acquisition Corporation, a direct wholly owned
subsidiary of Southern Union, will be merged into Providence Energy in
accordance with the laws of Rhode Island. Providence Energy will be the
surviving corporation of this initial merger, which we may refer to as the
"surviving corporation."
Under the terms of the merger agreement, at the effective time of the
initial merger:
- the articles of incorporation of the surviving corporation will be
amended and restated so that the provisions will be identical to the
articles of incorporation of GUS Acquisition Corporation,
- the bylaws of the surviving corporation will be amended and restated so
that the provisions will be identical to the bylaws of GUS Acquisition
Corporation, and
- the directors and officers of Providence Energy immediately prior to the
effective time will be the directors and officers of the surviving
corporation.
Immediately after the effective time of the initial merger, Providence
Energy will engage in three additional mergers. First, Providence Energy will
merge North Attleboro Gas Company, one of its wholly owned subsidiaries, into
itself. Then, Providence Energy will merge The Providence Gas Company, one of
its wholly owned subsidiaries, into itself. Finally, Southern Union will cause
Providence Energy to merge into Southern Union, with Southern Union as the
surviving corporation. It is currently expected that all four mergers will
become effective on the same day.
As a result of the mergers, Providence Energy and two of its subsidiaries,
North Attleboro Gas Company and The Providence Gas Company, will become one
division of Southern Union.
EFFECTIVE TIME OF THE INITIAL MERGER
On the closing date, we will file duly executed Articles of Merger with the
Secretary of State of Rhode Island complying with the requirements of the Rhode
Island Business Corporation Act. The initial merger will become effective when
the Secretary of State of Rhode Island issues a Certificate of Merger.
EXCHANGE PROCEDURES
Not later than eight business days after the effective time of the initial
merger, BankBoston N.A., c/o EquiServe, L.P., as the paying agent, will mail to
each person who held shares of Providence Energy common stock at the time of the
merger a letter of transmittal. Providence Energy shareholders should use this
letter of transmittal in forwarding Providence Energy stock certificates. This
letter will include instructions for the exchange of Providence Energy stock
certificates for the cash which the holder is entitled to receive. After
surrendering a Providence Energy stock certificate, together with the letter of
transmittal and any other documents the paying agent reasonably requires, the
holder of a Providence Energy stock certificate will receive a check in the
amount of cash the holder is entitled to receive. PROVIDENCE ENERGY SHAREHOLDERS
SHOULD NOT SEND IN THEIR PROVIDENCE ENERGY STOCK CERTIFICATES UNTIL THEY RECEIVE
A LETTER OF TRANSMITTAL.
No cash will be paid until the holder of the Providence Energy stock
certificate surrenders that certificate. Taxes will be withheld as required.
After the initial merger, there will be no transfers on the transfer books
of Southern Union of shares of Providence Energy common stock that were
outstanding immediately before the merger.
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Any cash deposited by Southern Union with the paying agent that remains
unclaimed by former Providence Energy shareholders eighteen months after the
initial merger will be delivered to Southern Union. Any former Providence Energy
shareholders who have not complied with the exchange procedures prior to
eighteen months after the initial merger may look only to Southern Union for
payment of the merger consideration.
Southern Union will not be liable to you for any merger consideration paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law. Any amounts remaining unclaimed by such former holders of
Providence Energy common stock five years after the initial merger will become
the property of Southern Union to the extent permitted by law.
If your Providence Energy stock certificate has been lost, stolen or
destroyed, you will only be entitled to receive the merger consideration by
making an affidavit and, if required by Southern Union, by posting a bond in an
amount sufficient to protect Southern Union against claims related to your
Providence Energy stock certificate.
PROVIDENCE ENERGY PREFERRED STOCK
In accordance with the Certificate of Authorization for the 8.70%
redeemable cumulative preferred stock of The Providence Gas Company, which we
refer to as Providence Gas preferred stock, Providence Energy has caused The
Providence Gas Company to:
- redeem 16,000 shares of its preferred stock on February 15, 2000 pursuant
to its sinking fund, and
- redeem 16,000 shares of its preferred stock on March 1, 2000.
No shares of preferred stock remain outstanding after these redemptions.
PROVIDENCE GAS INDENTURE
Providence Energy will cause The Providence Gas Company to use its good
faith commercially reasonable efforts to obtain, prior to the effective time of
the initial merger, the consent of the holders of at least 80% in aggregate
principal amount of all First Mortgage Bonds outstanding under the First
Mortgage of The Providence Gas Company, which we refer to as the Providence Gas
Indenture, to each of the amendments to the Providence Gas Indenture set forth
on Schedule 6.1(n) to the merger agreement. Providence Energy and its
subsidiaries, however, will not be required to make any payment to any
bondholder prior to the effective time of the initial merger.
If the mergers are not completed, Southern Union and Providence Energy will
share equally the fees and expenses incurred in connection with obtaining these
consents. If the merger agreement is terminated because one party has breached
its obligations under the merger agreement, the breaching party will bear all of
the fees and expenses incurred.
STOCK OPTIONS AND PERFORMANCE SHARES
Each Providence Energy performance share awarded under a Providence Energy
incentive plan at the effective time of the initial merger will be deemed fully
earned and converted into a right to receive $42.50 in cash.
In addition, each outstanding stock option will be deemed fully vested and
will be converted into a right to receive a cash payment for each share of
Providence Energy common stock subject to option in an amount equal to the
amount by which
- $42.50 exceeds
- the exercise price of such option (if the exercise price is less than
$42.50).
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REPRESENTATIONS AND WARRANTIES
Providence Energy
The merger agreement contains representations and warranties made by
Providence Energy to Southern Union, including representations and warranties
relating to:
- organization, existence and qualification;
- capitalization,
- due authorization of the merger agreement,
- absence of conflicts between organizational documents, laws and
agreements and the transactions contemplated by the merger agreement,
- governmental approvals in connection with the transactions under the
merger agreement,
- regulation under the Public Utility Holding Company Act and as a public
utility under state laws,
- compliance with all legal requirements and governmental authorizations,
- litigation and regulatory proceedings,
- filings with the Securities and Exchange Commission and financial
statements,
- tax matters,
- intellectual property,
- title to assets and condition of machinery and equipment,
- indebtedness,
- employees and employee benefit plans,
- material contracts and insurance,
- environmental matters,
- the absence of material adverse changes since September 30, 1999,
- brokers and finder fees with respect to the merger,
- stock rights agreement,
- board of directors approval and required shareholder vote, and
- receipt of fairness opinions.
Southern Union and GUS Acquisition Corporation
The merger contains representations and warranties made by Southern Union
and GUS Acquisition Corporation to Providence Energy, including representations
and warranties relating to:
- organization, existence and qualification,
- due authorization of merger agreement,
- absence of conflicts between organizational documents, laws and
agreements and the transactions contemplated by the merger agreement,
- governmental approvals in connection with the transactions under the
merger agreement,
- regulation under the Public Utility Holding Company Act and as a public
utility under state laws,
- litigation, and
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- brokers with respect to the merger agreement.
All representations and warranties made by Providence Energy, Southern
Union and GUS Acquisition Corporation expire at the effective time of the
initial merger.
COVENANTS
Conduct of business of Providence Energy pending the completion of the mergers
Providence Energy has agreed that, prior to the closing of the mergers,
except as otherwise permitted by the merger agreement or consented to by
Southern Union, which consent will not be unreasonably withheld or delayed, it
and its subsidiaries will:
- not make or permit any material change in the general nature of its
business,
- maintain its ordinary course of business in accordance with prudent
business judgment and consistent with past practice and policy, and
maintain consistent with its ordinary course of business its assets in
good repair, order and condition, reasonable wear and tear excepted,
subject to retirement in the ordinary course of business,
- use reasonable efforts to preserve itself as an ongoing business and to
maintain its goodwill,
- preserve all franchises, tariffs, certificates of public convenience and
necessity, licenses, authorizations, and other governmental rights and
permits,
- not enter into any material transaction or material contract other than
in the ordinary course of business,
- not purchase, sell, lease, dispose of or otherwise transfer, or subject
to a lien, any of its assets other than in the ordinary course of
business,
- not hire new employees other than in the ordinary course of business,
- not file any material applications, petitions, motions, orders, briefs,
settlements or agreements in any material proceeding before any
governmental body without, to the extent reasonably practicable,
consulting Southern Union,
- not engage in or modify, except in the ordinary course of business, any
material intercompany transactions,
- not voluntarily change in any material respect or terminate any insurance
policies presently in effect unless equivalent coverage is obtained,
- not make any capital expenditures except budgeted expenditures,
- not make any changes in financial policies or practices,
- comply in all material respects with all applicable material legal
requirements and permits, other than those contested in good faith,
- not adopt, amend or assume an obligation to contribute to any benefit
plan or collective bargaining agreement or enter into or extend the term
of any employment, consulting, severance or similar contract, or amend
existing contracts to increase amounts payable or benefits provided
thereunder,
- not grant an increase or change in total compensation or benefits, or pay
any bonus to any employee, except in the ordinary course of business or
as required by the terms of any existing contract,
- not make any loan or advance to any officer, director, stockholder,
employee or other person other than in the ordinary course of business,
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- 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, other than in the ordinary course of business,
- not amend its organizational documents, and
- not issue or assume any note, debenture or other evidence of
indebtedness, other than as specified under the merger agreement.
The foregoing covenants are subject to certain specified exceptions,
including that The Providence Gas Company may take any commercially reasonable
action that Providence Energy determines in good faith, after consulting with
Southern Union, should be taken by The Providence Gas Company in order to obtain
the consent to the proposed amendments to the Providence Gas Indenture.
Southern Union has consented to not restricting the ability of Providence
Energy to:
- enter into any gas supply contract in the ordinary course of business,
except if the term of the proposed contract is longer than three years,
in which case Providence Energy must consult in good faith with Southern
Union, and
- acquire non-regulated businesses, provided that the acquisitions are
consistent with Providence Energy's business plan and the purchase price
of all acquisitions does not exceed $15,000,000 in the aggregate.
NO SOLICITATION OF TRANSACTIONS
In the merger agreement, Providence Energy agreed that neither it, nor its
subsidiaries, nor any of its officers, directors, agents, financial advisors,
attorneys, accountants or other representatives will, directly or indirectly,
- solicit, initiate or encourage the submission of proposals or offers from
any person relating to, or that could reasonably be expected to lead to,
a business combination,
- participate in any negotiations or substantive discussions regarding any
business combination,
- furnish to any person any information with respect to a business
combination, or
- otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or any attempt by any third party to
do or seek a business combination.
Prior to the special meeting, however, Providence Energy may, in response
to an unsolicited written proposal from a third party which the 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,
- furnish information to, negotiate, explore or otherwise engage in
substantive discussions with such third party, provided Providence
Energy's board of directors determines, in its good faith judgment after
consultation with its financial advisors and outside counsel, that is
reasonably necessary in order to comply with its fiduciary duties under
applicable law, and
- take and disclose to Providence Energy's shareholders a position with
respect to another business combination or make such disclosure to
Providence Energy shareholders which in the good faith judgment of
Providence Energy's board of directors, based on advice of its outside
counsel, is required by applicable law.
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When we refer to a "superior proposal," we mean
- a merger, consolidation, or other business combination, share exchange,
sale of a minimum of 2% of the outstanding shares of capital stock,
tender offer or exchange offer or similar transaction involving
Providence Energy or any of its subsidiaries,
- an 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 Providence Energy or any of its
subsidiaries, or
- the acquisition in any manner, directly or indirectly, of a material
portion of the business or assets of Providence Energy and its
subsidiaries
which involves at least 50% of the capital stock or a material portion of the
assets of Providence Energy and that
- Providence Energy's board of directors determines, after consulting with
Providence Energy's financial advisors and outside counsel, is
financially superior to the transactions contemplated by the merger
agreement, and
- it appears that the party making the proposal is reasonably likely to
have the funds to complete the business combination.
In addition, Providence Energy has agreed that before providing any
non-public information to any third party, or entering into negotiations with
any third party or accepting a superior proposal, Providence Energy must:
- provide written notice to Southern Union to the effect that it is
furnishing information to or entering into discussions or negotiations
with the third party, and
- receive an executed confidentiality agreement from that third party
containing substantially the same terms and conditions as the
confidentiality agreement between Providence Energy and Southern Union.
Providence Energy has also agreed to terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiations with any parties
conducted before the date of the merger agreement with respect to any business
combination.
BOARD OF DIRECTORS' COVENANT TO RECOMMEND
Subject to the fiduciary duties of the board of directors, Providence
Energy agreed to recommend to its shareholders the approval of the merger
agreement and the transactions contemplated thereby.
DIVIDENDS
Providence Energy agreed that it will not declare any dividends on its
capital stock, or permit its subsidiaries to declare any dividend in capital
stock, other than quarterly dividends not to exceed $1.08 per share per fiscal
year on Providence Energy's common stock and cumulative cash distributions on
the preferred stock of The Providence Gas Company at an annual rate of $8.70 per
share.
GOVERNMENTAL APPROVALS AND THIRD PARTY CONSENTS
Each of Providence Energy and Southern Union agreed to use its commercially
reasonable best efforts at its sole expense to obtain all necessary consents,
approvals and waivers required in connection with the transactions contemplated
by the merger agreement.
EMPLOYEE BENEFITS
Southern Union has agreed that following the effective time of the initial
merger it will assume and maintain for their respective terms all employment and
change in control agreements of Providence Energy
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in effect as of that time. In addition, simultaneously with the execution of the
merger agreement, Southern Union entered into an employment agreement with Mr.
James Dodge and an amendment to the existing employment agreement with Mr. James
DeMetro, both of which will become effective as of the effective time of the
initial merger. See the summary of employment agreements above under "The
Merger -- Interests of members of Providence Energy's board of directors and
management in the mergers".
Southern Union has agreed that, during the 24 month period immediately
following the closing date, it will:
- maintain base salary levels, bonus opportunity levels and overall
employee benefits, with specified exceptions, that are no less favorable
in the aggregate than those currently provided,
- maintain all qualified and non-qualified defined benefit pension plans
without adverse amendment, except as may be required by law or to comply
with tax qualification nondiscrimination rules, and
- provide severance benefits on a basis no less favorable than would
otherwise be provided to employees under the applicable Providence Energy
severance plan.
For the 24 months immediately following the above period, Southern Union
has agreed to maintain base salary levels, bonus opportunity levels and overall
employee benefits that are appropriate for the market given Southern Union's
financial circumstances, the industry in which it operates and regulatory
considerations.
Southern Union also agreed:
- to recognize the tenure of employment of all employees with Providence
Energy and its subsidiaries for purposes of eligibility, vesting and
accrual of benefits under all benefit plans to be provided by Southern
Union,
- to recognize employees' tenure of employment for purposes of awarding
vacation time,
- to allow each employee to carry forward all accrued sick leave,
- to allow each employee who satisfies the eligibility criteria used by
Southern Union for similarly situated employees to be immediately
eligible for awards in the Southern Union Long-Term Incentive Stock
Option Plan, and
- to provide, for a period of 5 years from the closing date, retiree health
benefits substantially comparable to coverage under the current
Providence Energy retiree medical plan to current retirees and their
dependents and to active employees and their dependents who retire within
5 years of the closing and satisfy the plan's eligibility requirements.
CHARITABLE CONTRIBUTIONS
Southern Union agreed to continue making Providence Energy's annual
charitable contributions for three years after the initial merger in an
aggregate amount of not less than $175,000 per year.
OFFICERS OF THE PROVIDENCE ENERGY DIVISION OF SOUTHERN UNION
Southern Union agreed that from the effective time of the initial merger
until the earlier of their resignation or removal by the President of Southern
Union:
- James H. Dodge will serve as Chief Executive Officer and President of the
Providence Energy division of Southern Union and all other energy-related
businesses of Southern Union conducted in New England, and
- James DeMetro will serve as Executive Vice President, Energy Services, of
the Providence Energy division of Southern Union and all other
energy-related businesses of Southern Union conducted in New England.
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Southern Union also agreed that specified individuals will serve the
Providence Energy division of Southern Union from the effective time of the
initial merger until the earlier of their resignation or removal by Southern
Union. Currently, those individuals are listed below and will serve in the
following capacities:
- Kenneth W. Hogan as Vice President, Chief Financial Officer and
Treasurer,
- Susann G. Mark as Vice President and General Counsel,
- James A. Grasso as Vice President, Public Government Affairs,
- Gerald A. Yurkevicz as Vice President, Business Development and
Marketing,
- Royalynne Hourihan as Vice President, Human Resources,
- Timothy S. Lyons as Vice President, Marketing and Regulatory Affairs,
- Robert W. Owens as Senior Vice President, Gas Distribution,
- Peter J. Gill as Vice President, Information Technology,
- James M. Stephens as President of Providence Energy Services, and
- George Mason as Vice President of Providence Energy Oil.
CORPORATE OFFICES
For at least three years after the effective time of the initial merger,
Southern Union will:
- operate Providence Energy's operations in Rhode Island and Massachusetts
as a separate division of Southern Union,
- maintain the principal executive offices of Providence Energy in Rhode
Island, and
- maintain the principal executive offices of Providence Energy as the
principal executive offices of Southern Union's energy-related businesses
conducted in New England; provided, however, that Southern Union will not
be required to maintain these Rhode Island offices as the principal
executive offices for all of Southern Union's energy-related businesses
conducted in New England if Mr. James Dodge ceases to be the Chief
Executive Officer of the Providence Energy division of Southern Union.
INDEMNIFICATION AND INSURANCE
Southern Union agreed for a period of six years after the effective time of
the initial merger:
- to indemnify and hold harmless the present and former officers and
directors of Providence Energy and its subsidiaries in respect of acts or
omissions occurring prior to the effective time to the extent provided
under Providence Energy's articles of incorporation and bylaws, and
- to use its reasonable best efforts to provide officers' and directors'
liability insurance for acts and omissions occurring before the effective
time on terms with respect to coverage and amount that are no less
favorable than the terms in effect on the date of the merger agreement,
but if the annual premiums are more than 200% of the previous year's
premiums paid by Providence Energy, Southern Union must obtain a policy
with best coverage available, in the reasonable judgment of the board of
directors of Southern Union, for a cost not exceeding that amount.
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CONDITIONS TO THE COMPLETION OF THE MERGERS
Providence Energy and Southern Union may complete the mergers only if each
of the following conditions is met:
- the holders of a majority of the shares of Providence Energy common stock
entitled to vote approve the merger agreement,
- all required governmental approvals are obtained by final order in such
form as are not, and with no conditions that are, individually or in the
aggregate, reasonably likely to have a Providence Energy material adverse
effect or a material adverse effect on the business, financial condition
or results of operations of Southern Union, or which would otherwise, in
Southern Union's reasonable determination, be unduly burdensome to
Southern Union in a manner that would, individually or in the aggregate,
be reasonably likely to have a Providence Energy material adverse effect
or a material adverse effect on the business, financial condition or
results of operations of Southern Union. Subsequent to the execution of
the merger agreement, the issue arose as to whether Southern Union was
required under Massachusetts law to obtain the approval of the
transaction by holders of two-thirds of the outstanding shares of
Southern Union common stock in connection with obtaining the approval of
the transaction by the Massachusetts Department of Telecommunications and
Energy. In order to eliminate any uncertainty concerning this issue and
to facilitate the closing of the transaction, Southern Union has advised
Providence Energy and the Massachusetts Department of Telecommunications
and Energy that it intends to seek such approval,
- the holders of at least 80% in aggregate principal amount of all First
Mortgage Bonds outstanding consent to each of the amendments to the
Providence Gas Indenture specified in the merger agreement,
- the necessary third party consents to the merger agreement are obtained
to the reasonable satisfaction of Southern Union, except for those which,
if not obtained, are not, individually or in the aggregate, reasonably
likely to result in a Providence Energy material adverse effect after the
closing,
- Providence Energy has caused the redemption of all of the outstanding
shares of Providence Gas preferred stock in accordance with the
organizational documents of The Providence Gas Company, which redemption
was completed on March 1, 2000,
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvements Act terminates or expires,
- the representations and warranties of the other party in the merger
agreement are accurate in all respects as of the date of the merger
agreement and as of the closing date, except for such inaccuracies,
without regard to any materiality qualifications, which, individually or
in the aggregate, would not be reasonably likely to result in a material
adverse effect,
- the other party has performed or complied with its covenants, agreements
and conditions under the merger agreement in all material respects,
- Letters of Tax Good Standing for Providence Energy and The Providence Gas
Company are obtained from the Rhode Island Department of Taxation,
- each party delivers an executed certificate of an authorized officer,
dated the closing date, stating that all warranties and conditions have
been satisfied,
- there are no orders which operate to restrain, enjoin or otherwise
prevent the completion of the merger,
- all directors who have options outstanding under the 1989 Non-Employee
Director Stock Option Plan consent to the conversion of their options
into a right to receive a cash payment as described above in "-- Stock
options and performance shares,"
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<PAGE> 36
- each director of Providence Energy and its subsidiaries, whose
resignation is requested by Southern Union, will resign such directorship
as of the closing date of the merger.
When we say "material adverse effect" above, we mean a material adverse
effect
- on the business, financial condition or results of operations of a party
and its subsidiaries, taken as a whole, or
- on the ability of a party and its subsidiaries to complete the merger in
accordance with the merger agreement.
TERMINATION
The merger agreement can be terminated at any time prior to the closing of
the mergers under the conditions specified below.
(1) Either party may terminate the merger agreement at any time by mutual
written consent.
(2) Either party may also terminate the merger agreement if:
- there is a non-appealable court order prohibiting the completion of the
mergers in accordance with the merger agreement,
- there is a breach by the other party of any representation or warranty,
which breach cannot be cured, except for inaccuracies which would not be
reasonably likely to result in a material adverse effect,
- the approval of Providence Energy shareholders is not obtained, or
- the closing of the mergers does not occur before November 15, 2000;
provided, that if all conditions to closing have been fulfilled except
for approvals by any governmental body, then this termination date will
be extended until April 1, 2001.
(3) Providence Energy may terminate the merger agreement if, prior to the
special meeting, the board of directors has entered into a definitive agreement
with respect to a business combination proposal; provided that:
- Providence Energy responded to an unsolicited business combination
proposal,
- the board of directors determines, in its good faith judgment, after
consultation with and the receipt of advice from its financial advisor
and outside legal counsel with customary qualifications, that the
business combination proposal is a superior proposal and that failure to
do so would create a reasonable possibility of a breach of the board's
fiduciary duties,
- before terminating the merger agreement, Providence Energy complies with
specified notice and waiting periods, which give Southern Union an
opportunity to negotiate with Providence Energy to adjust the terms of
the merger agreement, and
- Providence Energy has paid Southern Union the $7.5 million termination
fee described below under "--Termination fees."
(4) Southern Union may terminate the merger agreement if:
(a) the board of directors of Providence Energy:
- withdraws or modifies, or proposes publicly to withdraw or modify,
in a manner adverse to Southern Union, the approval or
recommendation of the board in favor of the merger agreement,
- approves or recommends, or proposes publicly to approve or
recommend, a business combination with a third party,
32
<PAGE> 37
- causes Providence Energy to enter into a definitive agreement
related to any business combination, or
- resolves to take any of the actions specified above, or
(b) if a third party or group acquires more than 50% of the voting
power of the outstanding voting securities of Providence Energy, or
(c) if Providence has failed to cause the redemption of all of the
outstanding shares of Providence Gas preferred stock.
TERMINATION FEES
The merger agreement obligates Providence Energy to pay Southern Union a
termination fee of $7.5 million in cash if:
- Providence Energy terminates the merger agreement because it has entered
into a definitive agreement resulting from a superior proposal, as
described in (3) above under "-- Termination," or
- Southern Union terminates the merger agreement for the reasons specified
in (4) above under "-- Termination."
OTHER EXPENSES
The merger agreement provides that each of the parties will pay all costs
and expenses incurred in connection with its performance of and compliance with
the merger agreement, except as expressly contemplated by the merger agreement.
In addition, the merger agreement specifies that 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 merger and all filing and application fees paid to
governmental bodies in connection with the merger. Providence Energy will pay
the costs of printing and mailing this proxy statement to Providence Energy
shareholders.
AMENDMENTS AND WAIVERS
The parties may amend the merger agreement before the closing, if the
amendment is in writing signed by the parties.
33
<PAGE> 38
THE COMPANIES
PROVIDENCE ENERGY CORPORATION
The following briefly describes the business of Providence Energy.
Additional information regarding Providence Energy is contained in its filings
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934. See "Where You Can Find More Information" on page 39.
REGULATED BUSINESSES
Providence Energy is the parent of two wholly owned natural gas
distribution utilities, The Providence Gas Company and North Attleboro Gas
Company, which we refer to collectively as the gas utility subsidiaries. The
Providence Gas Company, founded in 1847, is Rhode Island's largest natural gas
distributor and serves approximately 168,000 customers in Providence, Newport
and 23 other cities and towns in Rhode Island. North Attleboro Gas Company
serves approximately 6,000 customers in North Attleboro and Plainville,
Massachusetts, towns adjacent to the northeastern Rhode Island border. The total
natural gas service territory of the gas companies encompasses 760 square miles
and has a population of approximately 850,000.
NON-REGULATED BUSINESSES
Providence Energy is also the parent of Providence Energy Oil Enterprises,
Inc., which operates an oil distribution business through its subsidiary,
ProvEnergy Fuels, Inc. ("ProvEnergy Fuels"). ProvEnergy Fuels operates this
business under several trade names, which were among the assets of oil
distribution businesses acquired by ProvEnergy Fuels during the past three
years, namely, Super Service Oil (acquired in 1997), Keenan Oil (acquired in
1999) and Consumers Oil (acquired in January, 2000). These acquisitions, as well
as five smaller acquisitions completed between 1997 and 1999, are part of
Providence Energy's strategic plan to strengthen its position in the energy
industry. Currently, the oil distribution business serves over 12,000
residential and commercial customers in Rhode Island and Massachusetts.
Providence Energy uses its wholly owned subsidiary, Providence Energy
Services, Inc., to market natural gas and energy services to and as the vehicle
to grow its natural gas, oil, and electricity businesses with retail accounts in
New England.
Also, in July 1998, Providence Energy and ERI Services, Inc. formed a joint
venture, Capital Center Energy Company, LLC, which is owned 50 percent by
Providence Energy's subsidiary, ProvEnergy Power Company, LLC, and 50 percent by
ERI Services' subsidiary, ERI Providence, LLC. A wholly owned subsidiary of
Capital Center Energy Company, LLC, DownCity Energy Company, LLC, was selected
as the exclusive electric, heat and air conditioning and related service
provider for most of the Providence Place Mall for the next thirty years.
OPERATIONS OF PROVIDENCE ENERGY'S GAS UTILITY SUBSIDIARIES
Customers
The gas utility subsidiaries have approximately 174,000 customers, of which
approximately 90% are residential and 10% are commercial and industrial.
Gas service
The gas services provided by the gas utility subsidiaries can be grouped
into four categories: firm sales, firm transportation, non-firm sales and
non-firm transportation. Firm service is provided to those residential,
commercial and industrial customers that use natural gas throughout the year.
Non-firm service is provided to those commercial and industrial customers that
do not require assured gas service because they can utilize an alternative fuel
or otherwise operate without gas service. The transportation service of the gas
utility subsidiaries transports to some customers gas owned by those customers
or by third parties selling gas to those customers.
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<PAGE> 39
Firm Sales. In the recent year, the gas utility subsidiaries distributed
approximately 57% of firm sales to residential customers and 43% of firm sales
to commercial and industrial customers. Firm sales represent the highest
percentage of operating margin and represent the core of the gas utility
subsidiaries' business.
Non-Firm. Non-firm customers consist of two types: seasonal customers that
typically use gas only during the non-winter months and dual-fuel customers that
contract for gas service on a year round basis, but agree to service
interruption during certain peak periods. By retaining the right to interrupt
service to non-firm customers, the gas utility subsidiaries can balance daily
demand from firm customers with available gas supply and pipeline capacity.
Non-firm customers may interrupt their gas service, as well, when it is more
economical to utilize an alternative fuel. Accordingly, the amount of the gas
utility subsidiaries' non-firm sales fluctuates depending upon the relative
price of natural gas to alternative fuels.
Non-firm sales produce substantially less margin to the gas utility
subsidiaries than firm sales as a result of the more competitive nature of
non-firm sales. Service rates charged to dual-fuel customers are based on the
price that the customer would otherwise pay for its alternative fuel.
Transportation Service. Providence Energy provides both firm and non-firm
transportation of gas. Margin from the firm transportation of gas by certain
large customers is likely to represent an increasing percentage of the gas
utility subsidiaries' future total margin as a result of the continuing
developments affecting the natural gas industry. In general, these developments
now allow customers to buy gas directly from the producer-supplier rather than
solely from the local gas distribution company. Customer-owned gas is
transported to the customer's premises through a combination of interstate
pipelines and the gas utility subsidiaries' distribution systems.
For a given quantity of gas, the gas utility subsidiaries' margin from firm
transportation service is comparable to the margin from firm sales. Margin from
non-firm transportation service is less than the margin from firm sales, but is
generally comparable to the margin from interruptible sales, depending on the
price of alternative fuels. To the extent that the gas utility subsidiaries'
existing customers buy gas directly from producer-suppliers, the gas utility
subsidiaries' revenue will decrease, although firm margin will not be materially
impacted.
Gas Distribution Systems
The gas utility subsidiaries' distribution systems consist of approximately
2,400 miles of gas mains ranging in size from 2 to 36 inches in diameter,
approximately 146,000 services and approximately 173,000 active gas meters,
together with related facilities and equipment. In the preceding sentence, a
"service" means a pipe connecting a gas main with piping to a customer's
premises. The gas utility subsidiaries have regulating and metering facilities
at nine points of delivery from Algonquin Gas Transmission Company and one point
of delivery from Tennessee Gas Pipeline Company. The gas utility subsidiaries
presently believe that these regulating and metering facilities are adequate for
receiving gas into their distribution systems from these interstate gas
pipelines.
Rates and Regulation
The Providence Gas Company is subject to the jurisdiction of the Rhode
Island Public Utilities Commission (RIPUC) and the Rhode Island Division of
Public Utilities and Carriers, and the North Attleboro Gas Company is subject to
the jurisdiction of the Massachusetts Department of Telecommunications and
Energy.
EMPLOYEES
Providence Energy has approximately 643 full-time employees. Approximately
271 of distribution and customer service employees of The Providence Gas Company
are covered by a collective bargaining agreement with Local 12431-01 of the
United Steelworkers of America, which became effective on January 21, 1999.
Approximately 83 employees of The Providence Gas Company are covered by a
collective bargaining agreement with Local 12431-02 of the United Steelworkers
of America, which became effective on June 1, 1999.
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<PAGE> 40
SOUTHERN UNION COMPANY
The following briefly describes the business of Southern Union. Additional
information regarding Southern Union is contained in its filings with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934. See "Where You Can Find More Information" on page 39.
GENERAL
Southern Union is one of the fifteen largest 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"), PG Energy ("PGE") 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 approximately
523,000 customers in Texas (including the cities of Austin, El Paso,
Brownsville, Galveston, Harlingen, McAllen and Port Arthur). MGE, headquartered
in Kansas City, Missouri, serves approximately 487,000 customers in central and
western Missouri (including the cities of Kansas City, St. Joseph, Joplin and
Monett). PGE, headquartered in Wilkes-Barre, Pennsylvania, serves approximately
154,000 customers in northeastern and central Pennsylvania (including the cities
of Wilkes-Barre, Scranton and Williamsport). SFNG, headquartered in New Smyrna
Beach, Florida, serves approximately 5,000 customers in central Florida
(including the cities of New Smyrna Beach and 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.
Subsidiaries of Southern Union have been established to support and expand
natural gas and other energy sales and to capitalize on Southern Union's 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, 1,100, and 1,787
customers in Texas, Florida, and Pennsylvania, respectively. Through PG Energy
Services, Inc., Southern Union markets electricity and other products and
services under the name PG Energy Power Plus, principally in northeastern and
central Pennsylvania. Through PEI Power Corporation, an exempt wholesale
generator (within the meaning of the Public Utility Holding Company Act of
1935), Southern Union generates and sells electricity. Through Keystone Pipeline
Services, Inc., Southern Union is engaged in the construction, maintenance and
rehabilitation of natural gas distribution pipelines. Additionally, certain
subsidiaries own or hold interests in real estate and other assets.
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 strategies
for achieving these objectives reflect Southern Union's commitment to its core
gas utility business.
ACQUISITIONS
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 of directors. These acquisitions,
together with the proposed merger with Providence Energy, require substantial
additional financing through future debt, and possibly future equity, offerings.
The availability and terms of any such financing sources will depend upon
various factors and conditions, such as Southern Union's cash
36
<PAGE> 41
flow and earnings, its resulting capital structure, credit ratings and
conditions in financial capital markets at the time of any such offering.
Acquisition of Pennsylvania Enterprises, Inc.
Effective November 4, 1999, Southern Union acquired Pennsylvania
Enterprises, Inc. ("PEI") and its subsidiaries for approximately 17 million
shares of Southern Union common stock and approximately $36 million in cash.
PEI's natural gas utility businesses are being operated as PG Energy ("PGE"), a
division of Southern Union, which provides service to approximately 154,000
natural gas customers in northeastern and central Pennsylvania (including the
cities of Wilkes-Barre, Scranton and Williamsport). Through the acquisition of
PEI, Southern Union acquired and now operates a subsidiary that markets
electricity and other products and services under the name PG Energy Power Plus,
principally in northeastern and central Pennsylvania. Other subsidiaries that
Southern Union acquired in the PEI merger engage in various non-regulated
activities. These activities include the construction, maintenance and
rehabilitation of natural gas distribution pipelines.
Pending merger with Fall River Gas Company
On October 4, 1999, Southern Union and Fall River Gas Company (AMEX: "FAL")
entered into a merger agreement. The Fall River Gas Company merger agreement
calls for Southern Union to acquire Fall River Gas Company in a transaction
valued at approximately $75 million, including assumption of debt. Fall River
Gas Company shareholders will receive $23.50 for each share of Fall River Gas
Company common stock they own. The Fall River Gas Company merger agreement
provides that Fall River Gas Company shareholders can elect to receive Southern
Union common stock, cash or a combination of stock and cash, subject to
proration and an adjustment formula. At least 50 percent of the approximately
2.2 million outstanding shares of Fall River Gas Company common stock must be
converted into Southern Union common stock and up to the remaining 50 percent of
Fall River Gas Company shares will be converted into cash. The exchange ratio
for the stock portion of the consideration will be calculated prior to the
completion of the merger based on recent trading prices before then.
Headquartered in Fall River, Massachusetts, Fall River Gas Company serves
approximately 48,000 customers in the city of Fall River and the towns of
Somerset, Swansea and Westport, all located in southeastern Massachusetts.
Southern Union anticipates completing the Fall River Gas Company merger in the
second half of calendar year 2000 after customary closing conditions are
satisfied, including Fall River Gas Company shareholder approval and receipt of
all regulatory approvals for the Fall River Gas Company merger.
Pending merger with Valley Resources, Inc.
On November 30, 1999, Southern Union, SUG Acquisition Corporation, a Rhode
Island corporation and a wholly-owned subsidiary of Southern Union, and Valley
Resources, Inc. (AMEX: VR) entered into a definitive merger agreement. The
agreement calls for Valley Resources to merge into Southern Union in a
transaction valued at approximately $160 million, including the assumption of
debt. Valley Resources shareholders will receive $25.00 in cash for each of the
approximately 4.98 million shares of Valley Resources common stock outstanding.
Valley Resources principally provides natural gas utility service to
approximately 63,000 customers through its subsidiaries, Valley Gas Company and
Bristol & Warren Gas Company, in the Blackstone Valley Region located in
northeastern and eastern Rhode Island, each of which will also be merged into
Southern Union. Southern Union anticipates completing the Valley Resources
merger in the second half of calendar year 2000 after customary closing
conditions are satisfied, including Valley Resources shareholder approval and
receipt of all regulatory approvals for the Valley Resources merger.
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<PAGE> 42
STOCK OWNERSHIP OF MANAGEMENT, DIRECTORS AND 5% SHAREHOLDERS
On March 31, 2000, to the best of Providence Energy's knowledge, no person
(including any "Group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) was the beneficial owner of more than five
percent of Providence Energy's outstanding common stock, $1.00 par value (there
being no other voting securities of Providence Energy outstanding).
The following table reflects as of March 31, 2000, the beneficial ownership
of shares of common stock of Providence Energy (ignoring fractional shares) by
directors and executive officers of the corporation (all shares being owned
directly, except as otherwise noted):
MANAGEMENT AND DIRECTORS STOCK OWNERSHIP TABLE AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED*
-----------------------------
NAME OF INDIVIDUAL OR ISSUED SHARES SUBJECT
IDENTIFICATION OF GROUP SHARES SHARES TO OPTIONS**
------------------------------ ------ --------------
<S> <C> <C>
Gilbert R. Bodell, Jr....................................... 3,367(1) 5,632
James DeMetro............................................... 8,354 3,000
James H. Dodge.............................................. 15,339(2) 15,000
James A. Grasso............................................. 3,487 none
John H. Howland............................................. 679 3,327
Douglas H. Johnson.......................................... 760 3,651
William Kreykes............................................. 719 915
Paul F. Levy................................................ 1,761(3) none
Romolo A. Marsella.......................................... 727 3,242
Robert W. Owens............................................. 7,248(4) 5,000
M. Anne Szostak............................................. 828 1,650
Kenneth W. Washburn......................................... 1,975 6,116
W. Edward Wood.............................................. 1,123 1,580
Gerald A. Yurkevicz......................................... 1,787 none
All Directors and Executive Officers as a Group............. 56,937(5) 49,113
</TABLE>
- ---------------
* The beneficial ownership of shares of directors and executive officers of
Providence Energy (including shares subject to options) in no individual
case exceeded one percent of the outstanding common stock of Providence
Energy. Such ownership represented in the aggregate approximately one
percent of the outstanding common stock.
** To the extent exercisable within 60 days.
(1) Includes 888 shares held by Mr. Bodell's wife.
(2) Includes 2,876 shares held by Mr. Dodge's wife.
(3) Includes 550 shares held in Trust by Mr. Levy's mother.
(4) Includes 668 shares held by Mr. Owens' wife as custodian for their children.
(5) Includes 45,459 shares held directly, and 11,478 shares held indirectly.
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<PAGE> 43
PROPOSALS FOR 2001 ANNUAL MEETING
In the event we do not complete the mergers, there will be an annual
meeting of Providence Energy shareholders in 2001. If a shareholder intending to
present a proposal at the 2001 annual meeting (presently anticipated to be held
during the month of January 2001) wishes to have such proposal included in
Providence Energy's proxy statement and form of proxy relating to the meeting,
the shareholder will be required to submit the proposal to Providence Energy by
August 24, 2000.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements and schedules of Providence Energy
Corporation and subsidiaries included in the Annual Report on Form 10-K for the
year ended September 30, 1999, incorporated by reference in this proxy
statement, have been examined by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
A representative of Arthur Andersen LLP is expected to be present at the
special meeting and available to respond to appropriate questions. This
representative will be given the opportunity to make a statement at the special
meeting if he or she desires to do so.
WHERE YOU CAN FIND MORE INFORMATION
Providence Energy is subject to the informational requirements of the
Securities Exchange Act of 1934 and files reports and other information with the
Securities and Exchange Commission. Proxy statements, reports and other
information can be inspected and copied at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549 as well as the following Regional
Offices: 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400 Chicago, Illinois 60661-2511. Such
material can also be inspected at the New York Stock Exchange. Copies can be
obtained by mail at prescribed rates. Requests should be directed to the SEC's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
The SEC also maintains a worldwide web site that contains reports, proxy
statements and other information about Providence Energy. The address of that
site is http://www.sec.gov.
INCORPORATION OF SOME INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of this document,
- we can disclose important information to you by referring you to those
documents, and
- information that we file with the SEC will automatically update and
supersede certain information in this document.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934, as amended ("Exchange
Act"):
- Our Annual Report on Form 10-K for the year ended September 30, 1999,
- Our Quarterly Report on Form 10-Q for the quarter ended December 31,
1999, and
- Our Current Reports on Form 8-K, dated November 15, 1999 and April 3,
2000.
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<PAGE> 44
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this proxy but before the special
meeting:
- reports filed under Sections 13(a) and (c) of the Exchange Act,
- definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders' meeting, and
- any reports filed under Section 15(d) of the Exchange Act.
These documents will be deemed to be a part of this proxy statement from
the date we file them with the SEC.
Any person receiving a copy of this proxy statement may obtain without
charge, upon oral or written request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents.
Requests should be addressed to:
Investor Relations
Providence Energy Corporation
100 Weybosset Street
Providence, Rhode Island 02903
If you would like to request documents from us, please do so by May 8, 2000
to receive them before the special meeting of Providence Energy shareholders.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE MERGER PROPOSAL. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED APRIL 6, 2000. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY
DATE OTHER THAN SUCH DATE, AND THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS
SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
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<PAGE> 45
ANNEX 1
AGREEMENT AND PLAN OF MERGER
AMONG
SOUTHERN UNION COMPANY,
GUS ACQUISITION CORPORATION
AND
PROVIDENCE ENERGY CORPORATION
DATED AS OF NOVEMBER 15, 1999
<PAGE> 46
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.1 Certain Defined Terms.................................. 1
1.2 Other Defined Terms.................................... 5
ARTICLE II
THE MERGER; OTHER TRANSACTIONS
2.1 The Merger............................................. 6
2.2 Effective Time of the Merger........................... 7
2.3 Closing................................................ 7
2.4 Articles of Incorporation; Bylaws...................... 7
2.5 Directors and Officers................................. 7
2.6 Other Transactions..................................... 7
2.7 Certificate of Incorporation; Bylaws................... 7
2.8 Directors and Officers................................. 7
ARTICLE III
CONVERSION OF SHARES
3.1 Effect of the Merger................................... 8
3.2 Exchange of PVY Common Stock Certificates.............. 8
3.3 PVY Options; PVY Performance Shares.................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUG
4.1 Organization, Existence and Qualification.............. 10
4.2 Authority Relative to this Agreement and Binding
Effect.................................................... 10
4.3 Governmental Approvals................................. 11
4.4 Public Utility Holding Company Status; Regulation as a
Public Utility............................................ 11
4.5 Legal Proceedings; Orders.............................. 11
4.6 Brokers................................................ 11
4.7 Disclaimer of Representations and Warranties........... 11
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PVY
5.1 Organization, Existence and Qualification.............. 12
5.2 Capitalization......................................... 12
5.3 Subsidiaries; Investments.............................. 12
5.4 Authority Relative to this Agreement and Binding
Effect.................................................... 12
5.5 Governmental Approvals................................. 13
5.6 Public Utility Holding Company Status; Regulation as a
Public Utility............................................ 13
5.7 Compliance with Legal Requirements; Governmental
Authorizations............................................ 13
5.8 Legal Proceedings; Orders.............................. 13
5.9 SEC Documents.......................................... 14
5.10 Taxes.................................................. 14
</TABLE>
i
<PAGE> 47
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.11 Intellectual Property.................................. 14
5.12 Title to Assets........................................ 15
5.13 Indebtedness........................................... 15
5.14 Machinery and Equipment................................ 15
5.15 Contracts.............................................. 15
5.16 Insurance.............................................. 15
5.17 Employees.............................................. 15
5.18 Employee Benefit Plans................................. 16
5.19 Environmental Matters.................................. 17
5.20 No Material Adverse Change............................. 18
5.21 Brokers................................................ 18
5.22 PVY Stock Rights Agreement............................. 18
5.23 Regulatory Proceedings................................. 18
5.24 Vote Required.......................................... 18
5.25 Opinion of Financial Advisor........................... 19
5.26 Disclaimer of Representations and Warranties........... 19
ARTICLE VI
COVENANTS
6.1 Covenants of PVY....................................... 19
(a) Conduct of the Business Prior to the Closing
Date...................................................... 19
(b) Customer Notifications............................. 21
(c) Access to the Acquired Companies' Offices,
Properties and Records; Updating Information....... 21
(d) Governmental Approvals; Third Party Consents....... 21
(e) Dividends.......................................... 21
(f) Issuance of Securities............................. 22
(g) Accounting......................................... 22
(h) No Shopping........................................ 22
(i) Solicitation of Proxies........................... 23
(j) PVY Shareholders' Approval........................ 24
(k) Financing Activities............................... 24
(l) PVY Disclosure Schedule........................... 24
(m) Redemption of ProvGas Preferred Stock.............. 24
(n) Amendment of ProvGas Indenture..................... 24
6.2 Covenants of SUG....................................... 25
(a) Governmental Approvals; Third Party Consents....... 25
(b) Employees; Benefits................................ 25
(c) WARN............................................... 26
(d) Directors.......................................... 26
(e) Officers of PVY Division of SUG.................... 26
(f) Charitable Contributions........................... 27
(g) Corporate Offices.................................. 27
(h) Collective Bargaining Agreements................... 27
(i) SUG Disclosure Schedule........................... 27
6.3 Additional Agreements.................................. 27
(a) The Proxy Statement................................ 27
(b) Further Assurances................................. 28
(c) Financial Statements to be Provided................ 28
</TABLE>
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<TABLE>
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ARTICLE VII
CONDITIONS
7.1 Conditions to SUG's Obligation to Effect the Merger.... 28
(a) Representations and Warranties True as of the
Closing Date.............................................. 28
(b) Compliance with Agreements......................... 29
(c) Certificate........................................ 29
(d) Governmental Approvals............................. 29
(e) Third Party Consents............................... 29
(f) Injunctions........................................ 29
(g) Resignations....................................... 29
(h) Shareholder Approvals.............................. 29
(i) Tax Good Standing................................. 29
(j) Conversion of Options............................. 29
7.2 Conditions to PVY's Obligations to Effect the
Mergers................................................... 29
(a) Representations and Warranties True as of the
Closing Date.............................................. 29
(b) Compliance with Agreements......................... 30
(c) Certificate........................................ 30
(d) Governmental Approvals............................. 30
(e) Injunctions........................................ 30
(f) Shareholder Approvals.............................. 30
ARTICLE VIII
TERMINATION
8.1 Termination Rights..................................... 30
8.2 Effect of Termination.................................. 31
8.3 Termination Fee; Expenses.............................. 31
(a) Termination Fee.................................... 31
(b) Expenses........................................... 31
ARTICLE IX
INDEMNIFICATION; REMEDIES
9.1 Directors' and Officer's Indemnification............... 31
(a) Indemnification and Insurance...................... 31
(b) Successors......................................... 32
(c) Survival of Indemnification........................ 32
9.2 Representations and Warranties......................... 32
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses.............................................. 32
10.2 Notices............................................... 32
10.3 Assignment............................................ 33
10.4 Successor Bound....................................... 33
10.5 Governing Law; Forum; Consent to Jurisdiction......... 33
10.6 Waiver of Trial By Jury............................... 33
10.7 Cooperation; Further Documents........................ 34
10.8 Construction of Agreement............................. 34
10.9 Publicity; Organizational and Operational
Announcements............................................. 34
</TABLE>
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<TABLE>
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10.10 Waiver................................................ 34
10.11 Parties in Interest................................... 34
10.12 Specific Performance.................................. 35
10.13 Section and Paragraph Headings........................ 35
10.14 Amendment............................................. 35
10.15 Entire Agreement...................................... 35
10.16 Counterparts.......................................... 35
SCHEDULES:
PVY Disclosure Schedule
SUG Disclosure Schedule
Schedule 6.1(n)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of the 15th
day of November, 1999, among SOUTHERN UNION COMPANY, a Delaware corporation
("SUG"), GUS ACQUISITION CORPORATION, a Rhode Island corporation and a
wholly-owned subsidiary of SUG ("Newco"), and PROVIDENCE ENERGY CORPORATION, a
Rhode Island corporation ("PVY").
RECITALS
WHEREAS, the Board of Directors of each of SUG, Newco and PVY has approved
and deems it advisable and in the best interests of their respective
shareholders to consummate the merger of Newco with and into PVY upon the terms
and subject to the conditions set forth herein; and
WHEREAS, in furtherance thereof, the Board of Directors of each of SUG,
Newco and PVY has approved this Agreement and the merger (the "Merger") of Newco
with and into PVY, with PVY being the surviving corporation in 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,
Newco and PVY 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" -- PVY and its Subsidiaries, collectively, and each,
an "Acquired Company."
"Affiliate" -- with respect to any Person, any other Person that directly,
or through one or more intermediaries, controls or is controlled by or is under
common control with such first Person. As used in this definition, "control"
(including with correlative meanings, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"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.
"CERCLA" -- the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing Date" -- the date on which the Closing actually takes place.
"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.
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"Environmental Law" -- any applicable 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 substances; or
(e) making responsible parties pay private parties, or groups of them,
for damages done to their health by reason of Releases of Hazardous
Materials or to 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 the relevant Governmental Body that has not
been reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
"GAAP" -- generally accepted United States accounting principles, applied
on a consistent basis.
"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 unreasonably increases the danger, or risk of danger,
or poses an unreasonable risk of harm to persons or property on or off the
Facilities in any material respect.
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"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 employee listed in Section 1.1 of the PVY Disclosure Schedule 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 $125,000 on an annual basis or at least $500,000 on
its remaining term which cannot be terminated on less than sixty (60) days'
notice, without penalty or additional cost to the Acquired Company as the
terminating party.
"Order" -- any award, decision, decree, injunction, judgment, order, writ,
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 or organization 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.
"PBGC" -- the Pension Benefit Guaranty Corporation.
"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.
"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.
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"ProvGas Preferred Stock" -- the 8.70% redeemable cumulative preferred
stock, par value $100.00 per share, of ProvGas.
"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.
"PVY Audited Financials" -- the PVY Balance Sheet, the audited consolidated
statement of income of the Acquired Companies for the year ended September 30,
1999, the audited consolidated statement of cash flows of the Acquired Companies
for the year ended September 30, 1999, the consolidated statements of
capitalization of the Acquired Companies at September 30, 1999, the consolidated
statements of changes in common stockholders' investment of the Acquired
Companies for the year ended September 30, 1999 (in each case, including the
notes thereto), collectively.
"PVY Balance Sheet" -- the audited consolidated balance sheet of the
Acquired Companies at September 30, 1999 (including the notes thereto), provided
by PVY to SUG as part of the PVY Financial Statements.
"PVY Benefit Plans" -- all employee retirement, welfare, stock option,
stock ownership, deferred compensation, bonus or other benefit plans,
agreements, practices, policies, programs, or arrangements, that are applicable
to any employee, director or consultant of the Acquired Companies or maintained
by or contributed to by any of the Acquired Companies.
"PVY Common Stock" -- the common stock, par value $1.00 per share, of PVY.
"PVY Disclosure Schedule" -- the disclosure schedule delivered by PVY to
SUG concurrently with the execution and delivery of this Agreement.
"PVY Material Adverse Effect" -- a material adverse effect (i) on the
business, financial condition or results of operations of PVY and its
Subsidiaries, taken as a whole, or (ii) on the ability of PVY and its
Subsidiaries to consummate the Mergers in accordance with this Agreement.
"PVY PEIP" -- the Providence Energy Corporation 1992 Performance and Equity
Incentive Plan.
"PVY Performance Share" -- a phantom share awarded under and subject to the
terms of the PVY Performance Share Plan and having a value equal to the fair
market value of a share of PVY Common Stock.
"PVY Performance Share Plan" -- the Providence Energy Corporation
Performance Share Plan.
"PVY 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 dated as of January 1, 1922 between ProvGas and State Street
Bank and Trust Company (successor to Rhode Island Hospital Trust Company), as
Trustee, as amended or supplemented from time to time (the "ProvGas Indenture");
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; Encumbrances in respect of
judgments or awards with respect to which PVY or one of its Subsidiaries shall
in good faith currently be prosecuting an appeal or other proceeding for review
and with respect to which PVY or such Subsidiary shall have secured a stay of
execution pending such appeal or such proceeding for review; provided that PVY
or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto; and such other Encumbrances which are not, individually or in
the aggregate, reasonably likely to have a PVY Material Adverse Effect.
"PVY Restricted Stock" -- the shares of PVY Common Stock granted under and
subject to the terms of the PVY PEIP.
"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.
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"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.
"RIBCA" -- the Rhode Island Business Corporation Act.
"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 PVY.
"SUG Disclosure Schedule" -- the disclosure schedule delivered by SUG to
PVY concurrently with the execution and delivery of this Agreement.
"SUG Material Adverse Effect" -- a material adverse effect (i) on the
business, financial condition or results of operations of SUG and its
Subsidiaries, taken as a whole, or (ii) on the ability of SUG and Newco to
consummate the Mergers in accordance with this Agreement.
"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.
"Tax" -- any tax (including any income tax, capital gains tax, value-added
tax, sales and use tax, transfer 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
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, including any
amendment thereto.
"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 or officer 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.
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>
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Acquired Company Option Plans 3.3
Agreement Introductory Paragraph
Attleboro 2.6
</TABLE>
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<TABLE>
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Attleboro Merger 2.6
Business Combination 6.1(h)(4)
Certificates 3.2(b)
Closing 2.3
Confidentiality Agreement 6.1(c)(1)
Effective Time 2.2
Employees 6.2(b)
Final Surviving Corporation 2.6
Indemnified Parties 9.1(a)
Initial Termination Date 8.1(i)
MBCL 2.6
Merger Recitals
Merger Consideration 3.1(a)
Mergers 2.6
Newco Introductory Paragraph
Owner 1.1
Paying Agent 3.2(a)
ProvGas 2.6
ProvGas Indenture 1.1
ProvGas Merger 2.6
Proxy Statement 6.3(a)
PVY Introductory Paragraph
PVY Commonly Controlled Entity 5.18(a)(4)
PVY Financial Statements 5.9
PVY Meeting 6.1(j)(1)
PVY Merger 2.6
PVY Options 3.3
PVY Rights 3.1(a)
PVY SEC Documents 5.9
PVY Shareholders' Approval 5.24
PVY Stock Rights Agreements 3.1(a)
SUG Introductory Paragraph
Superior Proposal 6.1(h)(4)
Surviving Corporation 2.1
Third Party Beneficiary 10.11
WARN 6.2(c)
</TABLE>
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, Newco will be merged with and into PVY in
accordance with the laws of the State of Rhode Island. As a result of the
Merger, the separate corporate existence of Newco shall cease and PVY will be
the surviving corporation in the Merger (the "Surviving Corporation") and will
continue its corporate existence under the laws of the State of Rhode Island.
The Merger will have the effect as provided in the applicable provisions of the
RIBCA. Without limiting the generality of the foregoing, upon the Merger, all
the property, rights, privileges, immunities, powers and franchises of Newco and
PVY will vest in the Surviving Corporation and all obligations, duties, debts
and liabilities of PVY and Newco will be the obligations, duties, debts and
liabilities of the Surviving Corporation.
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Section 2.2 Effective Time of the Merger. On the Closing Date, with
respect to the Merger, a duly executed Articles of Merger complying with the
requirements of the RIBCA will be filed with the Secretary of State of the State
of Rhode Island. The Merger will become effective upon the issuance of a
certificate of merger by the Secretary of State of the State of Rhode Island
(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, if permissible, 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), 7.2(a), 7.2(b), 7.2(c) and 7.2(e), which shall be satisfied or waived on
the Closing Date) at the offices of Hughes Hubbard & Reed LLP, New York, counsel
to SUG, unless another date or place is agreed to in writing by the parties
hereto.
Section 2.4 Articles of Incorporation; Bylaws. Pursuant to the Merger, (i)
the Articles of Incorporation of the Surviving Corporation shall be amended and
restated at and as of the Effective Time to be identical to the Articles of
Incorporation of Newco, as in effect immediately prior to the Effective Time,
until thereafter amended as provided by law, except that Article 1 of the
Articles of Incorporation shall be changed so that the name of the Surviving
Corporation shall be Providence Energy Corporation and (ii) the Bylaws of the
Surviving Corporation shall be amended and restated at and as of the Effective
Time to be identical to the Bylaws of Newco, as in effect immediately prior to
the Effective Time, until thereafter amended as provided by law, except that the
Bylaws shall be changed so that the name of the Surviving Corporation shall be
Providence Energy Corporation.
Section 2.5 Directors and Officers. The directors and officers of PVY
immediately prior to the Effective Time will be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation.
Section 2.6 Other Transactions. Immediately after the Effective Time, PVY
shall adopt an agreement and plan of merger pursuant to which North Attleboro
Gas Company ("Attleboro"), a wholly-owned subsidiary of PVY, shall merge with
and into PVY on the Closing Date, with PVY being the surviving corporation, by
complying with the requirements of the Massachusetts Business Corporation Law
("MBCL") and the RIBCA (the "Attleboro Merger"). Immediately following the
consummation of the Attleboro Merger, PVY shall adopt an agreement and plan of
merger pursuant to which Providence Gas Company ("ProvGas"), a wholly-owned
Subsidiary of PVY, shall merge with and into PVY on the Closing Date, with PVY
being the surviving corporation, by complying with the requirements of the RIBCA
(the "ProvGas Merger"). Immediately following the consummation of the ProvGas
Merger, SUG shall adopt an agreement and plan of merger pursuant to which PVY
shall merge with and into SUG on the Closing Date, with SUG being the surviving
corporation (the "Final Surviving Corporation"), by complying with the
requirements of the RIBCA and the DGCL (the "PVY Merger"). The Merger, the
ProvGas Merger, the Attleboro Merger and the PVY Merger shall hereinafter be
referred to collectively as the "Mergers."
Section 2.7 Certificate of Incorporation; Bylaws. Pursuant to the PVY
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 Final Surviving Corporation until thereafter amended as
provided by law and (ii) the Bylaws of SUG as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Final Surviving Corporation until
thereafter amended as provided by law.
Section 2.8 Directors and Officers. The directors and officers of SUG
immediately prior to the Effective Time will be the directors and officers of
SUG after consummation of the PVY Merger, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Final Surviving Corporation;
provided that, immediately after the consummation of the Merger, the Chief
Executive Officer of PVY immediately prior to the Effective Time will be elected
or appointed as a member of the Board of Directors of SUG.
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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
PVY Common Stock and/or any shares of PVY Restricted Stock, all of which shall
become fully vested immediately prior to the Effective Time:
(a) Each issued and outstanding share of PVY Common Stock (which shall
be deemed to include (i) each issued and outstanding share of PVY
Restricted Stock and (ii) each related associated stock purchase right
(collectively, the "PVY Rights") issued pursuant to the Stock Rights
Agreement, dated as of July 23, 1998 between PVY and The Bank of New York,
as Rights Agent (the "PVY Stock Rights Agreement"), which will be
terminated at the Effective Time (any reference in this Agreement to PVY
Common Stock will be deemed to include the associated PVY Rights and all
PVY Restricted Stock)), will be converted into the right of each holder
thereof to receive $42.50 in cash (the "Merger Consideration").
(b) Each holder of PVY Common Stock shall surrender all such holder's
certificates formerly representing ownership of PVY Common Stock in the
manner provided in Section 3.2. All such shares of PVY 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 shall be made net of
applicable withholding taxes to the extent such withholding is required by
law.
(c) Notwithstanding any provision of this Agreement to the contrary,
each share of PVY Common Stock held in the treasury of PVY immediately
prior to the Effective Time shall be canceled and extinguished without
conversion thereof.
(d) Each share of common stock, par value $1.00 per share, of Newco
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock, par value $1.00 per
share, of the Surviving Corporation.
Section 3.2 Exchange of PVY Common Stock Certificates.
(a) SUG's registrar and transfer agent, or such other bank or trust company
which has a net capital of not less than $100,000,000, as may be selected by SUG
and be reasonably acceptable to PVY, will act as paying agent ("Paying Agent")
for the holders of PVY 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 PVY, to receive the consideration to which holders of
PVY 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 PVY Common Stock, the cash necessary to pay the aggregate
Merger Consideration as contemplated by Section 3.1(a) with respect to each
share of PVY Common Stock.
(b) At the Effective Time of the Merger, SUG will irrevocably instruct the
Paying Agent to promptly, and in any event not later than eight (8) 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 PVY
Common Stock (the "Certificates"), whose shares of PVY 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
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Consideration for each share of PVY 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 eight (8) 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 SUG 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 PVY Common Stock held by SUG) 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
Merger 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.; provided, however, that,
notwithstanding anything to the contrary in this Agreement, if the Paying Agent
is not able or refuses to so invest such funds, SUG may deposit such funds in
trust with another bank or trust company which has a net capital of not less
than $100,000,000, as may be selected by SUG and be reasonably acceptable to
PVY, so long as the Paying Agent is allowed to draw on such funds to the extent
required to pay the Merger Consideration. Any net earnings with respect to such
funds shall be the property of and paid over to SUG as and when requested by
SUG.
(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, however, that the Person to whom the Merger Consideration is paid
shall, if required by SUG, as a condition precedent to the payment thereof, give
the Paying Agent a bond in such sum as it may ordinarily require and indemnify
SUG in a manner satisfactory to it against any claim that may be made against
SUG with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(e) After the Effective Time, the stock transfer books of PVY shall be
closed and there shall be no transfers on the stock transfer books of the
Surviving Corporation of shares of PVY Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to SUG, 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 PVY for eighteen (18) months after
the Effective Time shall be delivered by the Paying Agent, which shall
thereafter act as the Paying Agent, and any former shareholders of PVY 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 SUG for
payment of their claim for the Merger Consideration.
(g) Neither the Surviving Corporation nor SUG shall be liable to any holder
of PVY 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 PVY Common Stock five 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 SUG, 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 PVY Options; PVY Performance Shares. (a) Each outstanding
option to purchase shares of PVY Common Stock or other similar interest
(collectively, the "PVY Options") granted under any stock option plans or under
any other plan or arrangement of any Acquired Company (the "Acquired Company
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Option Plans"), together with the applicable exercise prices, are disclosed in
Section 3.3(a) of the PVY Disclosure Schedule. Each PVY Option that is
outstanding at the Effective Time shall be deemed fully vested and 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 Merger Consideration exceeds (ii) the exercise price of such PVY Option (if
less than (i)) and (y) the number of shares of PVY 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.
(b) Each outstanding award of PVY Performance Shares as determined pursuant
to the PVY Performance Share Plan, is disclosed in Section 3.3(b) of the PVY
Disclosure Schedule. Copies of the PVY Performance Share Plan and the agreements
entered into pursuant to the PVY Performance Share Plan, which set forth the
applicable performance measures and target opportunities, have been provided to
SUG prior to the date of this Agreement. In accordance with the terms of the PVY
Performance Share Plan, the target opportunities for each outstanding award of
PVY Performance Shares outstanding at the Effective Time shall be deemed fully
earned for the entire "Performance Periods" (as such term is defined in the PVY
Performance Share Plan). Each PVY Performance Share outstanding at the Effective
Time shall be canceled and automatically converted into a right to receive a
cash payment in an amount equal to the Merger Consideration. Any payment made
pursuant to this Section 3.3(b) shall be made net of applicable withholding
taxes to the extent such withholding is required by law, and shall be made on
the Closing Date or as promptly thereafter as reasonably practicable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUG
SUG, as to SUG and Newco, represents and warrants to PVY 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, and has
been duly authorized by all necessary approvals and orders of the Florida,
Missouri, Pennsylvania and Texas regulatory authorities and the Federal Energy
Regulatory Commission (the "FERC"), 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. Newco is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Rhode
Island, 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. Each of SUG and Newco 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 for
such failures to be so qualified or in good standing as are not, individually or
in the aggregate, reasonably likely to have a SUG Material Adverse Effect.
Section 4.2 Authority Relative to this Agreement and Binding Effect. The
execution, delivery and performance of this Agreement and the Related Documents
by each of SUG and Newco have been duly authorized by all requisite corporate
action. The execution, delivery and performance of this Agreement and the
Related Documents by SUG and Newco will not result in a violation or breach of
any term or provision of, or constitute a default, or require a consent,
approval or notification, or accelerate the performance required under, the
Organizational Documents of SUG or Newco, as the case may be, any indenture,
mortgage, deed of trust, security agreement, loan agreement, or other Contract
to which SUG or Newco is a party or by which its assets are bound, or violate
any Order, with such exceptions as are not, individually or in the aggregate,
reasonably likely to have a SUG Material Adverse Effect. This Agreement
constitutes and the Related Documents to be executed by SUG and Newco when
executed and delivered will constitute valid and legally binding obligations of
SUG and Newco, enforceable against SUG and Newco in accordance with their terms,
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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 4.3 Governmental Approvals. Except as set forth in Section 4.3 of
the SUG Disclosure Schedule and as required by the HSR Act, as of the date of
this Agreement, no approval or authorization of any Governmental Body with
respect to performance under this Agreement or the Related Documents by SUG and
Newco is required to be obtained by SUG and Newco in connection with the
execution and delivery by SUG and Newco of this Agreement or the Related
Documents or the consummation by SUG and Newco of the transactions contemplated
hereby or thereby, the failure to obtain which are, individually or in the
aggregate, reasonably likely to have a SUG Material Adverse Effect.
Section 4.4 Public Utility Holding Company Status; Regulation as a Public
Utility. SUG is a "gas utility company" and a "public utility company" (as such
terms are 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 4.4 and with respect to their relationship with SUG,
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. As
of the date of this Agreement, SUG is subject to regulation as a public utility
or public service company (or similar designation) in the states of Florida,
Missouri, Texas and Pennsylvania. Except as stated in the preceding sentence, as
of the date of this Agreement, neither SUG nor its "affiliates" (as such term is
defined in PUHCA) are subject to regulation as a public utility or public
service company (or similar designation) in any other state.
Section 4.5 Legal Proceedings; Orders. Except as specifically described in
a report, schedule, registration statement or definitive proxy statement filed
by SUG with the SEC since September 1, 1999 and delivered to PVY prior to the
date of this Agreement, as of the date of this Agreement, there is no pending
Proceeding 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.
Section 4.6 Brokers. Neither SUG nor Newco is a party to, or in any way
obligated under any Contract, and there are no outstanding claims against SUG or
Newco, for the payment of any broker's or finder's fees in connection with the
origin, negotiation, execution or performance of this Agreement.
Section 4.7 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
PVY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR
ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER 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.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PVY
PVY, 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 and has been duly authorized by all
necessary approvals and orders of the Rhode Island, Massachusetts and all other
relevant state regulatory authorities and the FERC 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 PVY Disclosure Schedule sets forth the name of each
Acquired Company, the state or jurisdiction of its incorporation or
organization, and for 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 for such failures to
be so qualified or in good standing as are not, individually or in the
aggregate, reasonably likely to have a PVY Material Adverse Effect.
(b) PVY 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 PVY consists of
20,000,000 shares of PVY Common Stock, of which 6,096,485 shares were issued and
outstanding on October 31, 1999. Such shares include 28,620 shares of PVY
Restricted Stock. ProvGas is authorized to issue 80,000 shares of ProvGas
Preferred Stock, of which 32,000 shares were issued and outstanding on October
31, 1999. The issued and outstanding shares of PVY Common Stock and ProvGas
Preferred Stock have been validly issued and are fully paid and nonassessable.
Except as specifically described in the PVY SEC Documents delivered to SUG prior
to the date of this Agreement or as set forth in Section 3.3(a) of the PVY
Disclosure Schedule, no shares of PVY Common Stock or ProvGas Preferred Stock
are held, in treasury or otherwise, by PVY or any of its Subsidiaries and there
are no outstanding (i) securities convertible into PVY Common Stock, ProvGas
Preferred Stock or other capital stock of PVY or any of its Subsidiaries, (ii)
warrants or options to purchase PVY Common Stock or other securities of PVY or
any of its Subsidiaries or (iii) other commitments to issue shares of PVY Common
Stock, ProvGas Preferred Stock or other securities of PVY or any of its
Subsidiaries. There are no voting trusts, proxies or other agreements,
commitments or understandings of any character to which PVY or any of its
Subsidiaries is a party or by which PVY or any of its Subsidiaries is bound with
respect to the voting of any shares of capital stock of PVY or with respect to
the registration of the offering, sale or delivery of any shares of capital
stock of PVY under the Securities Act or otherwise.
Section 5.3 Subsidiaries; Investments. Except as set forth in Section 5.3
of the PVY Disclosure Schedule, PVY has no Subsidiaries or investments in any
Person (except for marketable securities disclosed to SUG prior to the date of
this Agreement) and, except for the issued and outstanding ProvGas Preferred
Stock, PVY 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 Subsidiary has been duly
authorized, 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 PVY SEC Documents delivered to SUG prior to
the date of this Agreement, or created or incurred by this Agreement in favor of
SUG, or imposed by federal or state securities laws).
Section 5.4 Authority Relative to this Agreement and Binding Effect. The
execution, delivery and performance of this Agreement and the Related Documents
by PVY have been duly authorized by all requisite corporate action, except, as
of the date of this Agreement, for the PVY Shareholders' Approval. Except as set
forth in Section 5.4 of the PVY Disclosure Schedule, the execution, delivery and
performance of this Agreement and the Related Documents by PVY will not require
a consent, approval or notification, will
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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 other Applicable Contract to which
any of the Acquired Companies is a party or by which its assets are bound, or
violate any Order, with such exceptions as are not, individually or in the
aggregate, reasonably likely to have a PVY 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 legally
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 PVY Disclosure Schedule and as required by the HSR Act, no approval or
authorization of any Governmental Body with respect to performance under this
Agreement or the Related Documents by any Acquired Company is required to be
obtained by any Acquired Company in connection with the execution and delivery
by PVY of this Agreement or the Related Documents or the consummation by the
Acquired Companies of the transactions contemplated hereby or thereby, the
failure to obtain which are, individually or in the aggregate, reasonably likely
to have a PVY Material Adverse Effect.
Section 5.6 Public Utility Holding Company Status; Regulation as a Public
Utility. PVY is a "holding company" (as such term is defined in PUHCA) exempt
from all provisions of PUHCA (except Section 9(a)(2) thereof) pursuant to
Section 3(a) of PUHCA, and has received no adverse notice from the SEC with
respect to the validity of its exempt status. ProvGas and Attleboro are both
"public utility companies" (as such term is defined in PUHCA). Each of ProvGas
and Attleboro is a "subsidiary company" of PVY, and an "affiliate" of the other
and of PVY (as such terms are defined in PUHCA). Except as set forth above in
this Section 5.6 and with respect to their relationship to PVY, ProvGas and
Attleboro, 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," as such terms are defined in PUHCA. ProvGas is
subject to regulation as a public utility or public service company (or similar
designation) in the state of Rhode Island and Attleboro is subject to regulation
as a public utility or public service company (or similar designation) in the
state of Massachusetts. Except as stated in the preceding sentence, neither PVY
and nor its "affiliates" (as such term is defined in PUHCA) are subject to
regulation as a public utility or public service company (or similar
designation) in any other state.
Section 5.7 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Section 5.7(a) of the PVY Disclosure Schedule or
as specifically described in the PVY 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 PVY Material Adverse Effect.
(b) The PVY 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 PVY 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 PVY Disclosure Schedule or as specifically described in the PVY SEC
Documents delivered to SUG 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, any Acquired Company that is reasonably likely to have a PVY Material
Adverse Effect; or
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(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 PVY, except as set forth in Section 5.8 of the PVY
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 PVY Material Adverse Effect. As of the
date of this Agreement, none of the Acquired Companies is subject to any Orders
that are, individually or in the aggregate, reasonably likely to have a PVY
Material Adverse Effect.
Section 5.9 SEC Documents. PVY 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 (i) each report, schedule,
registration statement (other than on Form S-8), and definitive proxy statement
filed by PVY or ProvGas with the SEC since September 30, 1998 through the
Closing Date in substantially the form filed with the SEC (the "PVY SEC
Documents") and (ii) the PVY Audited Financials. As of their respective dates,
the PVY 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 PVY
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 PVY and ProvGas
included in the PVY SEC Documents and the PVY Audited Financials (collectively,
the "PVY 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 PVY
and its Subsidiaries, or ProvGas, 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 adjustments which are not material in the
aggregate.
Section 5.10 Taxes. Except as set forth in Section 5.10 of the PVY
Disclosure Schedule:
(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 PVY
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 PVY
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) None of the Acquired Companies is obligated under any Applicable
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 PVY Disclosure Schedule, no Acquired Company has any Knowledge of (i) any
infringement or claimed infringement by any Acquired Company 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 any
Acquired Company, except for any such
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infringements of the type described in clause (i) or (ii) that are not,
individually or in the aggregate, reasonably likely to have a PVY Material
Adverse Effect.
Section 5.12 Title to Assets. Except (i) as specifically described in the
PVY SEC Documents delivered to SUG prior to the date of this Agreement, (ii) as
set forth in Section 5.19 of this Agreement or (iii) as set forth in Section
5.19 of the PVY Disclosure Schedule, none of the Acquired Companies' assets are
subject to any Encumbrance other than PVY Permitted Liens.
Section 5.13 Indebtedness. All outstanding principal amounts of
indebtedness for borrowed money of the Acquired Companies as of October 30, 1999
are set forth in Section 5.13 of the PVY Disclosure Schedule.
Section 5.14 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 a PVY Material Adverse Effect, the machinery and
equipment of the Acquired Companies necessary for the conduct by the Acquired
Companies of their respective businesses as presently conducted are in operating
condition and in a state of reasonable maintenance and repair.
Section 5.15 Contracts. Set forth in Section 5.15(a) of the PVY Disclosure
Schedule is a list as the date hereof of all Applicable Contracts which are
Material Contracts. Except as described in Section 5.15(b) of the PVY Disclosure
Schedule or as specifically described in the PVY 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 PVY Material
Adverse Effect, all Applicable Contracts of the Acquired Companies are in full
force and effect and no Acquired Company nor, to the Knowledge of PVY, 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 PVY 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 PVY
Disclosure Schedule, since September 30, 1994, the assets and the business of
the Acquired Companies have been continuously insured with what PVY 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 PVY
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 PVY 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 PVY Material
Adverse Effect.
Section 5.17 Employees. PVY has made available to SUG prior to the date
hereof a list as of no more than thirty (30) days prior to the date of this
Agreement of all the then present officers and employees of the Acquired
Companies, indicating each employee's base salary or wage rate and identifying
those who are union employees and those who are part-time employees. Except as
set forth in Section 5.17(a) of the PVY 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, there are no
elections, organizing drives or material controversies
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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 PVY, Threatened labor
practice complaint, arbitration, labor strike or other labor dispute (excluding
grievances) involving any of the Acquired Companies which are, individually or
in the aggregate, reasonably likely to have a PVY Material Adverse Effect.
Except for collective bargaining agreements that have been provided to SUG prior
to the date of this Agreement or as set forth in Section 5.17(b) of the PVY
Disclosure Schedule, as of the date of this Agreement, 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 would not, individually or in the aggregate, result in a PVY
Material Adverse Effect:
(1) Each of the PVY Benefit Plans has been operated and administered
in all respects in accordance with its governing documents and applicable
federal and state laws (including, but not limited to, ERISA and the IRC).
(2) As to any PVY Benefit Plan subject to Title IV of ERISA, (i) there
is no event or condition which presents the risk of plan termination, (ii)
no reportable event within the meaning of Section 4043 of ERISA (for which
the notice requirements of Regulation sec.4043 promulgated by the PBGC have
not been waived) has occurred within the last six years, (iii) no notice of
intent to terminate the PVY Benefit Plan has been given under Section 4041
of ERISA, (iv) no proceeding has been instituted under Section 4042 of
ERISA to terminate the PVY Benefit Plan, (v) there has been no termination
or partial termination of the PVY Benefit Plan within the meaning of
Section 411(d)(3) of the IRC within the last six years, (vi) no event
described in Sections 4062 or 4063 of ERISA has occurred, and (vii) all
PBGC premiums have been timely paid and no liability to the PBGC has been
incurred, except for PBGC premiums not yet due.
(3) Each trust funding a PVY 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 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.
(4) With respect to any PVY 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 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 ("PVY 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 the Acquired Companies or any PVY 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) no
action, omission or transaction has occurred with respect to any such plan
or any other PVY Benefit Plan which could subject any of the Acquired
Companies, the plan or trust forming a part thereof, or SUG to a civil
liability or penalty under ERISA or other applicable laws, or a Tax under
the IRC, (vi) any such plan which is a Group Health Plan has complied in
all respects with the provisions of Sections 601-608 of ERISA and Section
4980B of the IRC, (vii) there are no pending or Threatened claims by or on
behalf of any such plan or any other PVY Benefit Plan, by any employees,
former employees or plan beneficiaries covered by such plan or
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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
liability to the Acquired Companies taken as a whole and (viii) neither the
Acquired Companies nor any PVY 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.
(5) There is no matter pending (other than qualification determination
applications and filings and other required periodic filings) with respect
to any of the PVY Benefit Plans before the IRS, the Department of Labor,
the PBGC or in or before any other Governmental Body.
(b) Except as set forth in Section 5.18(b) of the PVY Disclosure Schedule,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not (i) increase the amount of benefits
otherwise payable under any PVY Benefit Plan, (ii) result in the acceleration of
the time of eligibility to participate in any PVY Benefit Plan, or any payment,
exercisability, funding or vesting of any benefit under any PVY Benefit Plan,
(iii) result in any payment becoming due to or with respect to any current or
former employee, director or consultant, or (iv) result in any payment becoming
due in the event of a termination of employment or service of any employee,
director or consultant.
(c) Except as set forth in Section 5.18(c) of the PVY 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.
(d) Section 5.18(d) of the PVY Disclosure Schedule contains a true and
complete list of each PVY 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 such
contract was a director or officer of any Acquired Company or any plan,
agreement, arrangement or understanding similar to any of the foregoing. Except
as set forth in Section 5.18(d) of the PVY Disclosure Schedule, there are no
outstanding options to purchase capital stock or other securities of PVY or any
of its Subsidiaries. PVY has provided to SUG a complete and correct copy of each
PVY Benefit Plan (or written summary of any unwritten PVY Benefit Plan), and
with respect to each PVY Benefit Plan, the current summary plan description,
related trust agreements, related insurance contracts, the latest IRS
determination letter, the last three annual reports on Form 5500 series
(including all required schedules), and the most recent actuarial report and
annual financial statements.
(e) None of the Acquired Companies has contributed or been obligated to
contribute to any "multi-employer plan" within the meaning of Section 3(37) of
ERISA within the last six years. None of the Acquired Companies has any
outstanding liability with respect to any such plan which, individually or in
the aggregate with the events or conditions described in Section 5.18(a), is
reasonably likely to result in a PVY Material Adverse Effect.
Section 5.19 Environmental Matters. Except as set forth in Section 5.19 of
the PVY Disclosure Schedule or as specifically described in the PVY 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 PVY 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;
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(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, is currently and at all times has been, in material
compliance with any Environmental Law. No Acquired Company has received any
Order, written notice, or other written 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 seeking
information regarding prior disposal at or with respect to potential
liability regarding 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) PVY 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 PVY Balance
Sheet, except as specifically described in the PVY SEC Documents delivered to
SUG prior to the date of this Agreement, there has not been any PVY Material
Adverse Effect, and no events have occurred or circumstances exist that are,
individually or in the aggregate, reasonably likely to have a PVY Material
Adverse Effect, except that any PVY 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 and consummation of the transactions contemplated by this Agreement
shall be disregarded.
Section 5.21 Brokers. Except as set forth in Section 5.21 of the PVY
Disclosure Schedule, no Acquired Company is a party to, or in any way obligated
under any Applicable 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 PVY Stock Rights Agreement. Prior to the date of this
Agreement, PVY has delivered to SUG a true and complete copy of the PVY Stock
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 PVY Common Stock or other PVY securities under the PVY Stock
Rights Agreement. Neither PVY nor any of its Subsidiaries is a party to any
agreement similar to the PVY Stock Rights Agreement.
Section 5.23 Regulatory Proceedings. Except as set forth in Section 5.23
of the PVY Disclosure Schedule or in the PVY SEC Documents delivered to SUG
prior to the date of this Agreement, other than purchase gas adjustment
provisions, none of PVY 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 PVY Material Adverse Effect.
Section 5.24 Vote Required. Other than the approval of the Merger by the
holders of a majority of the outstanding shares of PVY Common Stock (the "PVY
Shareholders' Approval"), 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. The consent of the holders of 80% in aggregate principal amount of
all First Mortgage Bonds outstanding under the ProvGas Indenture to each of the
amendments to the ProvGas Indenture described on Schedule 6.1(n) hereto is the
only consent required to adopt such amendments.
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Section 5.25 Opinion of Financial Advisor. The Board of Directors of PVY
has received the opinion of Salomon Smith Barney Inc., dated as of the date
hereof, to the effect that, as of such date, the Merger Consideration is fair
from a financial point of view, to the holders of PVY Common Stock. PVY will
provide a copy of such opinion to SUG.
Section 5.26 Disclaimer of Representations and Warranties. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE V, PVY MAKES NO OTHER
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND PVY HEREBY DISCLAIMS ANY
SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER BY PVY, ANY SUBSIDIARY OF PVY,
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 PVY, ANY
SUBSIDIARY OF PVY, 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 PVY. PVY 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) as
required by law or regulation, (iii) as set forth in the PVY capital budget, a
written copy of which has been provided to SUG by letter dated November 15,
1999, which letter refers to this Agreement, (iv) for any redemption of First
Mortgage Bonds outstanding under the ProvGas Indenture that is required to be
made by the terms thereof on the date of any such redemption (such redemption to
be made in accordance with the applicable mandatory redemption provisions of
such Indenture), (v) for any commercially reasonable action that PVY determines
in good faith, after consulting with SUG, should be taken by ProvGas in order to
satisfy the condition set forth in the second sentence of Section 7.1(e), or
(vi) as otherwise expressly consented to in writing by SUG, which consent will
not be unreasonably withheld or delayed, prior to the Closing, PVY 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 consistent with its Ordinary Course of Business its assets in good
repair, order and condition, reasonable wear and tear excepted, subject to
retirements in the Ordinary Course of Business;
(3) Use reasonable efforts to preserve the Acquired Company as an
ongoing business and 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;
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(7) Not hire any new employees except in the Ordinary Course of
Business (and in no event hire, for any calendar month, a number of new
employees greater than the average monthly number of new employees hired by
the Acquired Company over the prior 12 calendar months);
(8) Not file any material applications, petitions, motions, orders,
briefs, settlement or agreements in any material Proceeding before any
Governmental Body which involves any 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
PVY Material Adverse Effect, PVY shall not make any such filing without the
consent of SUG, which consent shall not be unreasonably withheld or
delayed.
(9) Not engage in or modify, except in the Ordinary Course of
Business, any material intercompany transactions involving any other
Acquired Company;
(10) Not voluntarily change in any material respect or terminate any
insurance policies disclosed on Section 5.16(a) of the PVY Disclosure
Schedule that presently are in effect unless equivalent coverage is
obtained;
(11) Except as disclosed or specifically contemplated in this
Agreement and except 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;
(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 PVY Benefit Plan or collective
bargaining agreement or enter into any employment, consulting, 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 as required by the
terms of any existing Contract, PVY Benefit Plan or collective bargaining
agreement, not grant any increase or change in total compensation, benefits
or pay any bonus to any employee, director or consultant;
(16) Not grant or enter into or extend the term of any Contract with
respect to continued employment or service for any employee, officer,
director or consultant;
(17) Not make any loan or advance to any officer, director,
stockholder, employee or any other 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 other than in the
Ordinary Course of Business;
(19) Not amend any of its Organizational Documents; and
(20) Subject to Section 6.1(k), not issue or assume any note,
debenture or other evidence of indebtedness which by its terms does not
mature within two years from the date of execution or issuance
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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, however, that PVY has reviewed in advance and
consented to the content of such materials, which consent shall not be
unreasonably withheld or delayed. 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 or delayed).
(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 in a manner
that will not unreasonably disrupt the operations of the Acquired Companies
or their relationship with their customers, suppliers or employees, and
shall disclose, and make available to SUG and its Representatives in a
manner that will not unreasonably disrupt the operations of the Acquired
Companies or their relationship with their customers, suppliers or
employees, all books, papers and records (other than confidentiality
agreements related to a possible sale of PVY entered into prior to the date
of this Agreement) to the extent that they relate to the ownership,
operation, obligations and liabilities of or pertaining to the Acquired
Companies, their businesses, assets and liabilities. Without limiting the
application of the Confidentiality Agreement dated October 6, 1999 between
PVY and SUG (the "Confidentiality Agreement"), all documents or information
furnished by the Acquired Companies hereunder shall be subject to the
Confidentiality Agreement.
(2) PVY 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 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, PVY 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. PVY will use its
commercially reasonable best efforts at PVY's sole expense (except as provided
otherwise in the last sentence of Section 6.1(n))to obtain all necessary
consents, approvals and waivers from any Person required in connection with the
transactions contemplated hereby under any license, lease, permit or Contract
applicable to the Acquired Companies, including, without limitation, the Letters
of Tax Good Standing referred to in Section 7.1(i), the approvals of those
Governmental Bodies and the consents of those third parties listed in Section
5.4 and Section 5.5 of the PVY Disclosure Schedule and as required by the HSR
Act.
(e) Dividends. PVY 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
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by a wholly-owned Subsidiary to PVY or another wholly-owned Subsidiary, (B)
dividends by a less than wholly-owned Subsidiary consistent with past practice,
(C) regular quarterly dividends on PVY Common Stock with usual record and
payment dates that do not exceed the current rate of $1.08 per fiscal year, or
(D) regular cumulative cash distributions on the ProvGas Preferred Stock not to
exceed an annual rate of $8.70 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 its capital stock or the
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) the redemption of the ProvGas Preferred Stock
as contemplated herein or (D) as set forth in Section 6.1(k) of this Agreement.
(f) Issuance of Securities. PVY 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 the issuance of shares of PVY
Common Stock pursuant to (i) outstanding grants or awards made prior to the date
of this Agreement under the PVY Benefit Plans and Acquired Company Option Plans
and (ii) any dividend reinvestment plan of PVY in effect as of the date hereof.
(g) Accounting. PVY 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. Prior to the Closing, PVY shall
comply with the then current accounting rules for costs deferred for Y2K.
(h) No Shopping.
(1) PVY 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 substantive
discussions 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 PVY Shareholders' Approval, PVY may, in response to an unsolicited
written proposal from a third party with respect to a Business Combination
that PVY'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 PVY'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 PVY'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 PVY's shareholders which in the good faith judgment of PVY's
Board of Directors, based on the advice of its outside counsel, is required
by applicable law. Prior to furnishing any non-public information to,
entering into negotiations with or accepting a Superior Proposal from such
third party, PVY 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. PVY will immediately
cease and cause to be terminated any existing solicitation, initiation,
encouragement, activity, discussion or negotiations with any parties
conducted heretofore by PVY or any of its representatives with respect to
any Business Combination.
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(2) Except as expressly permitted by this Section 6.1(h), neither the
PVY 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 PVY 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
PVY Shareholders' Approval has been obtained, in response to an unsolicited
Business Combination proposal from a third party, if PVY'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 PVY's Board of Directors under applicable law, PVY's
Board of Directors may withdraw or modify its approval or recommendation of
the Merger or this Agreement, approve or recommend a Business Combination
or cause PVY to enter into a Business Combination or an agreement related
to a Business Combination and, subject to PVY 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, PVY shall give
SUG at least two (2) business days' 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 PVY to proceed with
the transactions contemplated herein on such adjusted terms; provided,
further, that if PVY and SUG are unable to reach an agreement on such
adjustments within two (2) business days after such notice from PVY, PVY
may enter into such definitive agreement, subject to the provisions of
Article VIII.
(3) PVY shall notify SUG orally and in writing of any such inquiries,
offers or proposals (including the material terms and conditions of any
such offer or proposal and the identity of the Person making it), within
two business days of the receipt thereof, shall use all reasonable efforts
to keep SUG informed of the status and revised material terms and
conditions of any such inquiry, offer or proposal and shall give SUG one
(1) day's advance notice of the first delivery of non-public information to
such Person. If any such inquiry, offer or proposal is in writing, PVY
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 a minimum of 2% of the outstanding shares of capital stock, tender
offer or exchange offer or similar transaction involving PVY or 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, PVY 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 PVY 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
inventory in the Ordinary Course of Business) of PVY 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 PVY that PVY's Board of Directors
determines, after consulting with PVY'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. Subject to Section 6.1(h), PVY shall use its
reasonable best efforts to solicit from its shareholders proxies in favor of the
Merger and shall take all other action necessary to secure the PVY Shareholders'
Approval. PVY shall cause ProvGas and Attleboro to approve the ProvGas Merger
and the Attleboro Merger.
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(j) PVY Shareholders' Approval.
(1) Subject to the provisions of Section 6.1(h) and Section 6.1(j)(2),
PVY 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 "PVY
Meeting") for the purpose of securing the PVY Shareholders' Approval, (ii)
distribute to its shareholders the 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 PVY Meeting for the purpose of securing the PVY Shareholders'
Approval, including any adjournments thereof, will be held on such date or
dates as PVY and SUG mutually determine.
(k) Financing Activities. PVY 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 because of the Mergers or that SUG may
request that the Acquired Companies effect, 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; provided, however, that, except as provided in
Section 6.1(m), no Acquired Company shall be required to consummate prior to the
Effective Time any such refinancing, repurchase, redemption or repayment
requested by SUG.
(l) PVY Disclosure Schedule. On the date hereof, PVY has delivered to SUG
the PVY Disclosure Schedule, accompanied by a certificate signed by an executive
officer of PVY stating the PVY Disclosure Schedule is being delivered pursuant
to this Section 6.1(l). The PVY Disclosure Schedule constitutes an integral part
of this Agreement and modifies the representations, warranties, covenants or
agreements of PVY contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the PVY Disclosure
Schedule; provided that (i) terms used in the PVY Disclosure Schedule, unless
otherwise defined, shall have the meanings, if any, ascribed to them in this
Agreement, (ii) information provided in one section of the PVY Disclosure
Schedule shall suffice, without repetition or cross-reference, as a disclosure
of such information in any other relevant section of the PVY Disclosure Schedule
if the disclosure in the first section is sufficient on its face without further
inquiry to reasonably inform SUG of the information required to be disclosed in
such other sections of the PVY Disclosure Schedule in order to avoid a breach
under the counterpart sections of this Agreement and (iii) the inclusion of any
item in the PVY Disclosure Schedule shall not establish any threshold of
materiality.
(m) Redemption of ProvGas Preferred Stock. PVY shall cause ProvGas (i) to
redeem 16,000 shares of ProvGas Preferred Stock on February 15, 2000 pursuant to
Section 4 of the Certificate of Authorization for the ProvGas Preferred Stock,
and (ii) to redeem the remaining 16,000 shares of ProvGas Preferred Stock on
March 1, 2000 pursuant to Section 4 of such Certificate of Authorization.
(n) Amendment of ProvGas Indenture. PVY shall cause ProvGas to use its
good faith commercially reasonable efforts to obtain prior to the Effective Time
the consent of holders of at least 80% in aggregate principal amount of all
First Mortgage Bonds outstanding under the ProvGas Indenture to each of the
amendments to the ProvGas Indenture described on Schedule 6.1(n) hereto;
provided, however, that PVY and its Subsidiaries shall not be required to make
any payment to any holder of First Mortgage Bonds prior to the Effective Time,
other than such payments that are required to be made under the ProvGas
Indenture, which payments ProvGas shall make as required under the ProvGas
Indenture. If this Agreement is terminated and the Mergers do not occur, (i)
within 30 days after the termination of this Agreement, PVY shall provide SUG
with a schedule showing the reasonable out-of-pocket fees and reasonable
out-of-pocket expenses, including fees and expenses of a solicitation agent, an
information agent, and legal fees and expenses, incurred by or on behalf of PVY
and ProvGas in connection with complying with the covenant set
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forth in the preceding sentence (excluding payments made to holders of the First
Mortgage Bonds), (ii) within 30 days after the termination of this Agreement,
SUG shall provide PVY with a schedule showing the reasonable out-of-pocket fees
and reasonable out-of-pocket expenses, including legal fees and expenses,
incurred by or on behalf of SUG in connection with the solicitation of consents
described in the preceding sentence (excluding payments made to holders of the
First Mortgage Bonds), (iii) if PVY's fees and expenses, as set forth on the
schedule provided by PVY pursuant hereto, exceed SUG's fees and expenses, as set
forth on the schedule provided by SUG pursuant hereto, SUG shall pay PVY 50% of
such excess within 60 days after the termination of this Agreement, and (iv) if
SUG's fees and expenses, as set forth on the schedule provided by SUG pursuant
hereto, exceed PVY's fees and expenses, as set forth on the schedule provided by
PVY pursuant hereto, PVY shall pay SUG 50% of such excess within 60 days after
the termination of this Agreement; provided, however, that if this Agreement is
terminated based on the breach by any party of its obligations under this
Agreement, such breaching party shall bear its own such fees and expenses and
shall pay the non-breaching party the fees and expenses, as set forth on the
applicable schedule provided in accordance with this section by the
non-breaching party, within 60 days after the termination of this Agreement.
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
commercially reasonable best efforts at SUG's sole expense to obtain all
necessary consents, approvals and waivers from any Person required in connection
with the transactions contemplated hereby under any license, lease, permit,
Contract or agreement applicable to SUG, including, without limitation, the
approvals of those Governmental Bodies listed in Section 4.3 of the SUG
Disclosure Schedule and as required by the HSR Act.
(b) Employees; Benefits. With respect to the employees of the Acquired
Companies (excluding unionized employees) (the "Employees"), except as otherwise
specified herein, SUG agrees as follows:
(1) To assume and maintain for their term all employment and change in
control agreements of PVY in effect as of the Effective Time;
(2) During the 24 months immediately following the Closing Date, to
maintain for the Employees who continue their service with SUG or any
Subsidiary of SUG base salary levels, bonus opportunity levels and overall
employee benefits (other than the 1989 Stock Option Plan, the 1989
Non-Employee Director Stock Option Plan, the Non-Employee Director Stock
Plan, the 1998 Performance Share Plan, the Restricted Stock Incentive Plan
and the Employee Stock Purchase Plan, all of which shall be terminated as
of the Closing Date) that are no less favorable in the aggregate than those
currently provided to Employees generally, except for any changes made to
comply with applicable law or tax qualification nondiscrimination rules;
provided, however, that (i) during such 24-month period, all PVY qualified
and non-qualified defined benefit pension plans shall be maintained without
adverse amendment or modification, except for any changes made to comply
with applicable law or, in the case of the PVY tax-qualified defined
benefit plan, tax qualification nondiscrimination rules; and (ii), with
respect to any severance from employment occurring during such 24-month
period, to provide severance benefits to such Employees on a basis no less
favorable than would otherwise be provided to such Employees under the
applicable severance pay plans of PVY as in effect on the date of this
Agreement. After the 24 months immediately following the Closing Date, SUG
agrees to maintain during the next 24-month period, for Employees who
continue their service with SUG or any Subsidiary of SUG, base salary
levels, bonus opportunity and overall employee benefits that are
appropriate for the market given SUG's financial circumstances, the
industry in which it operates, and regulatory considerations. Nothing in
this Agreement shall restrict, limit or interfere with the ability (after
the Closing Date) of SUG to terminate, amend or replace any particular
agreement, plan or program, or terminate the employment of any person,
provided that the requirements of this Section 6.2(b)(2) are otherwise
satisfied.
(3) 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.
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(4) All vacation time earned by the Employees prior to the Closing
Date must be taken by the end of the calendar year in which the Closing
Date occurs, except where the Employee is requested by PVY 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.
(5) SUG will permit each of the Employees to carry forward all days of
sick leave accrued prior to the Closing Date.
(6) Effective immediately following the Closing Date, each Employee
who satisfies the eligibility criteria used by SUG for similarly situated
employees of SUG shall be eligible for awards under SUG's Long-Term
Incentive Stock Option Plan. SUG represents that, as of the date of this
Agreement, such plan is the only plan in which SUG employees actively
participate which provides benefits in the form of SUG capital stock, other
than the SUG Employee Stock Purchase Plan or SUG tax-qualified or
supplemental retirement plans.
(7) For a five (5) year period from the Closing Date, SUG agrees to
provide retiree medical plan coverage which is substantially comparable to
the coverage under the PVY retiree medical plan as of the date hereof,
subject to SUG's right to adjust copayment and cost sharing provisions
(which may be continued in the same proportions to the PVY-provided
portions of cost) to any former Employee (and his or her eligible
dependents) who is currently receiving such benefits thereunder, or any
active Employee (and his or her eligible dependents) who would be eligible
for such benefits if he or she retired on the Closing Date (or who, within
five (5) years of the Closing Date, retires and is eligible to receive
benefits thereunder).
(c) WARN. Neither SUG nor any Acquired Company shall, at any time prior to
90 days after the Effective Time, effectuate a "plant closing" or "mass layoff,"
as those terms are defined in the Worker Adjustment and Retraining Notification
Act of 1988, as amended ("WARN"), affecting in whole or in part any site of
employment, facility, operating unit or employee without complying with the
notice requirements and other provisions of WARN.
(d) Directors. Immediately after the Effective Time on the Closing Date,
the Chief Executive Officer of PVY immediately prior to the Effective Time shall
be elected to the Board of Directors of SUG, and thereafter nominated and
recommended for reelection if necessary such that such individual shall have a
term of at least three years from the Closing Date, and such individual shall
hold office in accordance with the Certificate of Incorporation and Bylaws of
SUG; provided, however, that if such individual is also an officer or employee
of SUG, such individual shall be required to resign as a director of SUG if he
resigns or is terminated as an officer or employee of SUG.
(e) Officers of PVY Division of SUG.
(1) From the Effective Time until the earlier of their resignation or
removal by the President of SUG, (i) Mr. James Dodge shall serve as Chief
Executive Officer and President and (ii) James DeMetro shall serve as
Executive Vice President, Energy Services, in each case, of the PVY
Division of SUG and all other energy-related businesses of SUG conducted in
New England.
(2) From the Effective Time until the earlier of their resignation or
removal by SUG, the following individuals shall serve the PVY Division of
SUG in the following capacities:
Kenneth Hogan as Vice President, Chief Financial Officer and Treasurer
Susann G. Mark as Vice President and General Counsel
James A. Grasso as Vice President, Public Government Affairs
Gerald A. Yurkevicz as Vice President, Business Development and
Marketing
Royalynne Hourihan as Vice President, Human Resources
Timothy S. Lyons as Vice President, Marketing and Regulatory Affairs
Robert W. Owens as Senior Vice President, Gas Distribution
Peter J. Gill as Vice President, Information Technology
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James M. Stephens as President of Providence Energy Services
Paul E. O'Keefe as General Manager of Providence Energy Oil
George Mason as Vice President of Providence Energy Oil
The provisions of this Section 6.2(e) are subject to the specific
terms of the employment contracts referred to in Section 6.2(b)(1), and the
duties and responsibilities attributable to the positions referred to in
Section 6.2(e) shall be as set forth in such contracts.
(f) Charitable Contributions. SUG will maintain PVY's charitable
contributions for at least the calendar year in which the Effective Time occurs
and the next two calendar years thereafter at no less than $175,000, which PVY
represents is the current year budget for the fiscal year ending September 30,
2000.
(g) Corporate Offices. For at least three years after the Effective Time,
SUG will operate the Acquired Companies' operations in Rhode Island and
Massachusetts as a separate division of SUG. For at least three years after the
Effective Time, SUG will maintain the principal executive offices of the
Acquired Companies in Rhode Island and, for at least three years after the
Effective Time, SUG will maintain such Rhode Island offices as the principal
executive offices for all of SUG's energy-related businesses conducted in New
England; provided, however, that SUG will not be required to maintain such Rhode
Island offices as the principal executive offices for all of SUG's
energy-related businesses conducted in New England if Mr. James Dodge ceases to
be the Chief Executive Officer of the PVY Division of SUG.
(h) 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.
(i) SUG Disclosure Schedule. On the date hereof, SUG has delivered to PVY
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(i). 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; provided that (i) terms used in the SUG Disclosure
Schedule, unless otherwise defined, shall have the meanings, if any, ascribed to
them in this Agreement, (ii) information provided in one section of the SUG
Disclosure Schedule shall suffice, without repetition or cross-reference, as a
disclosure of such information in any other relevant section of the SUG
Disclosure Schedule if the disclosure in the first section is sufficient on its
face without further inquiry to reasonably inform PVY of the information
required to be disclosed in such other sections of the SUG Disclosure Schedule
in order to avoid a breach under the counterpart sections of this Agreement and
(iii) the inclusion of any item in the SUG Disclosure Schedule shall not
establish any threshold of materiality.
Section 6.3 Additional Agreements.
(a) The Proxy Statement. As soon as practicable after the date hereof, PVY
shall take such reasonable steps as are necessary for the prompt preparation and
filing with the SEC of a proxy statement relating to the PVY Meeting (together
with any amendments thereto or supplements thereto, the "Proxy Statement"). Each
of SUG and PVY shall furnish all information concerning it, its officers and
directors, and the holders of its capital stock as the other may reasonably
request in connection with the preparation and filing of the Proxy Statement.
PVY will use all commercially reasonable efforts to cause the Proxy Statement to
be cleared by the SEC as promptly as practicable after filing and as promptly as
practicable after such clearance, PVY shall mail the Proxy Statement to its
stockholders entitled to notice of and to vote at the PVY Meeting. As promptly
as practical after consultation between SUG and PVY, PVY shall respond to any
comments made by the SEC with respect to the Proxy Statement.
(ii) The information supplied by PVY for inclusion or incorporation by
reference in the Proxy Statement shall not, at the date of the mailing of the
Proxy Statement (or any supplement thereto) and at the time of the PVY Meeting,
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 the light of the circumstances under
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which they were made, not misleading. If at any time prior to PVY Meeting any
event or circumstance relating to PVY or any of its Subsidiaries, or its or
their respective officers or directors, should be discovered by PVY that should
be set forth in a supplement to the Proxy Statement, PVY shall promptly inform
SUG. All documents that PVY is responsible for filing with the SEC in connection
with the transactions contemplated herein shall comply as to form in all
material respects with the applicable requirements of the Securities Act and the
regulations thereunder and the Exchange Act and the regulations thereunder.
(iii) The information supplied by SUG for inclusion or incorporation by
reference in the Proxy Statement shall not, at the date of the mailing of the
Proxy Statement (or any supplement thereto), at the time of the PVY Meeting,
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 the light of the circumstances under which they are made, not
misleading. If at any time prior to the PVY Meeting any event or circumstance
relating to SUG or any of its Subsidiaries, or to their respective officers or
directors, should be discovered by SUG that should be set forth in a supplement
to the Proxy Statement, SUG shall promptly inform PVY.
(iv) No representation, warranty, covenant or agreement is made by or on
behalf of PVY with respect to information supplied by any other Person for
inclusion in the Proxy Statement. No representation, warranty, covenant or
agreement is made by or on behalf of SUG with respect to information supplied by
any other Person for inclusion in the Proxy Statement. No filing of, or
amendment or supplement to, the Proxy Statement shall be made by PVY without
providing SUG with the opportunity to review and comment thereon (except for any
ongoing SEC reporting required of PVY or ProvGas that will be incorporated by
reference). If at any time prior to the PVY Meeting 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 Proxy Statement so that the Proxy 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 PVY.
(b) Further Assurances. Each of SUG and PVY agrees, and PVY agrees to
cause its Subsidiaries, to take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Mergers 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 SUG with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Acquired
Companies, the officers and directors of SUG will be fully authorized to take,
and will take, all such lawful and necessary action.
(c) Financial Statements to be Provided. Upon SUG's request, PVY shall (i)
provide to SUG audited and unaudited financial statements required to be
included in the proxy statements and the registration statement contemplated by
the Agreement of Merger, dated as of October 4, 1999, by and between SUG and
Fall River Gas Company and (ii) cause its independent accountants to deliver to
SUG and Fall River Gas Company the required consents in connection therewith.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to SUG's Obligation to Effect the Merger. The
obligations of SUG and Newco 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. PVY's
representations and warranties in this Agreement shall have been accurate in all
respects as of the date of this Agreement and shall be accurate in all respects
as of the Closing Date as if made on the Closing Date, except for such
inaccuracies
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(without regard to any materiality qualifications contained therein) which,
individually and in the aggregate, would not be reasonably likely to result in a
PVY Material Adverse Effect.
(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. PVY shall execute and deliver to SUG a certificate of an
authorized officer of PVY, dated the Closing Date, stating that the conditions
specified in Sections 7.1(a) and 7.1(b) of this Agreement 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 are
not, and with no conditions that are, individually or in the aggregate,
reasonably likely to have a PVY Material Adverse Effect or a material adverse
effect on the business, financial condition or results of operations of SUG, or
which would otherwise, in the reasonable determination of SUG, be unduly
burdensome to SUG in a manner that would be, individually or in the aggregate,
reasonably likely to have a PVY Material Adverse Effect or a material adverse
effect on the business, financial condition or results of operations of SUG. 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 PVY Material Adverse
Effect after the Closing. In addition, the consent of the holders of at least
80% in aggregate principal amount of all First Mortgage Bonds outstanding under
the ProvGas Indenture to each of the amendments to the ProvGas Indenture
described on Schedule 6.1(n) hereto 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 Acquired Company's
Organizational Documents and applicable provisions of the RIBCA or MBCL, as the
case may be; provided, however, 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) Shareholder Approvals. The PVY Shareholders' Approval shall have been
obtained, and all of the outstanding shares of the ProvGas Preferred Stock shall
have been redeemed in accordance with the Organizational Documents of ProvGas.
(i) Tax Good Standing. Letters of Tax Good Standing shall have been
obtained for PVY and ProvGas from the Rhode Island Department of Taxation.
(j) Conversion of Options. All directors who have options outstanding
under the 1989 Non-Employee Director Stock Option Plan shall have consented to
the conversion of such options into a right to receive in respect thereof a cash
payment on the basis set forth in Section 3.3.
Section 7.2 Conditions to PVY's Obligations to Effect the Mergers. The
obligation of PVY 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
respects as of the date of this Agreement and shall be accurate in all respects
as of the Closing Date as if made on the Closing Date, except for such
inaccuracies (without regard to any materiality qualifications contained herein)
which, individually and in the aggregate, would not be reasonably likely to
result in a SUG Material Adverse Effect.
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(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 PVY 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 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. 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) Shareholder Approvals. The PVY Shareholders' Approval shall have been
obtained.
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 PVY;
(b) By PVY, 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 PVY, by written notice to SUG, if there is a breach of any
representation or warranty 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, by written notice to PVY, if there is a breach of any
representation or warranty of PVY, 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 PVY, 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 PVY shall have paid SUG the fee
described in Section 8.3(a) and PVY has substantially contemporaneously
entered into a definitive agreement with respect to the proposed Business
Combination;
(f) By PVY, by written notice to SUG, if the PVY Shareholders'
Approval is not obtained at the PVY Meeting upon the taking of such vote
including all adjournments, or by SUG, by written notice to PVY, if the PVY
Shareholders' Approval is not obtained at the PVY Meeting upon the taking
of such vote including all adjournments;
(g) By SUG, by written notice to PVY, if the Board of Directors of PVY
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 PVY 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 to cause ProvGas to redeem all of the outstanding shares
of ProvGas Preferred Stock as provided in Section 6.1(m);
30
<PAGE> 80
(h) By SUG, by written notice to PVY, 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 PVY; or
(i) By either party in writing at any time after 5:00 p.m., Eastern
Time on November 15, 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(i) 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 April 1,
2001.
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 (i) any fee payable under Section
8.3(a) is paid to SUG and (ii) 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.
Section 8.3 Termination Fee; Expenses.
(a) Termination Fee. If this Agreement is terminated pursuant to Section
8.1(e), 8.1(g) or 8.1(h), then PVY shall pay to SUG promptly (but not later than
five business days after notice is received from PVY) an amount equal to $7.5
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 PVY 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), PVY 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, SUG will indemnify and hold harmless the present and former
officers and directors of PVY and its Subsidiaries (the "Indemnified Parties")
in respect of acts or omissions occurring prior to the Effective Time to the
extent provided under PVY's 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, SUG 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 person covering each
such currently covered by PVY's officers' and directors' liability insurance
policy on terms with respect to coverage and amount no
31
<PAGE> 81
less favorable than those of such policy in effect on the date hereof; provided,
however, that in satisfying its obligation under this Section, if the annual
premiums of such insurance coverage exceed 200% of the previous year's premiums,
SUG will be obligated to obtain a policy with the best coverage available, in
the reasonable judgment of the Board of Directors of SUG, for a cost not
exceeding such amount.
(b) Successors. In the event SUG 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 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 SUG 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 the last sentence of Section 6.1(n) or Section 8.3 and as expressly provided
otherwise herein, (ii) PVY shall pay all fees and expenses of counsel for PVY,
(iii) SUG shall pay all fees and expenses of counsel for SUG and Newco, (iv) 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 (v) PVY will
pay all of the costs of printing and mailing the Proxy Statement to the PVY
stockholders.
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 or to Newco, 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
32
<PAGE> 82
with a copy to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attention: Garett J. Albert
Telecopier: (212) 422-4726
if to PVY, to:
Providence Energy Corporation
100 Weybosset Street
Providence, Rhode Island 02903
Attention: James H. Dodge
Chairman, President and CEO
Telecopier: (401) 421-4887
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Peter J. Gordon
Telecopier: (212) 455-2502
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. Any
assignment in violation of the terms of this Agreement shall be null and void ab
initio.
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 permitted 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, the RIBCA or the MBCL, in which case such laws shall
govern. 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
A PARTY 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 PARTIES
33
<PAGE> 83
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.
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 books and records as contain, and 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 the parties and their
Representatives, 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 each of the parties hereto hereby waives 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 parties, 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 parties.
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(d) are
intended for the direct and irrevocable benefit of the director of PVY specified
therein, 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 (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
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<PAGE> 84
and covenants against SUG 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.
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 with respect to the subject
matter hereof and supersede all prior agreements with respect thereto.
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.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
SOUTHERN UNION COMPANY
By: /s/ PETER H. KELLEY
------------------------------------
Name: Peter H. Kelley
Title: President and Chief
Operating Officer
GUS ACQUISITION CORPORATION
By: /s/ PETER H. KELLEY
------------------------------------
Name: Peter H. Kelley
Title: President
PROVIDENCE ENERGY CORPORATION
By: /s/ JAMES H. DODGE
------------------------------------
Name: James H. Dodge
Title: Chief Executive Officer
35
<PAGE> 85
ANNEX 2
SALOMON SMITH BARNEY LOGO
November 15, 1999
Board of Directors
Providence Energy Corporation
100 Weybosset Street
Providence, Rhode Island 02903
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock of Providence Energy Corporation
("PEC") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger made as of the 15th day of November, 1999 (the "Merger Agreement") among
Southern Union Company ("SU"), Southern Union Acquisition Corporation, a wholly
owned subsidiary of SU ("Newco"), and PEC. As more fully described in the Merger
Agreement, (i) as one of a series of merger transactions, Newco will be merged
with and into PEC (the "Merger") and (ii) each issued and outstanding share of
PEC common stock (the "PEC Shares") will be converted into the right to receive
$42.50 in cash (the "Merger Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of PEC concerning the business, operations and prospects of PEC and
its subsidiaries. We examined certain publicly available business and financial
information relating to, as well as certain financial forecasts and other
information and data for, PEC and its subsidiaries which were provided to or
otherwise discussed with us by the management of PEC. We reviewed the financial
terms of the Merger as set forth in the Merger Agreement in relation to, among
other things: current and historical market prices and trading volumes of PEC
Shares; the historical and projected earnings and other operating data of PEC
and its subsidiaries; and the capitalization and financial condition of PEC and
its subsidiaries. We considered, to the extent publicly available, the financial
terms of other transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of PEC. In addition
to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of PEC that such forecasts and other information and
data were reasonably prepared reflecting the best currently available estimates
and judgments of the management of PEC as to the future financial performance of
PEC and its subsidiaries. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of PEC or its subsidiaries nor have we made any physical inspection of the
properties or assets of PEC or its subsidiaries. In connection with our
engagement, we were not requested to, and we did not, solicit third party
indications of interest in all or a part of PEC. We were not requested to
consider, and our opinion does not address, the relative merits of the Merger as
compared to any alternative business strategies that might exist for PEC or its
subsidiaries or the effect of any other transaction in which PEC or its
subsidiaries might engage. Our opinion is necessarily based upon information
available to
<PAGE> 86
us and financial, stock market and other conditions and circumstances existing
and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has been engaged to render financial advisory
services to PEC in connection with the Merger and will receive a fee for such
services, a significant portion of which is contingent upon consummation of the
Merger. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of PEC and SU for our own account or for
the account of our customers and, accordingly, may at any time hold a long or
short position in such securities. We have in the past provided investment
banking services to PEC unrelated to the proposed Merger, for which services we
have received compensation. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships with PEC, SU and
their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of PEC in its evaluation solely of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Salomon Smith Barney Inc. be made, without
our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the holders of PEC Shares.
Very truly yours,
SALOMON SIG
SALOMON SMITH BARNEY INC.
<PAGE> 87
FORM OF PROXY CARD
PROVIDENCE ENERGY CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
May 22, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby constitutes and appoints
Mrs. M. Anne Szostak and Mssrs. Gilbert R. Bodell and John H. Howland, or any
one or more of them acting in the absence of the others, with full power of
substitution, the true and lawful attorneys and proxies of the undersigned at
the Special Meeting of the Shareholders of Providence Energy Corporation to be
held in Providence, Rhode Island on May 22, 2000 at 10:00 a.m., to act with all
powers of the undersigned with respect to all shares of stock as to which the
undersigned is entitled to act at such meeting and at any adjournments or
postponements thereof, and to vote as follows:
(Continued, and to be signed, on reverse side.)
<PAGE> 88
(Continued from other side)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" THE PROPOSAL.
1. Proposal to approve the Agreement and Plan of Merger, dated as of
November 15, 1999, among Southern Union Company, GUS Acquisition Corporation and
Providence Energy Corporation.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted "FOR" the Proposal.
Dated
---------------------------
--------------------------------
Signed:
--------------------------------
Signed:
Sign exactly as name(s) appears
on left. When signing as
attorney, executor,
administrator, trustee, guardian
or other representative
capacity, please give full title
as such. If more than one name
is shown, including the case of
joint tenants, each party should
sign.
