<PAGE> 1
October 2, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
JOINT APPLICATION FOR AN ORDER UNDER
SECTION 2(a)(7) and SECTION 2(a)(8)
OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
________
<TABLE>
<S> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA SEAGULL ENERGY CORPORATION
2200 Ross Avenue 1001 Fannin
Suite 4200E Suite 1700
Dallas, Texas 75201 Houston, Texas 77002
</TABLE>
(Name of companies filing this application
and address of executive offices)
________
<TABLE>
<S> <C>
R. A. Walker Barry J. Galt
Vice President Chairman of the Board, President and
The Prudential Insurance Company Chief Executive Officer
of America Seagull Energy Corporation
2200 Ross Avenue 1001 Fannin, Suite 1700
Suite 4200E Houston, Texas 77002
Dallas, Texas 75201 (713) 951-4770
(214) 720-6238
</TABLE>
(Persons to whom correspondence should be addressed)
________
Copies to:
<TABLE>
<S> <C>
Neal S. McCoy J. Mark Metts
Skadden, Arps, Slate, Meagher & Flom Vinson & Elkins L.L.P.
1440 New York Avenue, N.W. 2300 First City Tower
Washington, D.C. 20005 1001 Fannin
Houston, Texas 77002
</TABLE>
<PAGE> 2
JOINT APPLICATION FOR ORDERS UNDER
SECTION 2(a)(7) AND SECTION 2(a)(8) OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
The Prudential Insurance Company of America ("Prudential") and
all of its direct and indirect subsidiaries (with Prudential, the "Prudential
Family") hereby submit this application to the Securities and Exchange
Commission (the "Commission") for an order under Section 2(a)(7) of the Public
Utility Holding Company Act of 1935 (the "Act") declaring that, under the
circumstances described herein, neither Prudential nor any member of the
Prudential Family is a holding company under clause (A) of Section 2(a)(7) of
the Act with respect to Seagull Energy Corporation, a Texas corporation
("Seagull").
Seagull hereby submits its application to the Commission for
an order under Section 2(a)(8) of the Act declaring that, under the
circumstances described herein, Seagull is not a subsidiary company of
Prudential under clause (A) of Section 2(a)(8) of the Act.
Information Concerning Seagull
Seagull was incorporated in 1973 as a Texas corporation and
wholly-owned subsidiary of Houston Oil & Minerals Corporation ("HOM"). On
March 12, 1981, Seagull became an independent company as a result of the
spin-off of its shares to the shareholders of HOM. Seagull is an independent
energy company primarily engaged in natural gas exploration, development and
production with its operations focused offshore Texas and Louisiana in the Gulf
of Mexico and onshore in three principal geographic regions: (i) western
Oklahoma and the Texas Panhandle; (ii) the Arklatex area in eastern Texas and
northern Louisiana and the Arkoma Basin in eastern Oklahoma and western
Arkansas; and (iii) western Canada. Seagull's other business activities are
also natural gas related: (i) natural gas marketing and pipeline engineering,
design, construction and operation; and (ii) natural gas transmission and
distribution in Alaska.
On June 17, 1985, Seagull acquired all of the distribution
assets of the Alaskan natural gas distribution division of ENSTAR Corporation,
generally known as "ENSTAR Natural Gas Company" ("ENG"). ENG is a "gas utility
company" within the meaning of the Act, serving
<PAGE> 3
approximately 87,000 customers in South Central Alaska, including the greater
Anchorage metropolitan area. Because Seagull owns and operates ENG as a
division of Seagull, rather than as a subsidiary, Seagull is a "public utility
company" within the meaning of the Act. When Seagull purchased ENG, it also
acquired all of the outstanding shares of Alaska Pipeline Company, an Alaska
corporation ("APC"). Seagull operates and manages APC and ENG as a single
operating unit. APC operates approximately 340 miles of intrastate natural gas
transmission pipelines in South Central Alaska. APC owns no gas distribution
assets.
For the fiscal year ended December 31, 1995, Seagull had
consolidated revenues of $336.3 million and earnings applicable to common stock
of $632,000. For the six months ended June 30, 1996, Seagull had consolidated
revenues of $196 million and earnings applicable to common stock of $8.9
million. As of June 30, 1996, Seagull had total assets of $1.2 billion.
Seagull's common stock is registered pursuant to Section 12(b)
of the Securities Exchange Act of 1934 (the "Exchange Act") and is listed for
trading on the New York Stock Exchange. Accordingly, Seagull is subject to the
informational requirements of the Exchange Act and in accordance therewith
files reports, proxy statements and other information with the Commission
relating to its business, financial position, results of operations and other
matters.
Seagull is authorized to issue 100,000,000 shares of common
stock, par value $.10 per share, which is the only class of outstanding voting
securities of the Company. As of March 20, 1996, 36,354,466 shares of the
common stock of Seagull were issued and outstanding. As of the same date,
there were approximately 2,659 holders of record of Seagull common stock. As
of March 20, 1996, 4,502,340 shares had been reserved for issuance under the
Company employee and director stock option plans.
Each share of Seagull's common stock has the same rights and
privileges as every other share. The holders of common stock are entitled to
one vote for each share held and are not permitted to cumulate their votes in
electing directors. The holders of a majority of the outstanding shares of
common stock constitute a quorum
2
<PAGE> 4
for shareholder meetings of Seagull. Two-thirds of all the outstanding shares
are required for approval of mergers or similar transactions. A total of
36,064,649, 36,123,702 and 36,354,466 shares of Seagull common stock were
represented at its 1994, 1995 and 1996 Annual Meetings of Shareholders,
representing 87%, 85% and 86%, respectively, of the shares then outstanding.
Information Concerning Prudential
Prudential is a mutual life insurance company organized under
the laws of the State of New Jersey. Prudential is also one of the largest
financial institutions in the world and the largest insurance company in North
America. Prudential has approximately $219 billion in consolidated assets and
approximately $314 billion in total assets under management. In 1995, it
generated revenues of nearly $43 billion. Prudential, through subsidiaries,
operates the 11th largest mutual fund family in the United States.
Prudential beneficially owns an aggregate of 6,311,537 shares,
constituting approximately 21.2% of the outstanding shares of common stock, of
Global Natural Resources, Inc. ("Global"). Prudential also holds in various
capacities an aggregate of 1,001,300 shares of common stock of Seagull,
constituting approximately 1.59% of the outstanding shares of Seagull common
stock. By agreement dated July 22, 1996 (the "Merger Agreement"), Seagull and
Global agreed to enter into a merger (the "Merger") whereby Global will become
a wholly owned subsidiary of Seagull. Under the terms of the Merger Agreement,
shares of Global common stock will be converted into such number of shares of
Seagull common stock as specified by the exchange ratio described in the Merger
Agreement (which is based on the average closing price of Seagull common stock
for the 20 consecutive trading days commencing 25 days prior to the Global
special shareholders' meeting). Prudential did not initiate the course of
events that led to the proposed merger of Seagull and Global. However,
Prudential has agreed to vote its Global shares in favor of the Merger.
Following the consummation of the Merger, the Prudential Family will hold an
aggregate of 6,556,341 shares of Seagull common stock, constituting
approximately 10.49% of the outstanding Seagull common stock.
3
<PAGE> 5
It is anticipated that an officer of Prudential Capital Group,
who is currently a director of Global, will become a director of Seagull after
the merger is consummated. The assumption of this director position is for the
purpose of safeguarding Prudential's increased financial interest in Seagull
(which has arisen solely due to the Merger), and not for the purpose of
exercising control over Seagull or any of its public utility operations.
Statutory Authority
Although the Prudential Family will hold in the aggregate
10.49% of the outstanding common stock of Seagull upon consummation of the
Merger, the Commission is authorized by Section 2(a)(7) of the Act ("Section
2(a)(7)") to declare Prudential not to be a holding company if the Commission
finds that Prudential:
(i) Does not, either alone or pursuant to an arrangement or
understanding with one or more other persons, directly or indirectly
control Seagull either through one or more intermediary persons or by
any means or device whatsoever,
(ii) is not an intermediary company through which such control is
exercised, and
(iii) does not, directly or indirectly, exercise (either alone or
pursuant to an arrangement or understanding with one or more other
persons) such a controlling influence over the management or policies
of Seagull as to make it necessary or appropriate in the public
interest or for the protection of investors or consumers that
Prudential be subject to the obligations, duties, and liabilities
imposed by the Act upon holding companies.
Similarly, the Commission is authorized by Section 2(a)(8) of
the Act to declare Seagull not to be a subsidiary company with respect to
Prudential if the Commission finds that Seagull:
(i) is not controlled, directly or indirectly, by Prudential (either
alone or pursuant to an arrangement or understanding with one or more
other persons)
4
<PAGE> 6
either through one or more intermediary persons or by any means or
device whatsoever,
(ii) is not an intermediary company through which such control of
another company is exercised, and
(iii) the management or policies of Seagull are not subject to a
controlling influence, directly or indirectly, by Prudential (either
alone or pursuant to an arrangement or understanding with one or more
other persons) so as to make it necessary or appropriate in the public
interest or for the protection of investors or consumers that Seagull
be subject to the obligations, duties, and liabilities, imposed by the
Act upon subsidiary companies of holding companies.
As explained below, Prudential neither controls Seagull nor
exercises such influence as to make regulation of Prudential and Seagull a
matter of public interest. Therefore, Prudential and Seagull should not be
considered part of a holding company system.
Prudential Should Not Be Deemed a Holding Company under Section 2(a)(7)
The Prudential Family's anticipated 10.49% ownership of
Seagull common stock exceeds the 10% threshold set forth in Section 2(a)(7) by
a de minimis amount and should not result in a determination that Prudential
controls Seagull. This would be an inequitable result, particularly because
Prudential never sought to acquire a 10% ownership interest in a utility;
rather, such ownership interest will arise from the decisionmaking of third
parties. Because Prudential never intended to control a utility or to be
regulated as a holding company, Prudential intends to sell shares of Seagull
common stock as expeditiously as possible after the consummation of the Merger
so that Prudential's ownership will fall below 10% of Seagull's outstanding
common stock by no later than May 15, 1998.
Pending such proposed sales of Seagull common stock,
Prudential and Seagull should not be considered part of a holding company
system because Prudential is not the beneficial owner with full, independent
power to vote more than 10% of Seagull's outstanding common stock.
5
<PAGE> 7
Upon consummation of the Merger, Prudential will hold in its proprietary
accounts only 8.9% of Seagull's outstanding common stock. Through separate
accounts comprised of investments that support one or more group annuity
contracts, Prudential (or one or more of its subsidiaries) is the record owner
of shares that will constitute approximately 1.5% of Seagull's outstanding
common stock upon consummation of the Merger. In addition, through the various
mutual funds managed by members of the Prudential Family, Prudential holds
shares that will constitute approximately .06% of Seagull's outstanding common
stock upon consummation of the Merger. These various holdings should not be
aggregated because Prudential is not free to vote the securities that are not
held in its proprietary accounts to serve its own interests. The Prudential
entities managing these separate accounts and mutual funds owe fiduciary duties
to act in the beneficial owners' best interests. These fiduciary duties arise
under state law, Section 36 of the Investment Company Act of 1940, the
Investment Advisors Act of 1940 and ERISA. Such entities would be in direct
violation of their fiduciary duties if they made investment or voting decisions
for any purpose other than the fund's or account's best interests. Since such
entities are required by law to act independently of Prudential's personal
interests, the Seagull common stock held in the separate accounts and mutual
funds managed by Prudential entities should not be deemed to be owned or
controlled by Prudential.
In addition, as explained below, the Prudential Family has no
intention of controlling or influencing the management of Seagull's affairs.
While an officer of Prudential Capital Group is expected to become a director
of Seagull, the purpose of such representation is only to safeguard
Prudential's investment. Other than through the normal exercise of voting
rights of stockholders, the Prudential Family will not attempt to control or
influence Seagull.
Prudential Does Not Control or Exert a Controlling Influence over Seagull
Prudential will not control or attempt to influence Seagull so
as to make regulation necessary in the public interest. The Sixth Circuit
Court of Appeals
6
<PAGE> 8
has stated that the prime factors to consider, in determining whether
regulation under the Act is required to serve the public interest, are (1) the
size of the utility company, (2) the nature and extent of intercompany
relationships, (3) the ownership and distribution of the utility's securities,
and (4) the opportunity for excessive charges between the two companies for
financing, service and construction contracts. Detroit Edison Co. v. SEC, 119
F.2d 730, 739-40 (6th Cir. 1941), cert. denied, 314 U.S. 618 (1941). Under the
size analysis, the need for regulation is lessened in this instance because the
combined Seagull/Global entity will have comparatively minor utility assets and
operations; the nature and extent of intercompany relationships should not be
of any concern, because Prudential and Seagull currently have no relationship
and, other than through the normal exercise of voting rights of stockholders,
Prudential will not attempt to control or influence Seagull; Seagull's
securities are publicly held and, as discussed below, Prudential's ownership
interest will be insufficient to materially affect matters submitted to a vote
of Seagull's stockholders; and there is no risk of excessive charges for
intercompany financing, service or construction contracts because no such
contracts exist and none are contemplated. For these same reasons, there is no
need to regulate Prudential and Seagull as part of a holding company system for
the protection of investors and consumers.
Other than through passive investments, Prudential has no
interest in the utility industry. Prudential is a mutual life insurance
company engaged in various types of financial service businesses. Under
similar circumstances, the Staff has found it unnecessary and inappropriate to
impose holding company status upon a holder of 12.8% of a utility's voting
securities. See In the Matter of Lehigh Coal & Navigation Company, Public
Utility Holding Company Act of 1935 Release No. 218 (1936).
As discussed above, an officer of Prudential Capital Group is
expected to become a director of Seagull. However, Prudential's representation
on Seagull's Board of Directors is only for the purpose of protecting
Prudential's financial interest, and is not intended as a method of controlling
Seagull. After the
7
<PAGE> 9
consummation of the Merger, Seagull is expected to have 14 directors, so
Prudential's nominee will be unable to break a quorum or vote down any matters
brought before Seagull's Board of Directors.
Finally, the Prudential Family's ownership interests will be
insufficient to significantly influence Seagull. All shares of Seagull common
stock enjoy the same rights and privileges. The holders of common stock are
entitled to one vote for each share held and are not permitted to cumulate
their votes in electing directors. The quorum for shareholder meetings of
Seagull is a majority of the outstanding shares of common stock. Seagull is a
Texas corporation, and two-thirds of all outstanding shares are required for
approval of mergers and other similar transactions pursuant to the Texas
Business Corporation Act. A total of 36,064,649, 36,123,702 and 36,354,466
shares of Seagull common stock were represented at its 1994, 1995 and 1996
Annual Meetings of Shareholders, representing 87%, 85% and 86%, respectively,
of the shares then outstanding. As a result, Prudential will lack sufficient
shares to prevent the formation of a quorum, to block a merger or similar
transaction, or to ensure the election of directors.
WHEREFORE, Prudential and Seagull pray that, if the Commission
concludes that Prudential is a company that owns 10% or more of Seagull's
common stock, the Commission issue its order pursuant to Section 2(a)(7) of the
Act declaring that Prudential is not a holding company with respect to Seagull
and its order pursuant to Section 2(a)(8) of the Act declaring that Seagull is
not a subsidiary company with respect to Prudential.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Jack L. Pfeilsticker
-------------------------
Assistant General Counsel
SEAGULL ENERGY CORPORATION
By: /s/ Barry J. Galt
-------------------------
Chairman of the Board
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<PAGE> 10
- - - - - - - - - - - - - - - - -
COUNTY OF HARRIS
STATE OF TEXAS
- - - - - - - - - - - - - - - - -
VERIFICATION
Before me, a notary public, on this day personally appeared
Barry J. Galt, known to me to be the person whose name is subscribed to in the
foregoing application and, being by me first duly sworn, declared, under oath,
that he is familiar with such application and the transactions described
therein, and that, to the best of his knowledge, information and belief, the
information contained therein is true.
Given under my hand and seal of office this 2nd day of
October, 1996.
/s/ D. Kaye Masters
-----------------------------------
Notary Public, State of Texas
My Commission Expires: March 7, 1997
[SEAL]
<PAGE> 11
- - - - - - - - - - - - - - - - - - -
COUNTY OF ESSEX
STATE OF NEW JERSEY
- - - - - - - - - - - - - - - - - - -
VERIFICATION
Before me, a notary public, on this day personally appeared
Jack L. Pfeilsticker, known to me to be the person whose name is subscribed to
in the foregoing application and, being by me first duly sworn, declared, under
oath, that he is familiar with such application and the transactions described
therein, and that, to the best of his knowledge, information and belief, the
information contained therein is true.
Given under my hand and seal of office this 2nd day of
October, 1996.
/s/ Arlene C. Deas
-------------------------------------
Notary Public, State of New Jersey
My Commission Expires: April 12, 2000
[Seal]
<PAGE> 12
EXHIBIT 1
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
In the Matter of s
s
s
SEAGULL ENERGY CORPORATION s
1001 Fannin, Suite 1700 s NOTICE OF PUBLIC FILING
Houston, Texas 77002 s
s
THE PRUDENTIAL INSURANCE COMPANY s
OF AMERICA s
2200 Ross Avenue, Suite 4200E s
Dallas, Texas 75201 s
s
File No. ________________ s Date: ___________, 1996
s
(Public Utility Holding s
Company Act of 1935) s
Notice is hereby given that the following filing has been made
with the Commission pursuant to the provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application for
complete statements of the proposed transaction summarized below. The
application and any amendments thereto are available for public inspection
through the Commission's Office Of Public Reference.
Interested persons wishing to comment or request a hearing on
the application should submit their views in writing by ______________________,
1996 to the Secretary, Securities and Exchange Commission, Washington, D.C.
20549, and serve a copy on the relevant applicant at the address specified
below. Proof of service (by affidavit or, in case of an attorney at law, by
certificate) should be filed with the request. Any request for hearing shall
identify specifically the issues of fact or law that are disputed. A person
who so requests will be notified of any hearing, if ordered, and will receive a
copy of any notice or order issued in the matter. After said date, the
application, as filed or as
<PAGE> 13
amended, may be granted and/or permitted to become effective.
The Prudential Insurance Company of America ("Prudential") and
all of its direct and indirect subsidiaries (with Prudential, the "Prudential
Family") has filed an application for a declaration that neither Prudential nor
any member of the Prudential Family is a holding company under clause (A) of
Section 2(a)(7) of the Act with respect to Seagull Energy Corporation, a Texas
corporation ("Seagull").
Seagull has filed an application for a declaration that
Seagull is not a subsidiary company of Prudential under clause (A) of Section
2(a)(8) of the Act.
Seagull was incorporated in 1973 as a Texas corporation and
wholly-owned subsidiary of Houston Oil & Minerals Corporation ("HOM"). On
March 12, 1981, Seagull became an independent company as a result of the
spin-off of its shares to the shareholders of HOM. Seagull is a natural gas
exploration and production company whose operations are focused in offshore
Texas and Louisiana in the Gulf of Mexico, western Oklahoma and the Texas
Panhandle, and the Mid-South Region, which is located in eastern Texas,
northern Louisiana, eastern Oklahoma and western Arkansas.
On June 17, 1985, Seagull acquired all of the distribution
assets of the Alaskan natural gas distribution division of ENSTAR Corporation,
generally known as "ENSTAR Natural Gas Company" ("ENG"). ENG is a "gas utility
company" within the meaning of the Act, serving approximately 87,000 customers
in South Central Alaska, including the greater Anchorage metropolitan area.
Because Seagull owns and operates ENG as a division of Seagull, rather than as
a subsidiary, Seagull is a "public utility company" within the meaning of the
Act. When Seagull purchased ENG, it also acquired all of the outstanding
shares of Alaska Pipeline Company, an Alaska corporation ("APC"). Seagull
operates and manages APC and ENG as a single operating unit. APC operates
approximately 340 miles of intrastate natural gas transmission pipelines in
South Central Alaska. APC owns no gas distribution assets.
3
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Seagull's common stock is registered pursuant to Section 12(b)
of the Securities Exchange Act of 1934 (the "Exchange Act") and is listed for
trading on the New York Stock Exchange. Accordingly, Seagull is subject to the
informational requirements of the Exchange Act and in accordance therewith
files reports, proxy statements and other information with the Commission
relating to its business, financial position, results of operations and other
matters.
Prudential is a mutual life insurance company organized under
the laws of the State of New Jersey. Prudential is also one of the largest
financial institutions in the world and the largest insurance company in North
America. Prudential has approximately $219 billion in consolidated assets and
approximately $314 billion in total assets under management. In 1995, it
generated revenues of nearly $43 billion. Prudential, through subsidiaries,
operates the 11th largest mutual fund family in the United States.
Prudential beneficially owns an aggregate of 6,311,537 shares,
constituting approximately 21.2% of the outstanding shares of common stock, of
Global Natural Resources, Inc. ("Global"). Prudential also holds in various
capacities an aggregate of 1,001,300 shares of common stock of Seagull,
constituting approximately 1.59% of the outstanding shares of Seagull common
stock. By agreement dated July 22, 1996 (the "Merger Agreement"), Seagull and
Global agreed to enter into a merger (the "Merger") whereby Global will become
a wholly owned subsidiary of Seagull. Under the terms of the Merger Agreement,
shares of Global common stock will be converted into such number of shares of
Seagull common stock as specified by the exchange ratio described in the Merger
Agreement (which is based on the average closing price of Seagull common stock
for the 20 consecutive trading days commencing 25 days prior to the Global
special shareholders' meeting). Prudential did not initiate the course of
events that led to the proposed merger of Seagull and Global. However,
Prudential has agreed to vote its Global shares in favor of the Merger.
Following the consummation of the Merger, the Prudential Family will hold an
aggregate of 6,556,341 shares of Seagull common stock, constituting
approximately 10.49% of the outstanding Seagull common stock.
4
<PAGE> 15
It is anticipated that an officer of Prudential Capital Group,
who is currently a director of Global, will become a director of Seagull after
the merger is consummated. According to Prudential and Seagull, the assumption
of this director position is for the purpose of safeguarding Prudential's
increased financial interest in Seagull (which has arisen solely due to the
Merger), and not for the purpose of exercising control over Seagull or any of
its public utility operations.
Prudential and Seagull state that the Prudential Family's
anticipated 10.49% ownership of Seagull common stock exceeds the 10% threshold
set forth in Section 2(a)(7) by a de minimis amount and should not result in a
determination that Prudential controls Seagull. Prudential and Seagull state
that this would be an inequitable result because Prudential never sought to
acquire a 10% ownership interest in a utility; rather, such ownership interest
will arise from the decisionmaking of third parties. Because Prudential never
intended to control a utility or to be regulated as a holding company,
Prudential intends to sell shares of Seagull common stock as expeditiously as
possible after the consummation of the Merger so that Prudential's ownership
will fall below 10% of Seagull's outstanding common stock by no later than May
15, 1998.
Pending such proposed sales of Seagull common stock,
Prudential and Seagull state that they should not be considered part of a
holding company system because Prudential is not the beneficial owner with
full, independent power to vote more than 10% of Seagull's outstanding common
stock. Upon consummation of the Merger, Prudential will hold in its
proprietary accounts only 8.9% of Seagull's outstanding common stock. Through
separate accounts comprised of investments that support one or more group
annuity contracts, Prudential (or one or more of its subsidiaries) is the
record owner of shares that will constitute approximately 1.5% of Seagull's
outstanding common stock upon consummation of the Merger. In addition, through
the various mutual funds managed by members of the Prudential Family,
Prudential holds shares that will constitute approximately .06% of Seagull's
outstanding common stock upon consummation of the Merger. Prudential and
Seagull state that these various holdings should not be aggregated because
Prudential is not free to vote the securities that are
5
<PAGE> 16
not held in its proprietary accounts to serve its own interests. The
Prudential entities managing these separate accounts and mutual funds owe
fiduciary duties to act in the beneficial owners' best interests. These
fiduciary duties arise under state law, Section 36 of the Investment Company
Act of 1940, the Investment Advisors Act of 1940 and ERISA. Such entities
would be in direct violation of their fiduciary duties if they made investment
or voting decisions for any purpose other than the fund's or account's best
interests. Since such entities are required by law to act independently of
Prudential's personal interests, Prudential and Seagull state that the Seagull
common stock held in the separate accounts and mutual funds managed by
Prudential entities should not be deemed to be owned or controlled by
Prudential.
Prudential and Seagull also state that Prudential will not
control or attempt to influence Seagull so as to make regulation necessary in
the public interest, and that the prime factors to consider in determining
whether regulation under the Act is required to serve the public interest are
(1) the size of the utility company, (2) the nature and extent of intercompany
relationships, (3) the ownership and distribution of the utility's securities,
and (4) the opportunity for excessive charges between the two companies for
financing, service and construction contracts. According to Prudential and
Seagull, under the size analysis, the need for regulation is lessened in this
instance because the combined Seagull/Global entity will have comparatively
minor utility assets and operations; the nature and extent of intercompany
relationships should not be of any concern, because Prudential and Seagull
currently have no relationship and, other than through the normal exercise of
voting rights of stockholders, Prudential will not attempt to control or
influence Seagull; Seagull's securities are publicly held and, as discussed
below, Prudential's ownership interest will be insufficient to materially
affect matters submitted to a vote of Seagull's stockholders; and there is no
risk of excessive charges for intercompany financing, service or construction
contracts because no such contracts exist and none are contemplated. For these
same reasons, Prudential and Seagull assert that there is no need to regulate
Prudential and Seagull as part of a holding company system for the protection
of investors and consumers.
6
<PAGE> 17
Other than through passive investments, Prudential states that
it has no interest in the utility industry. Prudential is a mutual life
insurance company engaged in various types of financial service businesses. An
officer of Prudential Capital Group is expected to become a director of
Seagull, but Prudential and Seagull state that this representation is only for
the purpose of protecting Prudential's financial interest and is not intended
as a method of controlling Seagull. After the consummation of the Merger,
Seagull is expected to have 14 directors, so Prudential's nominee will be
unable to break a quorum or vote down any matters brought before Seagull's
Board of Directors.
Finally, Prudential and Seagull assert that the Prudential
Family's ownership interests would be insufficient to significantly influence
Seagull. Seagull reports that all shares of Seagull common stock enjoy the
same rights and privileges. The holders of common stock are entitled to one
vote for each share held and are not permitted to cumulate their votes in
electing directors. The quorum for shareholder meetings of Seagull is a
majority of the outstanding shares of common stock. Seagull is a Texas
corporation, and two-thirds of all outstanding shares are required for approval
of mergers and other similar transactions pursuant to the Texas Business
Corporation Act. A total of 36,064,649, 36,123,702 and 36,354,466 shares of
Seagull common stock were represented at its 1994, 1995 and 1996 Annual
Meetings of Shareholders, representing 87%, 85% and 86%, respectively, of the
shares then outstanding. As a result, Prudential and Seagull assert that
Prudential will lack sufficient shares to prevent the formation of a quorum, to
block a merger or similar transaction, or to ensure the election of directors.
7
