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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
FALL RIVER GAS COMPANY
--------------------------------------------------------------------------------
(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):
/X/ No fee required.
/ / 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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
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FALL RIVER GAS COMPANY
155 NORTH MAIN STREET
P.O. BOX 911
FALL RIVER, MASSACHUSETTS 02722-0911
July 12, 2000
Dear Fellow Stockholder:
It is our pleasure to extend to you a cordial invitation to attend a special
meeting of Stockholders of Fall River Gas Company.
You may have read that your Board of Directors and the Board of Directors of
Southern Union Company have agreed on a merger. The enclosed proxy statement
asks for your approval of the merger and provides you with detailed
information about it. Please read this entire document carefully. You may
obtain additional information about Fall River Gas Company and Southern Union
Company from documents filed with the Securities and Exchange Commission.
YOUR BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS IN THE BEST INTEREST
OF FALL RIVER GAS COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE MERGER.
Your vote is important. The merger cannot be completed without the approval of
at least two-thirds of the outstanding shares of Fall River Gas Company common
stock entitled to vote at the meeting. Whether or not you expect to attend the
special meeting, please complete, sign and date the enclosed proxy and return
it promptly by mail in the enclosed envelope which requires no postage if
mailed in the United States.
The special meeting will be held at the office of Fall River Gas Company at
155 North Main Street, Fall River, Massachusetts beginning at 10:00 a.m.
(Eastern Time), on August 29, 2000. On behalf of your Board of Directors,
thank you for your continued support and interest in Fall River Gas Company.
Sincerely,
Bradford J. Faxon
President and Chief Executive Officer
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FALL RIVER GAS COMPANY
155 NORTH MAIN STREET
P.O. BOX 911
FALL RIVER, MASSACHUSETTS 02722-0911
TELEPHONE: (508) 675-7811
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 29, 2000
NOTICE IS HEREBY GIVEN that the special meeting of stockholders of Fall River
Gas Company will be held at the office of Fall River Gas Company on August 29,
2000, beginning at 10:00 a.m. (Eastern Time), for the following purposes:
(1) To approve and adopt the Agreement of Merger between Southern Union
Company and Fall River Gas Company; and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 5, 2000, as the
record date for the determination of holders of Fall River Gas Company common
stock entitled to notice of and to vote at the meeting.
If you plan to attend the meeting and are a stockholder of record, please mark
your proxy card in the appropriate space, or if voting by telephone, indicate
this intent during the telephone voting process. An admission ticket will be
mailed to you prior to the meeting date. However, if your shares are not
registered in your own name, please advise the stockholder of record (your
bank, broker, etc.) that you wish to attend. That firm will provide you with
evidence of your ownership which will enable you to gain admittance to the
meeting.
Whether you plan to attend the meeting or not, please complete, sign and date
the enclosed proxy and return it promptly by mail in the enclosed envelope. No
postage is required if mailed in the United States. Should you attend the
special meeting in person, you may if you wish, withdraw your proxy and vote
in person.
By order of the Board of Directors,
Robert J. Pollock
Clerk
Fall River, Massachusetts
July 12, 2000
IMPORTANT
MASSACHUSETTS LAW REQUIRES THAT THE HOLDERS OF A MAJORITY OF FALL RIVER GAS
COMPANY'S OUTSTANDING COMMON STOCK BE PRESENT IN PERSON OR BY PROXY AT THE
SPECIAL MEETING IN ORDER TO CONSTITUTE A QUORUM. STOCKHOLDERS CAN HELP AVOID
THE NECESSITY AND EXPENSE OF FOLLOW-UP LETTERS TO ASSURE THAT A QUORUM IS
PRESENT AT THE SPECIAL MEETING BY PROMPTLY RETURNING THE ENCLOSED PROXY OR
VOTING BY TELEPHONE. BROKER NON-VOTES, ABSTENTIONS, AND WITHHOLD AUTHORITY
VOTES ALL COUNT FOR THE PURPOSE OF DETERMINING A QUORUM. IN THE ABSENCE OF A
QUORUM, THE SPECIAL MEETING WILL BE ADJOURNED UNTIL A TIME ANNOUNCED AT SUCH
MEETING. AT THE ADJOURNED MEETING, THE STOCKHOLDERS IN ATTENDANCE, ALTHOUGH
LESS THAN A QUORUM, WILL NEVERTHELESS CONSTITUTE A QUORUM TO ACT ON ALL THE
MATTERS INCLUDED IN THIS PROXY STATEMENT, IF THE ADJOURNMENT HAS BEEN AT LEAST
FIFTEEN DAYS.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER....................................................................................1
WHERE YOU CAN FIND MORE INFORMATION.......................................................................................3
SUMMARY...................................................................................................................5
Overview.............................................................................................................5
The Companies........................................................................................................6
The Merger...........................................................................................................6
The Fall River Gas Special Meeting...................................................................................9
Summary of Other Selected Information...............................................................................11
Selected Historical and Pro Forma Financial Information.............................................................14
RISK FACTORS AND OTHER CONSIDERATIONS....................................................................................18
The Amount of Consideration Received in Stock May Vary as a Result of Fluctuations in Southern
Union's Stock Price.............................................................................................18
The Amount of Cash Paid to Stockholders Electing Cash May Be Reduced Proportionately................................19
The Combined Company May Not Realize Benefits of Integrating Our Companies, the Company
Southern Union Recently Acquired and the Other Companies Southern Union Has Agreed
to Acquire......................................................................................................19
Approvals May Not be Obtained or May Contain Unacceptable Restrictions..............................................19
Future Acquisitions May Not Achieve Favorable Financial Results, May Dilute Your Percentage
Ownership in Southern Union or Require Substantial Expenditures.................................................20
A Different Set of Factors and Conditions Affect Southern Union Stock and Could Have a Negative
Impact on Its Stock Price.......................................................................................20
Southern Union Does Not Pay Cash Dividends on its Common Stock......................................................20
Competition Within the Natural Gas Industry is Intense..............................................................21
The Terms of Merger-Related Financings May Adversely Affect the Combined Company....................................21
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE..........................................................................22
COMPARATIVE DIVIDENDS AND MARKET PRICES..................................................................................24
Southern Union......................................................................................................24
Fall River Gas .....................................................................................................25
Historical Equivalent Per Share Market Values.......................................................................26
COMPARATIVE PER SHARE DATA...............................................................................................26
RECENT DEVELOPMENTS......................................................................................................28
Southern Union......................................................................................................28
THE FALL RIVER GAS SPECIAL MEETING.......................................................................................29
Purpose, Time and Place ............................................................................................29
Record Date; Voting Power; Vote Required ...........................................................................29
Share Ownership of Management; Management Vote; Voting Agreement ...................................................29
Voting of Proxies...................................................................................................30
Revocability of Proxies.............................................................................................30
Solicitation of Proxies.............................................................................................31
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THE MERGER...............................................................................................................31
Fall River Gas Background of the Merger ............................................................................31
Fall River Gas Reasons for the Merger; Recommendation of Fall River Gas' Board of Directors.........................34
Opinion of Fall River Gas' Financial Advisor........................................................................36
Southern Union Background of the Merger; Reasons for Approval by the Southern Union Board of Directors..............39
Potential Conflicts and Interests of Certain Persons in the Merger..................................................40
Significant U.S. Federal Income Tax Consequences of the Merger .....................................................42
Regulatory Matters..................................................................................................44
Accounting Treatment................................................................................................46
No Appraisal Rights.................................................................................................46
Listing of Southern Union Common Stock..............................................................................46
Federal Securities Law Consequences.................................................................................46
MERGER-RELATED FINANCING ................................................................................................47
THE MERGER AGREEMENT.....................................................................................................48
Structure of the Merger.............................................................................................48
Closing; Effective Time.............................................................................................48
Merger Consideration................................................................................................48
Procedure for Filing Elections and Converting Fall River Gas Common Stock into Merger Consideration.................50
Paying Agent; Lost Certificates.....................................................................................50
Fall River Gas Indenture............................................................................................51
Representations and Warranties .....................................................................................51
Covenants and Other Agreements......................................................................................53
No Solicitation by Fall River Gas...................................................................................57
Conditions to the Completion of the Merger..........................................................................59
Indemnification and Insurance for Fall River Gas Officers and Directors.............................................60
Amendments..........................................................................................................60
Termination of the Merger Agreement.................................................................................61
Termination Fees and Expenses.......................................................................................62
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS..............................................................64
THE COMPANIES............................................................................................................72
Southern Union......................................................................................................72
Fall River Gas......................................................................................................74
DESCRIPTION OF SOUTHERN UNION CAPITAL STOCK..............................................................................75
General.............................................................................................................75
Southern Union Common Stock.........................................................................................75
Southern Union Preferred Stock......................................................................................75
Transfer Agent and Registrar........................................................................................76
COMPARISON OF FALL RIVER GAS AND SOUTHERN UNION STOCKHOLDER RIGHTS.......................................................77
PRINCIPAL STOCKHOLDERS...................................................................................................89
Beneficial Owners of More Than 5% of Southern Union's Outstanding Common Stock......................................89
Southern Union Management Ownership ................................................................................90
Beneficial Owners of More Than 5% of Fall River Gas' Common Stock...................................................91
Fall River Gas Management Ownership.................................................................................92
PROPOSALS OF STOCKHOLDERS................................................................................................93
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OTHER MATTERS............................................................................................................93
LEGAL MATTERS............................................................................................................93
EXPERTS..................................................................................................................93
OTHER BUSINESS...........................................................................................................94
APPENDIX A -- Agreement of Merger between Southern Union Company and Fall River Gas Company
APPENDIX B -- Opinion of Legg Mason Wood Walker, Incorporated
APPENDIX C -- Voting Agreement between Southern Union Company and Certain Fall River Gas
Stockholders
APPENDIX D -- Southern Union Voting Agreement and Proxy for Fall River Gas Company
</TABLE>
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The accompanying proxy, to be mailed to Fall River Gas Company ("Fall River
Gas") stockholders together with the Notice of Special Meeting and this proxy
statement/prospectus on or about July 12, 2000, is solicited by Fall River Gas
in connection with the special meeting to be held on August 29, 2000.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN TO FALL RIVER GAS AS A RESULT OF THE MERGER?
A: If the merger is completed, Fall River Gas will merge into Southern Union
Company ("Southern Union"), Fall River Gas' utility operations will become
a division of Southern Union, and Fall River Gas' non-regulated subsidiary
will become a subsidiary of Southern Union.
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 your proxy and return it in the enclosed envelope as soon as
possible so that your shares may be represented at the special meeting.
Failing to vote in person or by proxy will have the same effect as a vote
against the merger agreement.
Q: WHAT IS THE REQUIRED VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT?
A: The merger agreement must be approved and adopted by the holders of at
least two-thirds of the shares of Fall River Gas common stock entitled to
vote at the special meeting.
Q. WHAT WILL YOU RECEIVE IF THE MERGER IS COMPLETED?
A. You will have the option to elect either cash or Southern Union common
stock or a combination of both in exchange for your shares. You may elect
to receive either $23.50 in cash for each share you own or a number of
shares of Southern Union common stock equal to an exchange ratio. The
exchange ratio will be adjusted shortly before the closing of the merger
to ensure that the value of the Southern Union common stock you receive,
for each share of Fall River Gas common stock you own, will be
approximately $23.50. This election is subject to the limitation that no
more than 50% of the aggregate consideration paid to all Fall River Gas
stockholders may be in cash.
Please read the more detailed description of the consideration to be
issued in the merger on pages 48 through 50.
Q. WILL I ALWAYS RECEIVE THE SPECIFIC AMOUNTS OF CASH AND STOCK THAT I HAVE
ELECTED?
A: If you elect stock consideration, you will receive the amount of whole
shares of Southern Union common stock you elected and you will get cash
for any fractional shares that you would otherwise receive. However, if
you elect cash, the amount of cash you receive as consideration in the
merger may be less than the amount you actually elected if too many other
Fall River Gas stockholders elect cash. If the Fall River Gas
stockholders as a whole exceed the cash limitation, the amount of cash
paid to each stockholder electing cash will be reduced proportionately.
Please read the more detailed description of the consideration to be
issued in the merger on pages 48 through 50.
Q: WHO IS ENTITLED TO VOTE?
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A: Stockholders as of the close of business on the record date, July 5, 2000
are entitled to vote at the special meeting.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before the vote takes place at
the special meeting. To do so, you can attend the special meeting and vote
in person. Or, you can complete a new proxy card or send a written notice
stating you would like to revoke your proxy. These should be sent to: Fall
River Gas Company, 155 North Main Street, P.O. Box 911, Fall River,
Massachusetts 02722-0911, Attention: Clerk. This notice must reach the
Clerk before the proxy is voted.
Q: MY SHARES ARE HELD IN "STREET NAME." WILL MY BROKER VOTE MY SHARES ON THE
MERGER?
A: A broker will vote your shares on the merger agreement only if you provide
your broker with instructions on how to vote. You should follow the
directions provided by your broker(s) regarding how to instruct brokers to
vote the shares.
Q. AM I ENTITLED TO STATUTORY APPRAISAL RIGHTS?
A: No, Fall River Gas stockholders are not entitled to appraisal rights under
Massachusetts law.
Q: SHOULD I SEND IN MY CERTIFICATES NOW?
A: No. After the merger is completed, Southern Union will send written
instructions to you for exchanging your stock certificates. YOU SHOULD NOT
SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional
copies of this document or the enclosed proxy, you should contact Peter
H. Thanas, Senior Vice President and Treasurer, Fall River Gas Company,
155 North Main Street, P.O. Box 911, Fall River, Massachusetts 02722.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: Fall River Gas and Southern Union are working as quickly as possible and
hope to complete the merger in September 2000.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). Any reports,
statements or other information that the companies have filed may be read and
copied at the following locations of the SEC.
Public Reference Room New York Regional Office Chicago Regional Center
Room 1024 Suite 100 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, D.C. 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois
60661-2511
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on
the public reference rooms. Southern Union's and Fall River Gas' SEC filings
should also be available to the public from commercial retrieval services and
at the Internet web site maintained by the SEC at http://www.sec.gov.
In addition, materials and information concerning Fall River Gas can be
inspected at the American Stock Exchange, Inc., The Office of the Secretary,
86 Trinity Place, 12th Floor, New York, New York 10006, where Fall River Gas
Common Stock is listed. Materials and information concerning Southern Union
can be inspected at the New York Stock Exchange, Inc., 20 Broad Street, 7th
Floor, New York, New York 10005, where Southern Union common stock is listed.
The SEC allows us to "incorporate by reference" certain information into this
proxy statement/prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of
this document, except for any additional information that is superseded by
information contained directly in this document. We incorporate by reference
the documents listed below that were previously filed with the SEC by Southern
Union (SEC File No. 1-06407) and Fall River Gas (SEC File No. 1-13517). These
documents contain important information (including the financial condition)
about our company and Southern Union.
SEC FILINGS REGARDING SOUTHERN UNION (FILE NO. 1-06407)
- Southern Union's Annual Report on Form 10-K for the fiscal year ended June
30, 1999.
- Southern Union's Definitive Proxy Statement on Schedule 14A for the 1999
Annual Meeting of Stockholders filed with the SEC on September 17, 1999.
- Southern Union's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
- Southern Union's Form 8-K, filed with the SEC on October 8, 1999.
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- Southern Union's Form 8-K, filed with the SEC on November 18, 1999 (which
incorporates by reference financial information for Pennsylvania
Enterprises, Inc.).
- Southern Union's Forms 8-K (two), filed with the SEC on November 19, 1999.
- Southern Union's Form 8-K, filed with the SEC on December 6, 1999.
- Southern Union's Form 8-K, filed with the SEC on December 30, 1999.
- Southern Union's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999.
- Southern Union's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000.
- Southern Union's Form 8-K, filed with the SEC on June 5, 2000 (which
includes certain historical financial information for Pennsylvania
Enterprises, Inc., ProvEnergy Corporation and Valley Resources, Inc.).
- Southern Union's Definitive Proxy Statement on Schedule 14A for a Special
Meeting of Stockholders to be held on August 29, 2000, filed with the SEC
on July 11, 2000.
SEC FILINGS REGARDING FALL RIVER GAS (FILE NO. 1-13517)
- Fall River Gas' Annual Report on Form 10-K for the fiscal year ended
September 30, 1999.
- Fall River Gas' Form 8-K, filed with the SEC on October 20, 1999.
- Fall River Gas' Quarterly Report on Form 10-Q for the quarter ended
December 31, 1999.
- Fall River Gas' Definitive Proxy Statement on Schedule 14A for the 2000
Annual Meeting of Stockholders filed with the SEC on December 21, 1999.
- Fall River Gas' Quarterly Report on Form 10-Q for the quarter ended March
31, 2000.
Southern Union and Fall River Gas may be required by the SEC to file other
documents pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 between the time this proxy statement/prospectus is sent
and the date the Fall River Gas special meeting is held. These other documents
will be considered to be incorporated by reference in this proxy
statement/prospectus and to be a part of it from the date they are filed with
the SEC.
Fall River Gas may have sent you some of the documents regarding Fall River
Gas that are incorporated by reference, but you can obtain any of them through
Fall River Gas, the SEC or the SEC's Internet web site as previously
described. Likewise, you can obtain the documents regarding Southern Union
that are incorporated by reference through Southern Union, the SEC or the
SEC's Internet web site as previously described.
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Documents incorporated by reference as exhibits to this proxy
statement/prospectus are available from Southern Union and Fall River Gas
without charge. You may obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses:
SOUTHERN UNION COMPANY FALL RIVER GAS COMPANY
Attention: George Yankowski Attention: Peter H. Thanas
Director-Investor Relations Senior Vice President and Treasurer
504 Lavaca Street, Eighth Floor 155 North Main Street
Austin, Texas 78701 P.O. Box 911
(512) 477-5852 Fall River, Massachusetts 02722-0911
(508) 675-7811
If you would like to request documents from Southern Union or Fall River Gas,
please do so promptly in order to receive them before Fall River Gas' special
meeting.
All information contained in or incorporated by reference in this proxy
statement/prospectus with respect to Southern Union has been provided by
Southern Union. All information contained in or incorporated by reference in
this proxy statement/prospectus with respect to Fall River Gas has been
provided by Fall River Gas. Neither Southern Union nor Fall River Gas assumes
any responsibility for the accuracy or completeness of the information
provided by the other party.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER AGREEMENT. NEITHER
SOUTHERN UNION NOR FALL RIVER GAS HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED JULY 12, 2000.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE
COMPLETION OF THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER AND FOR A MORE COMPLETE DESCRIPTION
OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT
CAREFULLY AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGE 3. WE HAVE INCLUDED PAGE REFERENCES IN
PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS
PRESENTED IN THIS SUMMARY. ("WE" AND "OUR" AS USED IN THIS DOCUMENT REFER TO
SOUTHERN UNION AND FALL RIVER GAS.)
OVERVIEW
Southern Union and Fall River Gas entered into a merger agreement on October
4, 1999. We are asking you to approve this merger agreement. The merger
agreement sets forth the terms and conditions and the details of the
transactions through which Southern Union proposes to acquire Fall River Gas.
Under the terms of
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the merger agreement, at the closing, each outstanding share of Fall River Gas
common stock will be converted into the right to receive either $23.50 in cash
or a number of shares of Southern Union common stock equal to an exchange
ratio that will be adjusted shortly before the closing of the merger to ensure
that the value of Southern Union common stock received for each share of Fall
River Gas common stock will be approximately $23.50, or a combination of both,
depending on each Fall River Gas stockholder's election. At least 50% of all
outstanding shares of Fall River Gas must be exchanged for shares of Southern
Union common stock.
Upon completion of the transactions contemplated by the merger agreement, Fall
River Gas will be merged into Southern Union and its utility business will be
operated as a division of Southern Union. Fall River Gas' non-regulated
subsidiary will become a subsidiary of Southern Union.
THE COMPANIES
SOUTHERN UNION (SEE PAGE 72)
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 and operates natural gas
pipeline systems, generates and markets electricity, and constructs, maintains
and rehabilitates natural gas distribution pipelines.
Southern Union recently completed a merger with Pennsylvania Enterprises, Inc.
("PEI"), on November 4, 1999. Later on November 14 and 30, 1999, Southern
Union entered into merger agreements with Providence Energy Corporation
("ProvEnergy") and Valley Resources, Inc ("Valley Resources"). See "Recent
Developments - Southern Union."
FALL RIVER GAS (SEE PAGE 74)
Fall River Gas is a publicly owned company, headquartered in Fall River,
Massachusetts, that is primarily engaged in the distribution of natural gas.
Fall River Gas provides natural gas to more than 48,000 customers in
southeastern Massachusetts. Through its non-regulated subsidiary, Fall River
Gas markets and rents water heaters, conversion burners and central heating
and air conditioning systems to customers in Fall River Gas' service area.
THE MERGER
SUMMARY (SEE PAGE 48)
We are asking you to approve and adopt the merger agreement that provides for
the merger of Fall River Gas into Southern Union. Fall River Gas' utility
operations will become a division of Southern Union, and Fall River Gas'
non-regulated subsidiary will become a subsidiary of Southern Union. When we
speak about
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the "merger" and the "merger agreement" in this proxy statement/prospectus, we
mean the merger of Fall River Gas into Southern Union and the agreement that
sets forth the details of that merger.
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The merger will become effective following the approval of the merger
agreement by the stockholders of Fall River Gas and the satisfaction or waiver
of all other conditions to the merger. At this time, these conditions include
certain approvals of the state regulatory commissions of Massachusetts,
Pennsylvania and Florida.
The merger agreement is attached at the back of this proxy
statement/prospectus as Appendix A. We encourage you to read the merger
agreement since it is the legal document that governs the merger.
WHAT HOLDERS OF FALL RIVER GAS COMMON STOCK WILL RECEIVE IN THE MERGER (SEE
PAGE 48)
When the merger is completed, your shares of Fall River Gas common stock will
be cancelled. You will have the option to elect either cash or Southern Union
common stock or a combination of both in exchange for your shares of Fall
River Gas, subject to certain limitations.
Each share of your Fall River Gas common stock that you elect to exchange for
cash will be converted into the right to receive $23.50 in cash, unless too
many Fall River Gas stockholders elect to receive cash. No more than 50% of
the aggregate consideration paid to all Fall River Gas stockholders may
consist of cash, including cash paid to Fall River Gas stockholders in lieu of
issuing them fractional shares of Southern Union common stock. If the Fall
River Gas stockholders' elections to receive cash for their shares exceed this
cash limitation, the amount of cash paid to each Fall River Gas stockholder
electing cash will be reduced proportionately. Thus, if too many Fall River
Gas stockholders elect to receive cash, consequently exceeding the cash
limitation, a combination of cash and Southern Union common stock having a
deemed value of $23.50 will be delivered to Fall River Gas stockholders in
exchange for each share they elected to be exchanged for cash.
Each share of your Fall River Gas common stock that you elect to exchange for
Southern Union common stock or do not elect to exchange for cash (or cannot
exchange for cash because too many Fall River Gas stockholders have elected to
exchange for cash as described above), will be converted into the right to
receive that number of whole shares of Southern Union common stock having a
value of $23.50. Southern Union will not issue any fractional shares of its
common stock in the merger. Instead, you will get cash for any fractional
shares of Southern Union common stock you would otherwise receive.
You will be entitled to receive Southern Union common stock in the merger if:
- you elect to receive Southern Union common stock;
- you elect to receive cash and Fall River Gas stockholders exceed the cash
limitation;
- you do not indicate a preference as to the type of consideration you want
to receive; or
- you do not properly complete the form of election provided to you by the
company Southern Union has selected to be the paying agent in connection
with the merger.
The exact number of shares of Southern Union common stock you will receive for
each share of Fall River Gas common stock that you own will depend on the
average price of Southern Union common stock on the New York Stock Exchange
for the ten trading-day period beginning on the twelfth trading day and ending
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on the third trading day before the closing of the merger (counting from and
including the trading day immediately before the closing).
If the average price of Southern Union's common stock during this ten
trading-day period is:
- Above $19.6875, the number of shares of Southern Union common stock will
be fixed at 1.19365 for each share of Fall River Gas common stock.
- Between $16.875 and $19.6875, the number of shares of Southern Union
common stock will be adjusted so that each share of Fall River Gas' common
stock will be exchanged for Southern Union common stock having a value
equal to $23.50 divided by the average trading price during the period of
time described above.
- Below $16.875, but at least $15.00, the number of shares of Southern Union
common stock will be fixed at 1.39259 for each share of Fall River Gas
common stock.
- Below $15.00, Fall River Gas has the option to terminate the merger
agreement. If Fall River Gas does not terminate the merger agreement, you
will receive 1.39259 shares of Southern Union common stock per share of
Fall River Gas common stock.
PROCEDURE FOR FILING ELECTIONS AND CONVERTING FALL RIVER GAS COMMON STOCK INTO
MERGER CONSIDERATION (SEE PAGE 50)
A form of election and complete instructions for properly making an election
to receive either cash or Southern Union common stock or a combination of cash
and Southern Union common stock will be delivered under separate cover to
holders of record of shares of Fall River Gas (as of a record date as close as
practicable to the date of mailing) at least 15 business days prior to the
anticipated closing date of the merger. The closing date of the merger is
expected to occur in September 2000.
Fall River Gas stockholders will be entitled to choose one of the following
consideration options, which will be listed on their form of election:
- to receive cash for each share of Fall River Gas they own;
- to receive Southern Union common stock for each share of Fall River Gas
they own;
- to exchange some of their shares of Fall River Gas for cash and some for
Southern Union common stock; or
- to indicate no preference as to type of consideration.
You will be eligible to receive cash only if the paying agent has received a
properly completed form of election at its designated office or offices by
4:00 p.m., Eastern Time, on the third business day prior to the closing date
of the merger. You will be eligible to receive as consideration only shares of
Southern Union common stock if:
9
<PAGE>
- the form of election you submit indicates a preference to receive only
shares of Southern Union common stock;
- the form of election you submit indicates no preference as to form of
consideration; or
- you fail to submit a properly completed form of election prior to the
deadline for submitting cash elections.
You may revoke your election only if Southern Union's paying agent receives
written notice of revocation prior to the deadline for submitting cash
elections.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 42)
In regard to the Southern Union common stock and cash received in the merger,
a Fall River Gas stockholder will generally recognize capital gain for U.S.
federal income tax purposes in an amount equal to the lesser of (i) the amount
of cash received or (ii) the excess of the amount of cash and the fair market
value of Southern Union common stock received in the merger over the tax basis
of the Fall River Gas common stock surrendered.
The merger will not result in the recognition of gain or loss to Southern
Union or Fall River Gas.
SINCE THE TAX CONSEQUENCES OF THE MERGER TO YOU MAY VARY DEPENDING UPON YOUR
PARTICULAR CIRCUMSTANCES AS A FALL RIVER GAS STOCKHOLDER, YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS REGARDING THE FEDERAL (AND ANY STATE, LOCAL OR FOREIGN)
TAX CONSEQUENCES OF THE MERGER IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.
RECOMMENDATION TO FALL RIVER GAS COMMON STOCKHOLDERS (SEE PAGE 34)
The Fall River Gas board of directors believes that the merger is in the best
interest of Fall River Gas stockholders and recommends that holders of Fall
River Gas common stock vote "FOR" the approval and adoption of the merger
agreement. The reasons for the board's recommendation are set forth on pages
34 to 36.
FAIRNESS OPINION OF FALL RIVER GAS' FINANCIAL ADVISOR (SEE PAGE 36)
In deciding to approve the merger, the Fall River Gas board of directors
considered an opinion from its financial advisor Legg Mason Wood Walker,
Incorporated ("Legg Mason") to the effect that, as of the date of the merger
agreement, the consideration to be received by Fall River Gas stockholders was
fair to the stockholders from a financial point of view. This opinion is
attached as Appendix B to this proxy statement/prospectus. We encourage you to
read this opinion.
THE FALL RIVER GAS SPECIAL MEETING
10
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The Fall River Gas special meeting will be held at 10:00 a.m. (Eastern Time)
on August 29, 2000, at the office of Fall River Gas, 155 North Main Street,
Fall River, Massachusetts 02722. At the meeting, holders of Fall River Gas
common stock will be asked to approve and adopt the merger agreement.
RECORD DATE; VOTING RIGHTS; VOTING AGREEMENT (SEE PAGE 29)
If you owned shares of Fall River Gas common stock as of the close of business
on July 5, 2000, you are entitled to vote at the special meeting.
On that date, there were 2,252,429 shares of Fall River Gas common stock
outstanding. Holders of Fall River Gas common stock will have one vote at the
special meeting for each share of Fall River Gas common stock they own on that
date.
In connection with the merger, Barbara N. Jarabek, as trustee to The Jarabek
Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon, Raymond H.
Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H. Bilodeau
each entered into a voting agreement with Southern Union. According to the
terms of the voting agreement, these stockholders: 1) agreed to vote or cause
to be voted their shares of Fall River Gas common stock in favor of the merger
and the adoption and approval of the merger agreement, and 2) granted Southern
Union an irrevocable proxy to vote their shares of Fall River Gas common stock
for the approval and adoption of the merger agreement and the performance of
transactions related to the merger. As of the special meeting record date, the
number of shares beneficially owned by the Fall River Gas stockholders who
entered into the voting agreement and granted this irrevocable proxy
represented approximately 25.6% of the outstanding shares of Fall River Gas
common stock entitled to vote on the approval and adoption of the merger
agreement and performance of transactions related to the merger agreement.
Of the 572,510 shares of Fall River Gas common stock represented by the
stockholders who are parties to the voting agreement, as of May 31, 2000,
276,800 shares were beneficially owned by executive officers and directors of
Fall River Gas. The voting agreement is attached as Appendix C to this proxy
statement/prospectus. See "The Merger Agreement - Covenants and other
Agreements - Fall River Gas Voting Agreement."
As of the close of business on May 31, 2000, directors and officers of Fall
River Gas beneficially owned and were entitled to vote approximately 297,216
shares of Fall River Gas common stock, which represented approximately 13.3%
of the shares of Fall River Gas outstanding on that date. Each of them has
indicated his or her present intention to vote, or cause to be voted, the Fall
River Gas common stock owned by him or her for the proposal to approve and
adopt the merger agreement.
QUORUM; REQUIRED VOTE (SEE PAGE 29)
A majority of the shares of Fall River Gas common stock outstanding and
entitled to vote on the record date must be present in person or by proxy at
the special meeting or voted by telephone in order for a quorum to be present.
11
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Consummation of the merger requires the approval of at least two-thirds of the
shares of Fall River Gas outstanding and entitled to vote at the meeting.
If you hold your shares of Fall River Gas common stock through a broker or
nominee, you must instruct your broker on how you would like to vote or these
shares will not be voted, although they may be counted as present if your
broker or nominee returns a proxy card without any voting instructions.
Similarly, a properly executed proxy marked "ABSTAIN" will be counted as
present, but will not be counted as a vote cast. ACCORDINGLY, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
SUMMARY OF OTHER SELECTED INFORMATION
POTENTIAL CONFLICTS AND INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE
PAGE 40)
Fall River Gas officers and the Fall River Gas board have interests in the
merger that may be different from, or in addition to, the interest of Fall
River Gas stockholders generally and may represent conflicts of interest.
The merger will constitute a "change in control" of Fall River Gas and this
will entitle certain Fall River Gas officers, in accordance with the terms of
their respective employment agreements, to receive lump sum severance benefits
if the officer is terminated without cause or terminates his or her own
employment within thirty-six months after the date the merger is completed. On
October 4, 1999, these employment agreements were amended. These amendments
will become effective as of the date the merger is completed. These amendments
provide for payment to Bradford J. Faxon, Peter H. Thanas and John F. Fanning
of $1,000,000, $700,000 and $300,000, respectively. If Messrs. Faxon, Thanas
and Fanning continue their employment with Fall River Gas, these payments will
be made in equal monthly installments over an eighteen-month period beginning
on the effective date of the merger. These payments would be offset against
any severance payments that may become owed under any of these agreements, in
certain circumstances.
For six years after the merger, Southern Union has also agreed to indemnify,
and use its reasonable best efforts to provide liability insurance for present
and former officers and directors of Fall River Gas against acts and omissions
occurring before the merger under certain circumstances.
The Fall River Gas board was aware of these interests and considered them in
approving the merger agreement.
REGULATORY APPROVALS (SEE PAGE 44)
Certain approvals from the state regulatory commissions of Massachusetts,
Missouri and Pennsylvania, as well as the expiration or earlier termination of
the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 are required in order to complete the merger.
Authorization from the state regulatory commissions of Florida and
Pennsylvania for Southern Union to issue debt securities and/or common stock
sufficient to complete the merger is also required. As of the date of this
proxy statement/prospectus, only the required regulatory approvals from the
Missouri and Pennsylvania commissions for the merger have been obtained.
12
<PAGE>
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 Fall
River Gas and the Massachusetts Department of Telecommunications and Energy
that it intends to seek, and through its proxy is seeking, such stockholder
approval at the Southern Union special meeting.
Southern Union has advised Fall River Gas that George Lindemann, the Chairman
of the Board and Chief Executive Officer of Southern Union, and members of his
immediate family have advised Southern Union that they intend 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 Fall River Gas merger
agreement and the transactions contemplated thereby. As of June 30, 2000,
those Lindemann family members beneficially owned and were entitled to vote
approximately 27% of the shares of Southern Union common stock then
outstanding.
Southern Union has advised Fall River Gas that each of Southern Union's
directors and executive officers has advised Southern Union that they intend
to vote the shares of Southern Union common stock that they beneficially own
and are entitled to vote in favor of the approval of the Fall River Gas merger
agreement and the transactions contemplated thereby. As of June 30, 2000,
those directors and executive officers other than the Lindemanns, discussed
above, beneficially owned and were entitled to vote approximately 5% of the
shares of Southern Union common stock outstanding. Together with the
Lindemanns, this represents a total of approximately 32% of the shares of
Southern Union common stock outstanding as of June 30, 2000.
CONDITIONS TO THE MERGER (SEE PAGE 59)
Completion of the merger depends on the satisfaction of certain conditions,
including:
- Approval by Fall River Gas stockholders.
- All required governmental approvals obtained without material adverse
conditions. To facilitate obtaining the approval of the transaction by the
Massachusetts Department of Telecommunications and Energy, Southern Union
is seeking approval of the transaction at the Southern Union special
meeting by holders of two-thirds of the outstanding shares of Southern
Union common stock.
- No court or administrative order issued to prevent the merger.
- Effectiveness of the registration statement in which this proxy
statement/prospectus is included.
- Listing on the NYSE of the Southern Union common stock being issued to
Fall River Gas stockholders in connection with the merger.
- The receipt of certain third-party consents and approvals.
AMENDMENT OF THE MERGER AGREEMENT (SEE PAGE 60)
13
<PAGE>
Southern Union and Fall River Gas may amend in writing the terms of the merger
agreement.
TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEES (SEE PAGE 61 AND PAGE
62)
Fall River Gas and Southern Union may terminate the merger agreement by mutual
written consent without completing the merger. The merger agreement may be
terminated by either Fall River Gas or Southern Union in the following
instances:
- if less than two-thirds of the Fall River Gas stockholders vote to approve
the merger;
- if a court issues a non-appealable order that prohibits the consummation
of the merger;
- if the merger is not completed by October 15, 2000 (this date may be
extended to February 28, 2001 to obtain certain governmental approvals);
or
- if the other party breaches a warranty, covenant, agreement or
representation contained in the merger agreement.
Fall River Gas may terminate the merger if the average trading price of
Southern Union common stock used to determine the number of shares of Southern
Union common stock to be received by Fall River Gas stockholders in the merger
is lower than $15.00.
Also, the merger agreement may be terminated by Fall River Gas if it signs an
agreement for a business combination with another party under certain
circumstances. Additionally, Southern Union may terminate the merger if: 1)
the Fall River Gas board or one of its committees withdraws or modifies its
approval or recommendation of approval of the merger agreement to the Fall
River Gas stockholders; or 2) if a third party or group acquires a majority of
Fall River Gas' shares. In any of these events, Fall River Gas may be required
to pay Southern Union a termination fee of $1.5 million.
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 77)
When the merger is completed, a holder of Fall River Gas common stock, to the
extent he has not received cash in exchange for any or all of his shares, will
be a stockholder of Southern Union. The rights of these stockholders will be
governed by Delaware law and Southern Union's restated certificate of
incorporation and bylaws (instead of Massachusetts law and Fall River Gas'
articles of organization and bylaws), subject to any continuing application of
any Massachusetts law provisions as a result of Southern Union becoming a
Massachusetts utility. Certain differences between the rights of holders of
Southern Union common stock and those of holders of Fall River Gas common
stock are summarized on pages 77 to 88.
ACCOUNTING TREATMENT (SEE PAGE 46)
The merger will be accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles.
NO STATUTORY APPRAISAL RIGHTS (SEE PAGE 46)
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Holders of Fall River Gas common stock who do not vote in favor of the merger
will not be entitled to appraisal rights.
COMPARATIVE PER SHARE COMMON STOCK MARKET PRICE INFORMATION (SEE PAGE 26)
Southern Union common stock is listed on the New York Stock Exchange. Fall
River Gas common stock is listed on the American Stock Exchange. On October 4,
1999, the date of the merger agreement, Southern Union common stock closed at
$18.69 and Fall River Gas common stock closed at $21.00. On October 1, 1999,
the last full trading day prior to the public announcement of the merger,
Southern Union common stock closed at $18.75 and Fall River Gas common stock
closed at $20.75. These Southern Union common stock prices are actual
historical trading prices on the stated dates and are not restated to give
effect to any stock dividends distributed.
LISTING OF SOUTHERN UNION COMMON STOCK (SEE PAGE 46)
Southern Union will list the shares of its common stock to be issued in the
merger on the NYSE.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The summary below sets forth selected historical financial and market data and
selected unaudited pro forma combined condensed financial data. The financial
data should be read in conjunction with the documents incorporated by
reference and the historical financial statements and the related notes of
Southern Union, PEI, Fall River Gas, ProvEnergy, and Valley Resources
incorporated by reference, and in conjunction with the Unaudited Pro Forma
Combined Condensed Financial Statements and the related notes thereto included
under "Unaudited Pro Forma Combined Condensed Financial Statements."
15
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF SOUTHERN UNION
The selected historical financial data of Southern Union have been derived from
the audited historical consolidated financial statements and related notes of
Southern Union for each of the years in the five-year period ended June 30, 1999
and the unaudited consolidated financial statements for the nine months ended
March 31, 2000 and 1999. The historical data are only a summary, and you should
read them in conjunction with the historical financial statements and related
notes contained in the annual and quarterly reports for Southern Union, which
have been incorporated by reference in this proxy statement/prospectus. See
"Where You Can Find More Information." Operating results for the nine months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 2000.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------------------------------- ------------------------
1999(a)(b) 1998(a)(b) 1997(a) 1996(a) 1995 2000(c) 1999
----------- ---------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating revenues ............ $ 605,231 $ 669,304 $ 717,031 $ 620,391 $ 479,983 $ 669,170 $ 503,543
Earnings from continuing
operations (d) ................... 10,445 12,229 19,032 20,839 16,069 20,547 15,950
Diluted earnings per share (e) ...... 0.31 0.37 0.59 0.65 0.51 0.47 0.47
Total assets ........................ 1,087,348 1,047,764 990,403 964,460 992,597 1,864,971 1,112,825
Common stockholders' equity ......... 301,058 296,834 267,462 245,915 225,664 630,953 312,904
Short-term debt and capital
lease obligation ................. 2,066 1,777 687 615 770 2,169 2,033
Long-term debt and capital lease
obligation, excluding current
portion .......................... 390,931 406,407 386,157 385,394 462,503 734,320 411,460
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trust .............. 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Average customers served ............ 998,476 979,186 955,838 952,934 947,691 1,101,585 996,052
</TABLE>
--------------------
(a) Certain Texas and Oklahoma Panhandle distribution operations and Western
Gas Interstate (a former subsidiary of Southern Union), exclusive of the
Del Norte interconnect, were sold on May 1, 1996.
(b) On December 31, 1997, Southern Union acquired Atlantic Utilities
Corporation and Subsidiaries for 755,650 pre-split and pre-stock dividend
shares of common stock valued at $18,041,000 and cash of $4,436,000.
(c) PEI was acquired on November 4, 1999 and was accounted for as a purchase.
PEI's assets are included in the Company's consolidated balance sheet at
March 31, 2000 and its results of operations have been included in the
Company's consolidated results of operations since November 4, 1999. For
these reasons, the consolidated results of operations of the company for
the periods subsequent to the acquisition are not comparable to the same
periods in prior years.
(d) As of June 30, 1998, Missouri Gas Energy (a division of Southern Union)
wrote off $8,163,000 pre-tax in previously recorded regulatory assets as a
result of announced rate orders and court rulings.
(e) Earnings per share for all periods presented were computed based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year adjusted for (i) the 5% stock
dividends distributed on June 30, 2000, August 6, 1999, December 9, 1998,
December 10, 1997, December 10, 1996 and November 27, 1995, and (ii) the
50% stock dividend distributed on July 13, 1998 and the 33 1/3% stock
dividend distributed on March 11, 1996.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF FALL RIVER GAS
The selected historical financial data of Fall River Gas have been derived from
the audited historical consolidated financial statements and related notes of
Fall River Gas for each of the years in the five-year period ended September 30,
1999 and the unaudited consolidated financial statements for the six months
ended March 31, 2000 and 1999. The historical data are only a summary, and you
should read them in conjunction with the historical financial statements and
related notes contained in the annual and quarterly reports for Fall River Gas,
which have been incorporated by reference in this proxy statement/prospectus.
See "Where You Can Find More Information." Operating results for the six months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending September 30, 2000.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------ -----------------
1999 1998 1997 1996 1995 2000 1999
-------- ------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gas operating revenues ............. $42,081 $42,671 $45,261 $48,966 $44,418 $31,005 $30,755
Operating expenses ................. 39,365 39,693 42,400 46,624 42,112 28,793 28,311
Operating income ................... 2,716 2,978 2,861 2,342 2,306 2,212 2,444
Net income ......................... 2,100 2,080 1,625 1,424 1,617 1,732 2,084
COMMON STOCK INFORMATION:
Weighted average number of
shares outstanding in thousands .. 2,197 2,146 1,785 1,781 1,781 2,214 2,194
Earnings per share of common stock.. 0.96 0.97 0.91 0.80 0.91 0.78 0.95
Cash dividends per share of
common stock ..................... 0.96 0.96 0.96 0.96 0.96 0.48 0.48
CAPITALIZATION AT END
OF PERIOD:
Common shareholders' investment .... 17,584 17,430 12,618 12,637 12,922 19,369 19,076
Long-term debt ..................... 19,500 19,500 13,500 13,500 6,500 19,500 19,500
Total capitalization ............... 37,084 36,930 26,118 26,137 19,422 38,869 38,576
TOTAL ASSETS AT END OF PERIOD: ........ 55,683 55,639 54,935 53,191 50,957 59,172 56,511
</TABLE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial data
presents the combined financial data of Southern Union, Fall River Gas, PEI,
ProvEnergy and Valley Resources including their respective subsidiaries, after
giving effect to Southern Union's merger with each of them. The PEI merger,
completed on November 4, 1999, was, and the Fall River Gas, ProvEnergy and
Valley Resources mergers will be, accounted for as a purchase. The unaudited pro
forma combined condensed financial data also give effect to Southern Union's
issuance of $300 million of senior notes that was completed on November 3, 1999,
in anticipation of the PEI merger, prospective financing for the pending
acquisitions by merger of Fall River Gas, ProvEnergy and Valley Resources, and
the assumption of certain debt of the acquired companies. All of these
transactions are assumed to be effective for the period indicated in the
following selected unaudited pro forma combined condensed financial data (see
"Recent Developments").
The selected unaudited pro forma combined condensed financial data as of and for
the year ended June 30, 1999, and as of and for the nine months ended March 31,
2000, were derived from and should be read in conjunction with the Unaudited Pro
Forma Combined Condensed Balance Sheet and the Unaudited Pro Forma Combined
Condensed Statement of Operations, including the notes thereto, which are
included in
17
<PAGE>
this proxy statement on pages 64 to 71, and other filings with the SEC by
each of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources.
The selected unaudited pro forma combined condensed financial data should
also be read in conjunction with the historical financial statements and
related notes of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley
Resources which are incorporated herein by reference, including by reference
to a Southern Union Current Report on Form 8-K (see "Where You Can Find More
Information") and are available in the respective reports these companies
have filed with the SEC.
The selected unaudited pro forma combined condensed financial data is presented
for purposes of illustration only in accordance with the assumptions stated in
the notes to the financial information set forth below and is not necessarily
indicative of the operating results or the financial position that would have
occurred if the PEI, Fall River Gas, ProvEnergy and Valley Resources mergers had
all been consummated by the beginning of the period presented nor is it
necessarily indicative of the future operating results or financial position of
the combined enterprise. The selected unaudited pro forma combined condensed
financial data does not contain any adjustments to reflect cost savings or other
synergies that may be a result of the PEI, Fall River Gas, ProvEnergy and Valley
Resources mergers.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Total operating revenues ...................................... $1,185,700 $1,024,386
Earnings (loss) from continuing operations (a)(b)(c) .......... (9,768) (2,417)
Diluted earnings (loss) per share (d)(e) ...................... (0.19) (0.05)
Total assets .................................................. 2,682,555
Common stockholders' equity (e) ............................... 656,972
Short-term debt and capital lease obligation (b)(f) ........... 6,315
Long-term debt and capital lease obligation, excluding
current portion (b)....................................... 1,304,523
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust (b)........................ 100,000
</TABLE>
(a) Southern Union incurred pre-tax costs associated with various acquisition
efforts unrelated to the Fall River Gas, PEI, ProvEnergy and Valley
Resources mergers, and litigation costs associated with an unsuccessful
acquisition, of $3,839,000 and $6,664,000 for the year ended June 30, 1999
and the nine-months ended March 31, 2000, respectively.
(b) Funding for the Fall River Gas, ProvEnergy and Valley Resources mergers is
assumed to be provided by bank borrowings at an estimated annual interest
rate of 7.60%. This rate is what Southern Union believes would be obtained
based on current market rates. These proceeds are assumed to be utilized:
to finance the cash portion of the Fall River Gas, ProvEnergy and Valley
Resources mergers and the settlement of any respective stock options; and
to pay a total of approximately $9 million of various professional fees and
change of control agreements expected to be incurred in connection with the
three pending acquisitions. Additionally, long-term debt of $300 million at
an annual interest rate of 8.25% was issued on November 3, 1999 in
connection with the PEI merger.
(c) In anticipation of the pending and completed acquisitions, the outstanding
PEI and ProvEnergy preferred stock was repurchased prior to closing of the
related merger.
(d) Earnings (loss) per share for both periods presented were computed based on
the weighted average number of shares of common stock outstanding during
the period adjusted for the Southern Union 5% stock dividends distributed
on June 30, 2000, August 6, 1999 and December 9, 1998, and the 50% stock
dividend distributed on July 13, 1998.
(e) The March 31, 2000 information reflects an estimated issuance of Southern
Union common stock to Fall River Gas stockholders at an exchange ratio of
1.39259 based on an average trading price of $15.7954 for Southern Union
common stock at the average closing price per share for the ten trading day
period ending on the third trading day before June 30, 2000, and assuming
that half the Fall River Gas shares are not exchanged but paid for in cash.
(f) Represents historical short-term debt and capital lease obligation of
Southern Union, Fall River Gas, ProvEnergy and ValleyResources.
18
<PAGE>
RISK FACTORS AND OTHER CONSIDERATIONS
You should consider carefully all the information contained in this proxy
statement/prospectus, including the following matters:
THE AMOUNT OF CONSIDERATION RECEIVED IN STOCK MAY VARY AS A RESULT OF
FLUCTUATIONS IN SOUTHERN UNION'S STOCK PRICE
Fall River Gas stockholders may choose whether they want to exchange their Fall
River Gas common stock for either cash or Southern Union common stock. Fall
River Gas stockholders may also choose to exchange some of their Fall River Gas
common stock for cash and some for Southern Union common stock. The opportunity
to make this election will occur only shortly before the merger is completed,
which will be after the time of the Fall River Gas stockholder vote on the
merger. Also, the exchange ratio used to determine the amount of Southern Union
common stock to be delivered to Fall River Gas stockholders who are entitled to
receive Southern Union common stock will be adjusted. This adjustment will be
based on the average of the closing prices of Southern Union common stock on the
NYSE for a period of ten consecutive trading days ending on the third trading
day before the date that the merger is completed.
The adjustments to the exchange ratio are designed to ensure that the aggregate
value based on this average price of the Southern Union shares to be exchanged
for each share of Fall River Gas common stock you own will be at least $23.50
per share (except as explained in the second paragraph below) unless Fall River
Gas decides to complete the merger if the average price is below $15.00 a share.
You should be aware of two risks associated with these methods of electing the
form of merger consideration you want to receive and adjusting the amount of
Southern Union common stock to be delivered to Fall River Gas stockholders upon
completion of the merger.
- First, there may be significant time lapses between: 1) when your vote is
cast regarding the merger at the special meeting, 2) when you make your
election regarding the form of merger consideration you want to receive,
and 3) when merger is completed. During this period of time, the market
value of Southern Union common stock may fluctuate significantly. At the
time your vote is cast regarding approval of the merger and the time at
which you make your election regarding the form of merger consideration you
want to receive, you will not know the exact number of shares of Southern
Union common stock that will be delivered to you when the merger is
completed.
- Second, the number of shares of Southern Union common stock you will
receive will be based on the closing prices of Southern Union common stock
from the twelfth to the third trading days before the date that the merger
is completed. The actual market value of the shares when received by you
will depend on the market value of a share of Southern Union common stock
on that date, which may be less than the value used to determine the number
of shares you will receive.
You are urged to obtain current market quotations for Southern Union common
stock and Fall River Gas common stock.
19
<PAGE>
THE AMOUNT OF CASH PAID TO STOCKHOLDERS ELECTING CASH MAY BE REDUCED
PROPORTIONATELY
No more than 50% of the aggregate consideration paid to all Fall River Gas
stockholders may consist of cash. If you elect to receive cash in exchange for
some or all of your shares of Fall River Gas common stock, the amount of cash
you receive as consideration in the merger may be less than the amount you
actually elected because too many other Fall River Gas stockholders elected to
receive cash. If the Fall River Gas stockholders exceed their cash limitation,
the amount of cash paid to each stockholder electing cash will be reduced
proportionately.
THE COMBINED COMPANY MAY NOT REALIZE BENEFITS OF INTEGRATING OUR COMPANIES, THE
COMPANY SOUTHERN UNION RECENTLY ACQUIRED AND THE OTHER COMPANIES SOUTHERN UNION
HAS AGREED TO ACQUIRE
Southern Union recently acquired PEI and has agreed to acquire several
companies, including Fall River Gas. See "Recent Developments - Southern Union."
The combined company will need to combine and integrate the operations of these
separate companies into one company. The combined company could encounter
difficulties in the integration process, such as the loss of key employees,
customers or suppliers. If the combined company cannot integrate the businesses
of Southern Union and the other companies, successfully, the combined company
may fail to realize the benefits that Southern Union's and Fall River Gas'
management expect to realize from the merger.
APPROVALS MAY NOT BE OBTAINED OR MAY CONTAIN UNACCEPTABLE RESTRICTIONS
The consummation of the merger is conditioned upon receiving approval from
various governmental regulatory authorities. It is possible that some required
approvals and consents will not be obtained or that such approvals and consents
can be obtained only if they contain certain restrictions on the combined
company that will not be acceptable or would adversely affect the value of the
combined company. See "The Merger - Regulatory Matters." Required approvals that
have not yet been received are:
- approval of the merger by the Massachusetts Department of
Telecommunications and Energy;
- authorization by the Florida Public Service Commission and the Pennsylvania
Public Utility Commission of any securities issued by Southern Union in
connection with the merger; and
- expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
In addition, other filings with, notifications to and authorizations and
approvals of various government agencies and third-party consents with respect
to the merger must be made or received before the completion of the merger. As
of the date of this proxy statement/prospectus, only the required approval of
the Pennsylvania and Missouri commissions for the merger have been obtained.
Fall River Gas and Southern Union are seeking to obtain all other required
approvals and consents, most of which will not be obtained prior to the Fall
River Gas special meeting.
20
<PAGE>
FUTURE ACQUISITIONS MAY NOT ACHIEVE FAVORABLE FINANCIAL RESULTS, MAY DILUTE YOUR
PERCENTAGE OWNERSHIP IN SOUTHERN UNION OR REQUIRE SUBSTANTIAL EXPENDITURES
Southern Union's strategic plan is to increase the scale of its operations and
the size of its customer base by pursuing and consummating future business
combination transactions. Recently, it has acquired or agreed to acquire four
companies, including Fall River Gas. See "Recent Developments - Southern Union."
The combined company may not be able to consummate future acquisitions on
favorable terms. In addition, future acquisitions may not achieve favorable
financial results.
Future acquisitions may involve or require the issuance of shares of Southern
Union common stock, which could have a dilutive effect on the then-current
stockholders of Southern Union. Southern Union may not choose or be able to
acquire companies or assets associated with the energy industry using its equity
as currency. The combined company's leverage might be increased to finance an
acquisition or the operations of the combined company. Furthermore, acquisitions
may require substantial financial expenditures that will need to be financed
through cash flow from operations or future debt and equity offerings by the
combined company. Southern Union may not be able to generate sufficient cash
flow from operations or obtain debt or equity financing sufficient to fund
future acquisitions or the expenditures required because of the acquisitions.
A DIFFERENT SET OF FACTORS AND CONDITIONS AFFECT SOUTHERN UNION STOCK AND COULD
HAVE A NEGATIVE IMPACT ON ITS STOCK PRICE
Upon completion of the merger, stockholders of Fall River Gas that do not
receive cash for any or all of their shares of Fall River Gas stock will become
holders of Southern Union common stock. The businesses and markets of Southern
Union and the other companies it has acquired and is acquiring are different
from those of Fall River Gas. For example, the natural gas business of Fall
River Gas depends primarily on weather, economic and regulatory conditions
affecting southeastern Massachusetts. Southern Union's gas business depends in
part on weather and economic conditions in Texas, Missouri, Pennsylvania, and
Florida. In addition, Southern Union, through its subsidiaries, is engaged in
the electricity business and the propane distribution business.
There is a risk that various factors, conditions and developments which would
not affect the price of Fall River Gas' stock could negatively affect the price
of Southern Union's stock. See "Forward-Looking Statements May Prove Inaccurate"
for a summary of many of the key factors that might affect Southern Union and
the price at which Southern Union common stock may trade from time to time. See
"Comparative Per Share Data" for certain unaudited historical per share data of
Southern Union and Fall River Gas.
SOUTHERN UNION DOES NOT PAY CASH DIVIDENDS ON ITS COMMON STOCK
Fall River Gas presently pays a $0.24 quarterly cash dividend on its outstanding
shares of common stock. Southern Union presently does not pay a cash dividend.
Southern Union plans to continue to distribute an annual 5% stock dividend,
subject to any required regulatory approvals being obtained.
21
<PAGE>
COMPETITION WITHIN THE NATURAL GAS INDUSTRY IS INTENSE
As a result of the deregulation of the utility industry, the natural gas
distribution business has become highly competitive. In a deregulated
environment, formerly regulated utility companies that are not responsive to a
competitive energy marketplace suffer erosion in market share, revenues and
profits as competitors gain access to their service territories.
Although the merger will result in a larger combined company with a more diverse
customer base, several of the combined company's competitors will still have
substantially larger financial resources, staffs and facilities than the
combined company. There is a risk that the intense competition for natural gas
customers may in the future reduce the combined company's earnings from retail
natural gas service and have an adverse effect on the stability of the combined
company's utility earnings generally.
THE TERMS OF MERGER-RELATED FINANCINGS MAY ADVERSELY AFFECT THE COMBINED COMPANY
Southern Union's management would require financing through external sources of
up to approximately $600 million to complete the pending mergers (assuming that
Fall River Gas shareholders choose to receive the maximum of 50% of the
aggregate merger consideration that may be paid to them in cash and if all $140
million of existing long-term debt of the three companies being acquired must be
refinanced rather than amended and assumed as planned) necessary to fund the
total cash payable to the stockholders of Fall River Gas, ProvEnergy and Valley
Resources, and costs and refinancings related to all of these mergers in
connection with completion of these mergers (see "The Companies - Southern Union
- Acquisitions").
In addition to the Fall River Gas, ProvEnergy and Valley Resources transactions,
other future acquisitions may require substantial financial expenditures that
will also need to be financed through external sources, including future debt
and equity offerings by the combined company. Furthermore, Southern Union may
refinance a portion of the outstanding debt of Fall River Gas, ProvEnergy,
Valley Resources and their respective subsidiaries in connection with or soon
after the completion of those transactions.
Sources of financing for the three pending and any future acquisitions may
include commercial and investment banks, institutional lenders and investors,
and the public securities markets. Southern Union presently plans to fund the
pending mergers with bank borrowings, but has no commitments at this time. After
closing the mergers, Southern Union may need or choose to refinance some or all
of any bank financing for the mergers. The terms of any financing or refinancing
arrangements may contain covenants that could adversely affect the financial
condition and flexibility of the combined company. Southern Union's management
believes that Southern Union will have access if, and when, needed to many
sources and types of short-term and long-term capital financing on reasonable
terms and conditions.
22
<PAGE>
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have each made forward-looking statements in this document (and in documents
that we have incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Southern Union, Fall River
Gas, ProvEnergy and Valley Resources. Also, when we use words such as
"believes," "expects," "anticipates," "intends," or similar expressions, we are
making forward-looking statements. You should note that many factors, some of
which are discussed elsewhere in this document and in the documents that we
incorporate by reference, could affect the future financial results of Southern
Union, Fall River Gas, ProvEnergy and Valley Resources and could cause those
results to differ materially from those expressed in our forward-looking
statements contained or incorporated by reference in this document. The factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements include the following:
- general economic, financial and business conditions;
- effectiveness of hedging strategies;
- competition in the energy services sector;
- the availability 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 impacts of unusual items resulting from ongoing evaluations of business
strategies and asset valuations;
- changes in business strategy;
- the timing and extent of changes in commodity prices;
- gas sales volumes;
- weather conditions and other natural phenomena in our service territories;
- the purchase and implementation of new technologies for enhancing customer
services and/or operating efficiencies;
- impact of relations with labor unions of bargaining-unit employees;
23
<PAGE>
- the receipt of timely and adequate rate relief;
- the outcome of pending and future litigation;
- governmental regulations and proceedings affecting the companies, including
the restructuring of the natural gas industry in Massachusetts, Rhode
Island, Texas, Missouri, Pennsylvania and Florida;
- the nature and impact of any extraordinary transaction such as any
acquisition or divestiture of a business unit or any assets;
- the risk that the businesses of PEI, Fall River Gas, ProvEnergy, Valley
Resources and any other businesses or investments that Southern Union has
acquired or may acquire may not be successfully integrated with the
businesses of Southern Union.
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.
The nature and impact of any extraordinary transactions such as any acquisition
or divestiture of a business unit or any assets may also cause actual results to
differ materially from estimates or projections contained in forward-looking
statements. Southern Union's strategic plan is to increase the scale of its
operations and the size of its customer base by pursuing and completing future
business combination transactions. Acquisitions may require substantial
additional financial expenditures that will need to be financed through cash
flow from operations or future debt and equity offerings. The availability and
terms of any such financing sources will depend upon various factors and
conditions such as Southern Union's cash flow and earnings, its resulting
capital structure, credit ratings and conditions in financial capital markets at
the time of any such offering. Any future acquisitions and related financing
arrangements or debt assumptions would likely increase its aggregate
indebtedness, and may increase the portion of its total capitalization
represented by debt. Acquisitions and financings will also affect Southern
Union's results due to factors such as its ability to realize any anticipated
benefits from such transactions, successful integration of new and different
operations and businesses, effects of different regional economic and weather
conditions, and the extent of any related debt financing.
Other factors that could cause actual results to differ materially from
estimates and projections contained in forward-looking statements are described
in the documents that have been incorporated by reference into this document.
You should not place undue reliance on forward-looking statements, which speak
only as of the date of this proxy statement/prospectus, or, in the case of
documents incorporated by reference, the dates of those documents.
24
<PAGE>
COMPARATIVE DIVIDENDS AND MARKET PRICES
SOUTHERN UNION
Southern Union common stock is listed and principally traded on the NYSE under
the symbol "SUG." The table below sets forth the high and low sales prices
(adjusted for any stock dividends and stock splits) of Southern Union common
stock for the calendar periods indicated as reported in THE WALL STREET JOURNAL
as New York Stock Exchange Composite Transactions. The last day of Southern
Union's fiscal year is June 30. Southern Union does not pay its stockholders a
cash dividend. For the last seven years, Southern Union has distributed an
annual 5% stock dividend, and it expects to continue to distribute an annual 5%
stock dividend that can be sold through its Dividend Sale Plan.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
------ ------
<S> <C> <C>
1997
----
First quarter $13.36 $11.65
Second quarter 13.85 12.06
Third quarter 13.44 11.93
Fourth quarter 14.87 12.48
1998
----
First quarter $14.26 $13.18
Second quarter 18.79 13.74
Third quarter 19.33 13.50
Fourth quarter 22.22 16.79
1999
----
First quarter $22.10 $15.76
Second quarter 20.75 16.78
Third quarter 20.66 17.14
Fourth quarter 20.00 16.61
2000
----
First quarter $18.15 $12.62
Second quarter 17.26 14.41
</TABLE>
25
<PAGE>
FALL RIVER GAS
Fall River Gas common stock is listed and principally traded on the American
Stock Exchange under the symbol "FAL." Prior to October 31, 1997, the Fall River
Gas' common stock was traded in the over-the-counter market on the OTC Bulletin
Board and quoted under the symbol "FALL." The table below lists the dividends
declared and the high and low sales price of Fall River Gas common stock for the
calendar period indicated as reported in THE WALL STREET JOURNAL as American
Stock Exchange Composite Transactions and prior to October 1997 as reported by
The National Quotation Bureau. The last day of Fall River Gas' fiscal year is
September 30.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW CASH DIVIDENDS
------ ------ --------------
<S> <C> <C> <C>
1997
----
First quarter $17.00 $16.00 $0.24
Second quarter 16.38 12.50 0.24
Third quarter 14.00 12.75 0.24
Fourth quarter 16.63 13.00 0.24
1998
----
First quarter $17.25 $14.88 $0.24
Second quarter 16.75 14.25 0.24
Third quarter 16.38 14.38 0.24
Fourth quarter 17.50 15.00 0.24
1999
----
First quarter $18.25 $16.88 $0.24
Second quarter 19.88 17.13 0.24
Third quarter 22.00 18.75 0.24
Fourth quarter 21.94 20.13 0.24
2000
----
First quarter $21.88 $19.13 $0.24
Second quarter 22.69 20.50 0.24
</TABLE>
26
<PAGE>
HISTORICAL EQUIVALENT PER SHARE MARKET VALUES
The following table lists the market value of Southern Union common stock (on an
historical basis) and the market value of Fall River Gas common stock (on an
historical and equivalent per share basis): as of July 23, 1999, the day the
executive committee of the board of directors of Fall River Gas authorized Fall
River Gas' representatives to negotiate a merger agreement with Southern Union
based on its indication of interest; as of October 1, 1999, the last business
day preceding the day when Southern Union and Fall River Gas entered into the
merger agreement; and as of June 30, 2000, the day used to determine the
estimated exchange ratio used in the Unaudited Pro Forma Combined Condensed
Financial Statements. The equivalent per share values were based on an exchange
ratio valuing Southern Union common stock at the average closing price per share
for the ten trading day period ending on the third trading day before each
respective date.
<TABLE>
<CAPTION>
SOUTHERN UNION FALL RIVER GAS EQUIVALENT
-------------------------- -------------------------- PER SHARE
DATE HIGH LOW CLOSING HIGH LOW CLOSING VALUE
--------------- ------ ------ ------- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
July 23, 1999 $20.50 $20.13 $20.50 $21.00 $20.50 $20.50 $24.15
October 1, 1999 19.00 18.69 18.75 20.86 20.75 20.75 23.32
June 30, 2000 17.13 15.75 15.81 22.25 22.00 22.00 22.02
</TABLE>
YOU ARE ENCOURAGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SOUTHERN UNION COMMON
STOCK AND FALL RIVER GAS COMMON STOCK.
COMPARATIVE PER SHARE DATA
The following tables list certain unaudited historical per share data of
Southern Union and Fall River Gas and the combined per share data on an
unaudited pro forma basis after giving effect to the PEI, Fall River Gas,
ProvEnergy and Valley Resources mergers assuming the mergers had been in effect
for the period indicated, using the purchase method of accounting for business
combinations and assuming an exchange ratio of 1.39259 shares of Southern Union
common stock for each share of Fall River Gas common stock based on an average
trading price of $15.7954 for Southern Union common stock, which is the average
closing price per share for the ten trading day period ending on the third
trading day before June 30, 2000. This data should be read in conjunction with
the selected financial data and the Unaudited Pro Forma Combined Condensed
Financial Statements and notes thereto included elsewhere in this proxy
statement/prospectus and the separate historical financial statements of
Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources
incorporated in this proxy statement/prospectus by reference, including by
reference to a Southern Union Current Report on Form 8-K. The unaudited pro
forma combined financial data is not necessarily indicative of the operating
results or financial position that would have occurred if the mergers had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
the combined company.
27
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
SOUTHERN UNION -- HISTORICAL
Earnings per common share:
Basic....................................................... $ 0.32 $ 0.49
Diluted..................................................... 0.31 0.47
Cash dividends declared per share(a) .......................... -- --
Book value per share at period end ............................ 9.36 13.06
FALL RIVER GAS - HISTORICAL
Earnings per common share:
Basic....................................................... $ 0.93 $ 0.71
Diluted..................................................... 0.93 0.71
Cash dividends declared per share ............................. 0.96 0.72
Book value per share at period end ............................ 8.29 8.74
SOUTHERN UNION - PRO FORMA(b)
Earnings (loss) per common share:
Basic....................................................... $ (0.19) $ (0.05)
Diluted..................................................... (0.19) (0.05)
Cash dividends declared per share(a) .......................... -- --
Book value per share at period end ............................ 12.81 11.55
FALL RIVER GAS - EQUIVALENT PRO FORMA
Per share data imputed to existing stockholders(c)(d)
Earnings (loss) per common share:
Basic....................................................... $ (0.27) $ (0.07)
Diluted..................................................... (0.27) (0.07)
Cash dividends declared per share ............................. -- --
Book value per share at period end ............................ 17.83 16.08
</TABLE>
(a) Southern Union distributes an annual 5% stock dividend.
(b) See "Selected Unaudited Pro Forma Combined Condensed Financial Data."
(c) Equivalent pro forma share data are calculated by multiplying the
respective unaudited pro forma combined data by an assumed exchange ratio
of 1.39259 shares of Southern Union common stock for each share of Fall
River Gas common stock. The assumed exchange ratio is based on an average
trading price of $15.7954 for Southern Union common stock, which is the
average closing price per share for the ten trading day period ending on
the third trading day before June 30, 2000.
(d) Pro forma combined cash dividends declared per share represents the
historical stock (not cash) dividend policy of Southern Union for all
periods presented.
28
<PAGE>
RECENT DEVELOPMENTS
SOUTHERN UNION
In addition to the Fall River Gas merger, Southern Union recently has completed
or agreed to the significant acquisitions described below.
MERGER WITH PENNSYLVANIA ENTERPRISES, INC. Effective November 4, 1999, Southern
Union acquired PEI and its subsidiaries for approximately 17 million shares of
Southern Union common stock and approximately $36 million in cash plus the
assumption of approximately $150 million in debt. PEI's natural gas utility
businesses are being operated as PG Energy and Honesdale Gas, divisions of
Southern Union, which provide service to approximately 154,000 natural gas
customers in northeastern and central Pennsylvania (including the cities of
Wilkes-Barre, Scranton and Williamsport). Through PG Energy Services, Inc., a
PEI subsidiary that Southern Union acquired in the PEI merger, Southern Union
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 include PEI Power
Corporation, Keystone Pipeline Services, Inc. (itself a wholly owned subsidiary
of PG Energy Services, Inc.) and Theta Land Corporation. PEI Power Corporation,
an exempt wholesale generator (within the meaning of the Public Utility Holding
Company Act of 1935), generates and sells electricity. Keystone Pipeline
Services, Inc. is engaged primarily in the construction, maintenance and
rehabilitation of natural gas distribution pipelines. Theta Land Corporation
engages in the sale of property for residential and commercial development and
was sold for $12.1 million in January 2000.
MERGER WITH PROVIDENCE ENERGY CORPORATION. On November 14, 1999, Southern Union
and ProvEnergy (NYSE: "PVY") entered into a definitive merger agreement. The
agreement calls for ProvEnergy and its utility subsidiaries to merge into
Southern Union in a transaction valued at approximately $400 million, including
the assumption of debt. ProvEnergy shareholders will receive $42.50 in cash for
each of the approximately 6.1 million shares of ProvEnergy common stock
outstanding. ProvEnergy, headquartered in Providence, Rhode Island, is engaged
through its subsidiaries principally in natural gas distribution to
approximately 168,000 natural gas customers in Providence and Newport, Rhode
Island, and 23 other cities and towns in Rhode Island and Massachusetts.
ProvEnergy's oil business serves over 4,000 residential customers and a large
commercial base. ProvEnergy's utility service territories encompass
approximately 760 square miles with a population of approximately 850,000. On
May 22, 2000, the shareholders of ProvEnergy approved the terms of the
ProvEnergy merger. Southern Union anticipates completing the ProvEnergy merger
in September 2000 once all remaining conditions are satisfied, including receipt
of all regulatory approvals.
MERGER WITH VALLEY RESOURCES, INC. On November 30, 1999, Southern Union, SUG
Acquisition Corporation a Rhode Island corporation and wholly-owned subsidiary
of Southern Union, and Valley Resources (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, headquartered in Cumberland, Rhode
Island, provides natural gas utility service to more than 64,000 customers
through its subsidiaries, Valley Gas Company and Bristol & Warren Gas Company.
Valley Gas Company's service
29
<PAGE>
area covers a 92 square mile area in the Blackstone Valley Region located in
the northeastern portion of Rhode Island that has a population of
approximately 250,000. Bristol & Warren Gas Company's service area covers
approximately 15 square miles in the eastern portion of Rhode Island that has
a population of approximately 35,000. Other Valley Resources subsidiaries
rent and sell gas appliances, sell liquid propane in Rhode Island and nearby
Massachusetts, and distribute as a wholesaler franchised lines to plumbing
and heating contractors. Valley Resources also has an 90% interest in
Alternate Energy Corporation, which sells, installs and designs natural gas
conversion systems and facilities, is an authorized representative of the
ONSI fuel cell, holds patents for a natural gas/diesel co-firing system and
for a device to control the flow of fuel on dual-fuel equipment. Valley
Resources shareholders approved the Valley Resources merger at their special
meeting on June 13, 2000. Southern Union anticipates completing the Valley
Resources merger in September 2000 once all remaining conditions are
satisfied, including receipt of all regulatory approvals for the Valley
Resources merger.
THE FALL RIVER GAS SPECIAL MEETING
PURPOSE, TIME AND PLACE
The special meeting will be held at the office of Fall River Gas, 155 Main
Street, Fall River, Massachusetts 02722 on August 29, 2000, at 10:00 a.m.
(Eastern Time), for the following purposes:
(1) To approve and adopt the merger agreement;
(2) To transact such other business as may properly come before the meeting or
any adjournment thereof.
RECORD DATE; VOTING POWER; VOTE REQUIRED
The Fall River Gas board has fixed the close of business on July 5, 2000 as the
record date for the determination of holders of Fall River Gas common stock
entitled to notice of and to vote at the special meeting. Fall River Gas common
stock, of which there were 2,252,429 shares outstanding and entitled to vote on
July 5, 2000, is the only class of securities of Fall River Gas entitled to vote
at the special meeting. A majority of the shares of Fall River Gas common stock
issued and outstanding and entitled to vote on the record date must be present
in person or by proxy at the special meeting or voted by telephone in order for
a quorum to be present for purposes of transacting business at the special
meeting.
In the event that a quorum is not present at the special meeting, it is expected
that the meeting will be adjourned or postponed to solicit additional proxies.
Holders of Fall River Gas common stock as of the record date are each entitled
to one vote per share on the approval and adoption of the merger agreement at
the special meeting. The approval and adoption requires the affirmative vote of
at least two-thirds of the shares of Fall River Gas common stock outstanding on
the record date. The Fall River Gas board recommends that Fall River Gas
stockholders vote "FOR" approval and adoption of the merger agreement.
SHARE OWNERSHIP OF MANAGEMENT; MANAGEMENT VOTE; VOTING AGREEMENT
As of the close of business on May 31, 2000, directors and officers of Fall
River Gas beneficially owned and were entitled to vote approximately 297,216
shares of Fall River Gas common stock, which represented
30
<PAGE>
approximately 13.3% of the shares of Fall River Gas outstanding on that date.
Each of them has indicated his or her present intention to vote, or cause to
be voted, the Fall River Gas common stock owned by him or her "FOR" the
proposal to approve and adopt the merger agreement at the special meeting.
See "Principal Stockholders - Beneficial Owners of More Than 5% of Fall River
Gas' Common Stock" and "Fall River Gas Management Ownership" for additional
information.
In connection with the merger, Barbara N. Jarabek, as trustee to The Jarabek
Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon, Raymond H.
Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H. Bilodeau
entered into a voting agreement with Southern Union. According to the terms of
the voting agreement, these stockholders agreed: 1) to vote or cause to be voted
their shares of Fall River Gas common stock in favor of the merger and the
adoption and approval of the merger agreement, and 2) to grant Southern Union an
irrevocable proxy to vote their shares of Fall River Gas common stock for the
approval and adoption by the Fall River Gas stockholders of the merger agreement
and the performance of transactions related to the merger. As of the special
meeting record date, the number of shares beneficially owned by the Fall River
Gas stockholders who entered into the voting agreement and granted this
irrevocable proxy represent approximately 25.6% of the outstanding shares of
Fall River Gas common stock entitled to vote on the approval and adoption of the
merger agreement and performance of transactions related to the merger
agreement.
Of the 572,510 shares of Fall River Gas common stock represented by the
stockholders who are parties to the voting agreement, as of May 31, 2000,
276,800 shares were beneficially owned by executive officers and directors of
Fall River Gas. The voting agreement is attached as Appendix C to this proxy
statement/prospectus. See "The Merger Agreement - Covenants and other
Agreements - Fall River Gas Voting Agreement."
VOTING OF PROXIES
All holders of Fall River Gas common stock who are entitled to vote and are
represented at the special meeting by properly executed proxies received prior
to or at such meeting and not duly and timely revoked will have their shares
voted at the meeting in accordance with the instructions indicated on the
proxies. If no instructions are indicated, the proxies will be voted "FOR"
approval and adoption of the merger agreement.
If any other matters are properly presented at the special meeting for
consideration, the persons named in the enclosed form of proxy, and acting
thereunder, will have discretion to vote on such matters in accordance with
their best judgment (unless authorization to use such discretion is withheld).
Fall River Gas is not aware of any matters expected to be presented at the
special meeting other than as described in the Notice of Special Meeting.
REVOCABILITY OF PROXIES
Massachusetts law provides that a proxy, unless coupled with an interest (for
example, a vote pooling or similar arrangement among holders of Fall River Gas
common stock, or between Fall River Gas and holders of Fall River Gas common
stock, or an unrevoked proxy in favor of an existing or potential creditor of a
holder of Fall River Gas common stock), is revocable at will by a holder of Fall
River Gas common stock,
31
<PAGE>
notwithstanding any other agreement or provision in the proxy to the
contrary. A holder of Fall River Gas common stock may revoke a proxy by
giving written notice of revocation to the clerk of Fall River Gas at Fall
River Gas' address set forth on page 5 of this proxy statement/prospectus at
any time before the proxy is voted. Such revocation will be effective upon
receipt of the written notice by the Clerk of Fall River Gas.
SOLICITATION OF PROXIES
Fall River Gas and Southern Union will each bear half of the costs of this
solicitation of proxies. In addition to solicitation by mail, arrangements may
be made with brokerage houses and other custodians, nominees and fiduciaries to
send material to their principals, and Fall River Gas may reimburse them for
their expenses in so doing. To the extent necessary in order to ensure a
sufficient presence of holders of Fall River Gas common stock to constitute a
quorum, officers and other employees of Fall River Gas or designated agents may,
without additional remuneration, in person or by telephone or telegram, request
the return of proxies. In addition, Fall River Gas has retained Corporate
Investor Communications, Inc. ("CIC") for assistance in the solicitation of
proxies. For its services, CIC will receive a fee estimated at $4,500 plus
reimbursement for reasonable and customary out-of-pocket expenses.
THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS, AS WELL AS THE NEXT SECTION
ENTITLED "THE MERGER AGREEMENT," DESCRIBES CERTAIN ASPECTS OF THE PROPOSED
MERGER. THESE SECTIONS HIGHLIGHT KEY INFORMATION ABOUT THE MERGER AND THE MERGER
AGREEMENT, BUT THEY MAY NOT INCLUDE ALL THE INFORMATION THAT YOU WOULD LIKE TO
KNOW. THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE URGE YOU TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
FALL RIVER GAS BACKGROUND OF THE MERGER
As part of its long-term planning, Fall River Gas' board has periodically
reviewed and evaluated various strategic options and alternatives available to
maximize the economic return of its stockholders. Fall River Gas' board has
recognized the difficulties Fall River Gas faced in responding to the demands of
a deregulated energy market, in competing with the larger companies being formed
in the consolidation of the energy industry and in continuing to increase
shareholder value. From time to time, Fall River Gas' board has considered
strategic combinations, but found no attractive opportunities to maximize
shareholder value.
On June 21, 1999, Bradford J. Faxon, Chairman of the Board, Chief Executive
Officer and President, Peter H. Thanas, Senior Vice President, and Thomas K.
Barry, director of Fall River Gas, met with Thomas F. Karam, President and Chief
Executive Officer of PEI, a Pennsylvania based gas utility holding company that
was then in the initial stages of its merger with Southern Union, and discussed,
in general terms, their respective companies and whether it would be appropriate
to initiate further discussions between representatives of Southern Union and
Fall River Gas regarding a possible business combination. As a follow-up to this
conversation, Mr. Karam sent Mr. Faxon copies of recent Southern Union public
reports.
On July 19, 1999, following several general conversations between Mr. Faxon and
Mr. Karam about the energy industry and the philosophies of their companies, and
the possibility of a strategic relationship
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between Southern Union and Fall River Gas, Mr. Karam conveyed Southern
Union's proposal to acquire Fall River Gas, in an all stock transaction,
valuing the Fall River Gas stock at $21 per share. Mr. Faxon communicated the
proposal to the executive committee of the board of directors at the
executive committee's July 23, 1999 meeting (director Ronald J. Ferris was
also in attendance). The committee concluded that the proposal was too low
and instructed Mr. Faxon to seek a higher proposed price. After Fall River
Gas advised Southern Union of this decision, additional discussions occurred
between Mr. Faxon, Mr. Thanas and Mr. Karam and Peter H. Kelley, President
and Chief Operating Officer of Southern Union. On July 29, 1999 Southern
Union made a revised proposal of $23.50 per share and Mr. Faxon undertook to
seek approval by the Fall River Gas board of directors.
Subsequently, discussions ensued between Messrs. Faxon, Thanas, counsel for the
respective companies and Mr. Karam as well as other representatives of Southern
Union with respect to other proposed terms for a transaction. At the same time,
Mr. Faxon advised the members of the board of Fall River Gas of the developments
regarding a possible business combination with Southern Union and called a
special meeting of the board of directors. During this time period, Messrs.
Faxon and Thanas fielded informal inquiries from other potential combination
partners, but no offers were received from anyone other than Southern Union.
On the morning of September 8, 1999, the board of Fall River Gas met to consider
a merger agreement with Southern Union. At the same time, at Fall River Gas'
request, the American Stock Exchange agreed to suspend trading in the stock of
Fall River Gas while the board and its advisors discussed the merger. Mr. Faxon
updated the board on his discussions with Southern Union and stated his view
that a strategic merger with a larger company would, among other things: 1)
provide an opportunity for growth; 2) assist Fall River Gas in providing all
energy alternatives to its customers; 3) provide geographical diversity; 4)
permit more aggressive growth; and 5) better enable the company to take
advantage of opportunities in the energy industry.
In addition, Mr. Faxon stated a strategic relationship with Southern Union would
not require Fall River Gas to significantly reduce employees or other assets in
Fall River Gas' service area and should help improve service to its customers.
He noted the changing competitive landscape in the energy industry where
critical mass and complete energy solutions are necessary, the increasing merger
activity and formation of larger companies with which Fall River Gas would be
required to compete, and the limitations of Fall River Gas in terms of potential
sales growth in its existing service territory and access to capital. Fall River
Gas' outside counsel, Rich, May, Bilodeau & Flaherty, P.C., reviewed the board's
fiduciary duties and the standards of conduct to be followed in considering a
merger proposal. Rich, May, Bilodeau & Flaherty, P.C. also discussed key legal
aspects of the proposed merger agreement and the negotiation process with
members of Fall River Gas' board.
Legg Mason, Fall River Gas' financial advisors, discussed the proposed financial
terms of the transaction between Southern Union and Fall River Gas with the
board and rendered its written opinion that, as of the date of the meeting and
based upon and subject to certain matters stated in its opinion, the
consideration to be received by the stockholders of Fall River Gas in the
proposed merger was fair to the stockholders from a financial point of view.
Mr. Kelley, Ronald J. Endres, Southern Union's Executive Vice President and
Chief Financial Officer, and Mr. Karam, made a presentation to the Fall River
Gas board of directors describing Southern Union, its
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operations and recent corporate history, including its 1994 Missouri
acquisition and its then pending merger with PEI, as well as its corporate
plan of growth through acquisitions. Mr. Endres discussed Southern Union's
returns to investors and discussed Southern Union's business vision of
enhancing profitability through technological advances. Mr. Karam summarized
the benefits of Southern Union's strategies and certain benefits of the
proposed merger: 1) geographical diversification and minimum employee
disruption; 2) reduction in costs; 3) creation of additional value through
increased size; and 4) establishment of a New England presence for Southern
Union.
After the Southern Union presentation, the Fall River Gas board discussed the
terms of the proposed merger agreement, including the stock-for-stock
consideration, valued at $23.50 per share of Fall River Gas common stock. The
sense of the meeting was that the price was fair, but more information should be
gathered regarding Southern Union. Mr. Faxon suggested and the board voted to
and established a special committee of the board for the sole purpose of
gathering additional information regarding Southern Union. The committee members
were Cindy L.J. Audette, Thomas H. Bilodeau and Ronald J. Ferris. Fall River Gas
management then issued a press release stating that Fall River Gas had received
an offer from an undisclosed party for an all stock transaction at $23.50 per
share, and that the board of directors had formed a committee to help it
evaluate the offer.
During the next several days, additional discussions were held among the
representatives of Fall River Gas and Southern Union, while the special
committee gathered additional information regarding Southern Union. During this
period, the Fall River Gas board members also engaged in discussions with one
another concerning the possible merger.
On the morning of September 17, 1999, the Fall River Gas board again met to
consider the proposed merger. Again, Mr. Faxon stated his support for the
transaction, noting: 1) that the price offered was favorable relative to other
recent comparable transactions; 2) that Fall River Gas' growth prospects in
terms of business and earnings were limited; and 3) that the proposed merger
would not require a significant reduction in employees or assets in Fall River
Gas' service area. He further noted that although there had been inquiries from
third parties, no other offers by other potential merger partners had been
received. Fall River Gas' counsel again reviewed the board's responsibilities
and key aspects of the merger agreement and the special committee presented its
findings. After extensive discussion, the board determined that it lacked
sufficient consensus to recommend the merger as structured. Fall River Gas then
issued a press release stating that the board had rejected the offer.
Following additional conversations between representatives of Southern Union and
Fall River Gas, by letter dated September 28, 1999, Mr. Karam conveyed Southern
Union's willingness to change the structure for its proposed merger to provide
that up to one-half of the consideration could be cash rather than stock of
Southern Union. At its regular meeting on September 30, 1999, Fall River Gas'
board considered the terms of Southern Union's revised offer. Fall River Gas'
counsel discussed various aspects of the proposed merger agreement, conditions
to closing, as well as a likely time schedule. Legg Mason, by conference
telephone, noted that it considered the change from an all-stock transaction to
a cash-and-stock transaction to be favorable to the stockholders and confirmed
its view that the consideration to be received by the stockholders of Fall River
Gas in the proposed merger was fair to the stockholders from a financial point
of view. Legg Mason orally advised that it would change its written opinion
delivered to the Fall River Gas
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board of directors on September 7, 1999 to reflect this change in the merger
consideration. Legg Mason delivered their revised written opinion on October 4,
1999.
The Fall River Gas board, after further discussion and for the reasons listed
under "-Fall River Gas Reasons for the Merger; Recommendation of Fall River Gas'
Board of Directors," unanimously approved the merger agreement. Following the
meeting, Messrs. Faxon and Thanas called representatives of Southern Union to
communicate the board's approval. After the close of business October 4, 1999,
the merger agreement was executed and the merger was publicly announced.
FALL RIVER GAS REASONS FOR THE MERGER; RECOMMENDATION OF FALL RIVER GAS' BOARD
OF DIRECTORS
Recognizing the need for Fall River Gas to be larger in order to respond to the
demands of a deregulated energy market and to compete with the larger companies
being formed in the consolidation of the energy industry, the Fall River Gas
board authorized the exploration of a strategic stock-for-stock merger. The Fall
River Gas board believes that the merger with Southern Union, among other
things, should help Fall River Gas: 1) to provide all energy alternatives to the
consumer; 2) to diversify geographically; 3) to grow aggressively where
advisable; and 4) to be better able to take advantage of opportunities in the
energy industry. In addition, this strategic relationship should not require
Fall River Gas to significantly reduce employees or other assets in
Massachusetts and should help improve service to its customers.
In reaching its decision to approve the merger and the merger agreement and to
recommend that Fall River Gas stockholders adopt the merger agreement, the Fall
River Gas board consulted with its management, financial and legal advisors and
considered a number of factors, including, among others, the following material
factors:
- the belief that the merger with Southern Union will result in a combined
entity with sufficient size and scope to compete effectively in the
deregulated energy market;
- the merger consideration negotiated with Southern Union, including the
collar provision designed to protect Fall River Gas stockholders with
respect to the value of the stock consideration to be received by them in
the merger, and the implied premium that the merger consideration
represented over then recent market prices of Fall River Gas common stock;
- the written opinion of Legg Mason, a copy of which is attached as Appendix
B to this proxy statement/prospectus, that subject to the assumptions and
limitations contained in that opinion, the consideration to be received in
the merger by the stockholders of Fall River Gas is fair, from a financial
point of view, to the stockholders;
- the financial presentation made by Legg Mason to the Fall River Gas board
in connection with delivering its written opinion;
- the benefits to Fall River Gas' employees and the communities served by
Fall River Gas, including the retention of local operations and provisions
of Southern Union's benefit plans;
- the terms and conditions of the merger agreement, including:
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- the representations and warranties Fall River Gas has made to Southern
Union;
- the representations and warranties Southern Union has made to Fall
River Gas;
- the closing conditions;
- the ability of Fall River Gas, under certain circumstances, to provide
information to, and enter into negotiations with, third parties with
respect to certain unsolicited offers to acquire Fall River Gas;
- the ability to terminate the merger agreement in order to enter into
an agreement with a person making an unsolicited offer, which is more
favorable to Fall River Gas stockholders from a financial point of
view than the merger after paying a termination fee to Southern Union
and giving Southern Union the opportunity to match any offer made by
such a third party; and
- the ability of Fall River Gas to terminate the merger agreement if the
average trading price of Southern Union common stock for the valuation
period ending shortly before the closing falls below $15.00 (see "The
Merger Agreement -- Merger Consideration");
- the structure of the transaction, which is intended to qualify as a
"reorganization" for United States federal income tax purposes, so that the
stockholders of Fall River Gas, as such, will recognize gain only to the
extent they receive cash in exchange for their shares of Fall River Gas
common stock;
- information concerning the business, financial condition, results of
operations and prospects, including, but not limited to, the potential for
growth, development and profitability of Southern Union;
- the projected pro forma ownership of Southern Union by the stockholders of
Fall River Gas implied by the exchange ratio;
- the historical market prices and trading information with respect to Fall
River Gas common stock and Southern Union common stock; and
- the likelihood that the merger would be consummated.
During its deliberations regarding the proposed merger and merger agreement,
the Fall River Gas board also analyzed certain risks associated with the
merger, including the integration of the two companies and the risk of
obtaining the necessary regulatory approvals for the merger in acceptable
form. After reviewing these matters, the Fall River Gas board determined that
the benefits of the merger outweighed any risks entailed in these matters.
At its meeting on September 30, 1999, the Fall River Gas board unanimously
approved the terms of the merger agreement and the related transactions,
determined that the terms of the merger are in the best interests of Fall
River Gas and Fall River Gas' stockholders, and recommended approval and
adoption of the merger agreement by Fall River Gas' stockholders.
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This discussion of the information and factors considered by the Fall River
Gas board in making their decision is not intended to be exhaustive but is
believed to include all material factors considered in connection with the
Fall River Gas board's evaluation of the merger. The Fall River Gas board did
not find it practicable to, and did not, quantify or otherwise assign relative
weights to, the specific factors considered in reaching its determination. In
addition, individual members of the Fall River Gas board may have given
different weight to different factors. Based on the total mix of information
available to them, all of the directors decided to approve and recommend the
merger to Fall River Gas stockholders.
In considering the recommendation of the Fall River Gas board with respect to
the merger agreement, Fall River Gas stockholders should be aware that certain
members of the Fall River Gas board and Fall River Gas employees have
interests in the merger that are different from, or in addition to, the
interests of stockholders of Fall River Gas generally. The Fall River Gas
board was aware of these interests and considered them, among other matters,
in approving the merger agreement. See "The Merger - Potential Conflicts and
Interests of Certain Persons in the Merger."
OPINION OF FALL RIVER GAS' FINANCIAL ADVISOR
Legg Mason rendered its oral and written opinion to the Fall River Gas board
at their meeting on September 30, 1999, that, as of that date, and subject to
certain assumptions, factors and limitations set forth in such opinion as
described below, the merger consideration to be received by Fall River Gas
stockholders pursuant to the merger agreement was fair to stockholders from a
financial point of view.
The full text of the written opinion of Legg Mason dated October 4, 1999,
which sets forth the assumptions made, matters considered, scope and
limitations on the review undertaken, and procedures followed by Legg Mason in
connection with the opinion, is attached as Appendix B to this proxy
statement/prospectus. Stockholders are urged to read this opinion in its
entirety. Legg Mason's opinion is directed only to the consideration to be
received by stockholders pursuant to the merger agreement and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote at the special meeting. Legg Mason's opinion will not be updated
prior to or at the closing of the merger. The summary of the opinion of Legg
Mason set forth in this proxy statement/prospectus is qualified in its
entirety by reference to the full text of such opinion. In connection with
this engagement, Fall River Gas did not request Legg Mason, and Legg Mason did
not assist Fall River Gas, to determine the exchange ratio provided for in the
merger agreement. The exchange ratio was determined through arm's-length
negotiations between Fall River Gas and Southern Union.
In connection with its opinion, Legg Mason reviewed, among other things, (a)
the merger agreement and certain related documents, (b) the audited
consolidated financial statements of Fall River Gas as of and for the years
ended September 30, 1998, 1997, 1996 and 1995, (c) the unaudited financial
statements of Fall River Gas as of and for the nine-month period ended June
30, 1999, (d) the audited consolidated financial statements of Southern Union
as of and for the years ended June 30, 1999, 1998, 1997, 1996 and 1995. Legg
Mason also had discussions with members of the senior management of Fall River
Gas and Southern Union regarding the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, Legg Mason reviewed the reported price and trading activity for the
shares of Fall River Gas common stock and the shares of Southern Union common
stock, compared certain financial and stock market data for Fall River Gas and
Southern Union with similar information for certain
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other publicly-traded companies, analyzed publicly available information
concerning the terms of certain selected business combinations in the gas
distribution utility industry, and performed such other studies and analyses
as Legg Mason considered necessary or appropriate.
Legg Mason relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by them
for purposes of their opinion. Legg Mason did not make an independent
evaluation or appraisal of the assets and liabilities of Fall River Gas or
Southern Union or any of their subsidiaries and they were not furnished with
any such evaluation or appraisal.
The following is a summary of the financial analyses Legg Mason utilized in
connection with providing its written opinion to the Fall River Gas board.
STOCK TRADING HISTORY. Legg Mason examined the history of the trading price
and volume for the shares of Fall River Gas common stock. This examination
showed that during the period from October 2, 1998 to October 1, 1999, the
trading price of Fall River Gas common stock ranged from $15 3/8 per share to
$21 7/8 per share. This examination also showed that over the period from
October 4, 1994 to October 1, 1999, the trading price of Fall River Gas common
stock ranged from $12.75 per share to $27.00 per share. This range may be
compared to the merger consideration. Legg Mason also examined the history of
the trading price and volume for the shares of Southern Union common stock
(not adjusted for the 5% Southern Union stock dividends distributed on June
30, 2000 and August 6, 1999). This examination showed that during the
four-month period from June 1, 1999 to October 1, 1999, the trading price of
Southern Union common stock ranged from $18.00 per share to $21 23/32 per
share. The closing price of Southern Union common stock on October 1, 1999 was
$18.75 per share, which was used as the basis for the exchange rate in the
merger agreement. In addition, this examination showed that over the period
from October 3, 1997 to October 1, 1999, the trading price of Southern Union
common stock ranged from $13.25 per share to $23 7/32 per share.
COMPARISON OF SELECTED PEER COMPANIES. Legg Mason compared selected historical
stock market and balance sheet data and financial ratios for Fall River Gas to
the corresponding data and ratios of the following companies: Berkshire Energy
Resources, Cascade Natural Gas Corporation, Delta Natural Gas Company, Inc.,
Energy North, Inc., Energy South, Inc., Energy West Incorporated, ProvEnergy,
RGC Resources, Inc. and Valley Resources. The multiples of Fall River Gas were
calculated using a price of $20.75 per share for Fall River Gas common stock,
the closing price as of October 1, 1999. Such data and ratios included, among
other things, equity value as a multiple of latest twelve months ("LTM")
earnings per share ("EPS"), projected 1999 earnings per share, projected 2000
earnings per share and stockholders' equity; total market capitalization as a
multiple of LTM revenues, of LTM earnings before interest, taxes, depreciation
and amortization ("EBITDA") and of LTM earnings before interest and taxes
("EBIT"). Projected earnings per share data was provided by First Call
Analysts' Research and FactSet Data Systems. EBITDA (which is not a measure of
financial performance under generally accepted accounting principles) is used
by investment banking firms as one measure of a company's financial
performance. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles), as an indicator of a company's performance or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) or as a measure of liquidity.
An analysis of equity value as a multiple of LTM earnings per share for the
selected peer companies yielded a range of 10.2x to 24.1x with a median of
15.5x as compared to 22.4x for Fall River Gas. An analysis of
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equity value as a multiple of projected 1999 EPS yielded a range of 13.4x to
23.6x with a median of 15.9x as compared to 21.2x for Fall River Gas. An
analysis of equity value as a multiple of projected 2000 EPS yielded a range
of 11.8x to 20.3x with a median of 14.5x as compared with 16.2x for Fall River
Gas. An analysis of total market capitalization as a multiple of LTM EBITDA
yielded a range of 6.3x to 9.7x with a median of 7.4x as compared to 11.9x for
Fall River Gas. An analysis of total market capitalization as a multiple of
LTM EBIT yielded a range of 9.1x to 15.9x with a median of 10.9x as compared
to 19.3x for Fall River Gas.
SELECTED TRANSACTIONS ANALYSIS. Using publicly available information, Legg
Mason analyzed the purchase price and implied transaction value multiples paid
or announced to be paid in the following selected merger and acquisition
transactions in the gas distribution utility industry: Northeast
Utilities/Yankee Energy; Eastern/Colonial Gas; Carolina Power/North Carolina
Natural Gas; EnergyEast/Connecticut Energy; Southern Union/PEI; SCANA
Corp./Public Service Co. of North Carolina; Eastern Enterprises/Colonial Gas
Co.; Energy East Corp./Connecticut Energy Corp.; Carolina Power and
Light/North Carolina Natural Gas; Dominion Resources, Inc./Consolidated
Natural Gas; NiSource Inc./Bay State Gas; Eastern Enterprises/Essex County Gas
Co.; and Atmos Energy Corp./United Cities Gas Co. (the "Selected
Transactions"). Such analysis indicated that for the Selected Transactions,
(i) total transaction value as a multiple of LTM revenue ranged from 1.6x to
3.2x with a mean of 2.3x compared to 1.7x for the contemplated transaction,
(ii) total transaction value as a multiple of LTM EBITDA ranged from 7.5x to
13.9x with a mean of 10.6x, as compared to 13.1x for the contemplated
transaction, (iii) equity value as a multiple of LTM net income ranged from
20.0x to 31.8x (exclusive of a transaction at 83.3x and 47.4 which was not
included in the mean) with a mean of 24.3x, as compared to 25.6x for the
contemplated transaction, and (iv) equity value as a multiple of stockholders'
equity ranged from 1.9x to 3.0x with a median of 2.5x as compared to 2.9x for
the contemplated transaction.
No company, transaction, or business used in the comparison with comparable
companies or selected transactions analysis as a comparison is identical to
Fall River Gas or the merger. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical. Instead, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the comparable companies, selected transactions or
the company or transaction to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Legg Mason performed a discounted cash flow
analysis of Fall River Gas. Legg Mason calculated a net present value of
estimated free cash flows for the years 1999 through 2003 using discount rates
ranging from 5.9% to 7.5%. Legg Mason calculated Fall River Gas' terminal
values in the year 2003 based on multiples ranging from 10.4x EBIT to 12.8x
EBIT. These terminal values were then discounted to present value using
discount rates from 7.2% to 9.2%. Using the foregoing terminal values and
discounted cash flows for Fall River Gas, the equity value ranged from $7.30
to $14.90, as compared to the equity value implied by the exchange ratio of
$23.50 per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to practical analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Legg Mason's opinion. In arriving at its fairness
determination, Legg Mason considered the results of all such analyses. The
analyses were prepared solely for purposes of Legg Mason providing its opinion
to the
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Fall River Gas board as to the fairness of the merger consideration pursuant
to the merger agreement to the holders of shares of Fall River Gas common
stock and do not purport to be appraisals that necessarily reflect the prices
at which assets, businesses or securities actually may be sold. Analyses based
on forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties,
none of Fall River Gas, Southern Union, Legg Mason or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Legg Mason's opinion to the Fall River Gas board was one
of the many factors taken into consideration by the Fall River Gas board in
making its determination to approve the merger agreement. The foregoing
summary does not purport to be a complete description of the analyses
performed by Legg Mason and is qualified by reference to the written opinion
of Legg Mason set forth in Appendix B hereto.
Legg Mason, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Fall River Gas selected
Legg Mason as its financial adviser because Legg Mason is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the merger.
Legg Mason provides a full range of financial, advisory and brokerage services
and in the course of its normal trading activities may from time to time
effect transactions and hold positions in the securities or options on
securities of Fall River Gas and/or Southern Union for its own account and for
the accounts of customers.
Pursuant to an engagement letter dated August 24, 1999, Fall River Gas engaged
Legg Mason to act as its financial advisor in connection with the possible
merger of Fall River Gas and Southern Union. Pursuant to the terms of the
engagement letter, Fall River Gas agreed to pay Legg Mason $100,000 upon
delivery of a written fairness opinion to the board. Fall River Gas has agreed
to reimburse Legg Mason for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Legg Mason against certain liabilities,
including certain liabilities under federal securities laws.
SOUTHERN UNION BACKGROUND OF THE MERGER; REASONS FOR APPROVAL BY THE SOUTHERN
UNION BOARD OF DIRECTORS
For the past several years, Southern Union has pursued acquisition and
business combination opportunities. After the announcement of its merger
agreement with PEI, Southern Union management sought additional opportunities
in the northeastern United States that could expand its presence in that
region.
On August 24, 1999, the Southern Union board unanimously approved an all stock
merger agreement with Fall River Gas. In reaching its determination that a
merger with Fall River Gas is in the best interest of Southern Union and its
stockholders, the Southern Union board consulted with and relied upon
information and reports prepared or presented by Southern Union's management
and Southern Union's legal advisors. The following are the material factors
considered by the Southern Union board, including its Executive
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Committee, in pursuing acquisition opportunities, generally, which are
relevant to their approval of the merger agreement with Fall River Gas, some
of which contained both positive and negative elements:
- the terms of a proposed form merger agreement consistent with those terms
described under "The Merger Agreement" except that the consideration was
all stock;
- the likelihood of receipt of timely and satisfactory regulatory approvals
for the merger;
- the risk that the merger would not be consummated;
- other recent and potential mergers involving utilities in the northeastern
region of the country, particularly PEI, ProvEnergy and Valley Resources;
- the substantial management time and effort that will be required to
consummate all aspects of the recent and potential mergers, including to
integrate the operations of those companies, and the risks inherent in such
integration;
- other matters described under "Risk Factors and Other Considerations" and
"Forward-Looking Statements May Prove Inaccurate"; and
- the results of Southern Union's business investigation of Fall River Gas
and its subsidiary.
On September 27, 1999, the Executive Committee of Southern Union's board
approved a revised offer in order to permit the substitution of cash for some
portion of the consideration Fall River Gas stockholders would receive in
connection with the merger.
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 Fall River Gas transaction by holders of two-thirds of the
outstanding shares of Southern Union common stock in connection with obtaining
the approval by the Massachusetts Department of Telecommunications and Energy
of the transaction. In order to eliminate any uncertainty concerning this
issue and to facilitate the closing of the transaction, Southern Union advised
Fall River Gas and the Massachusetts Department of Telecommunications and
Energy that it intended to seek such stockholder approval. On May 31, 2000 the
Southern Union Board of Directors approved a resolution recommending that the
stockholders of Southern Union approve the Fall River Gas merger at a special
meeting of stockholders, due to the merger being in the best interests of
Southern Union, its stockholders, employees and customers.
The foregoing discussion of the information and factors considered by the
Southern Union board, including its Executive Committee, is not intended to be
all-inclusive. In view of the wide variety of factors considered in connection
with its evaluation of acquisition opportunities, including this proposed
merger, the Southern Union board, including its Executive Committee did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the foregoing factors. Rather, the Southern Union board,
including its Executive Committee based its decision on the totality of the
information presented to and considered by it.
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POTENTIAL CONFLICTS AND INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Fall River Gas board with respect to
approving the merger, Fall River Gas stockholders should be aware that members
of Fall River Gas' management and the Fall River Gas board have the following
interests in the merger that may be different from, or in addition to, the
interests of Fall River Gas stockholders generally and represent conflicts of
interest. The Fall River Gas board was aware of these interests and considered
them in approving the merger agreement.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS. Effective September 30, 1991, Fall River Gas entered into
employment agreements with its President and Chief Executive Officer, Bradford
J. Faxon and with its Senior Vice President, Treasurer and Chief Financial
Officer, Peter H. Thanas.
Under the terms of these employment agreements, Mr. Faxon is compensated for
his duties as an officer and director, and Mr. Thanas is compensated for his
duties as an officer. The amounts of their respective salaries are determined
from time to time by the board of directors. The term of each employment
agreement was initially five years, subject to earlier termination by an act
of Fall River Gas or the respective officer. Beginning in September 1993 and
annually thereafter, the remaining term of each employment agreement is
automatically extended for an additional one-year period. On November 30,
1998, Fall River Gas entered into a similar employment agreement with John F.
Fanning, a Fall River Gas officer.
These employment agreements provide that if the respective officer is
terminated without cause or terminates his employment as a result of certain
adverse actions by Southern Union, during a period of thirty-six months
following a "change in control" of Fall River Gas, the officer shall receive a
lump sum severance amount and continuation of certain welfare plan benefits. A
"change of control" will be considered to have occurred on the date the merger
is completed.
The lump sum severance payment is an amount equal to three times the annual
(or annualized) compensation paid to the respective officer during the period
as of the date of termination. The maximum value of the severance payments
which may become payable to these three officers in the aggregate under the
terms of their agreements is approximately $1,692,000.
On October 4, 1999, these employment agreements were amended. These amendments
will become effective as of the date the merger is completed. These amendments
provide for payment to Messrs. Faxon, Thanas and Fanning of $1,000,000;
$700,000 and $300,000, respectively. If Messrs. Faxon, Thanas and Fanning
continue their employment with Fall River Gas, these payments will be made in
equal monthly installments over an eighteen month period beginning on the
effective date of the merger. These payments would be offset against any
severance payments that may become owed under any of the agreements in certain
circumstances.
DEFENSE, INDEMNIFICATION AND INSURANCE FOR FALL RIVER GAS OFFICERS AND
DIRECTORS. For a period of six years after the completion of the merger,
Southern Union has agreed to indemnify and hold harmless the present and
former officers and directors of Fall River Gas and its subsidiary in respect
of acts or omissions occurring prior to the completion of the merger to the
extent provided under Fall River Gas' restated articles of incorporation and
bylaws in effect on the date hereof; PROVIDED, HOWEVER, that if any claim or
claims are
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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 completion of the merger, Southern Union will use its
reasonable best efforts to provide officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the completion of
the merger covering each such person currently covered by Fall River Gas'
officers' and directors' liability insurance policy on terms with respect to
coverage and amount no less favorable than those of such policy in effect on
the date hereof; PROVIDED THAT, in satisfying this obligation, if the annual
premiums of such insurance coverage exceed 200% of the previous year's
premiums, Southern Union will be obligated to obtain a policy with the best
coverage available, in the reasonable judgment of Southern Union's board, for
a cost not exceeding such amount. See "The Merger Agreement - Indemnification
and Insurance for Fall River Gas Officers and Directors."
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SIGNIFICANT U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is intended only as a summary of the material U.S.
federal income tax consequences of the merger to Southern Union, Fall River
Gas and Fall River Gas stockholders and does not purport to be a complete
analysis or description of all potential tax effects of the merger. The
discussion assumes that holders of Fall River Gas common stock hold such stock
as "capital assets" within the meaning of Section 1221 of the Internal Revenue
Code. In addition, the discussion does not address all of the tax consequences
that may be relevant to particular taxpayers in light of their personal
circumstances or to taxpayers subject to special tax rules (for example,
insurance companies, financial institutions, dealers in securities, tax-exempt
organizations, banks, foreign taxpayers and taxpayers holding common stock as
parts of straddles). No information is provided with respect to the tax
consequences, if any, of the merger under applicable foreign, state, local or
other tax laws.
The discussion is based upon the provisions of the Internal Revenue Code,
applicable Treasury regulations thereunder, IRS rulings and judicial
decisions, as in effect as of the date of this proxy statement/prospectus.
There can be no assurance that future legislative, administrative or judicial
changes or interpretations will not affect the accuracy of the statements or
conclusions included in this proxy statement/prospectus. Any such change could
apply retroactively and could affect the accuracy of such discussion.
Each stockholder of Fall River Gas is urged to consult such stockholder's own
tax advisor as to the specific tax consequences to such stockholder of the
merger under U.S. federal, state, local or any other applicable tax laws.
THIS SUMMARY DOES NOT PURPORT TO BE A COMPREHENSIVE DESCRIPTION OF ALL OF THE
TAX CONSIDERATIONS THAT MAY BE RELEVANT TO A DECISION WHETHER TO APPROVE THE
MERGER. THIS SUMMARY IS PROVIDED FOR GENERAL INFORMATION PURPOSES ONLY AND
DOES NOT CONSTITUTE LEGAL OR TAX ADVICE.
TAX OPINIONS. The obligation of Southern Union to consummate the merger is
conditioned on its receipt on the closing date of an opinion from Hughes
Hubbard & Reed LLP, tax counsel to Southern Union, that the merger will
qualify as a reorganization under Section 368(a) of the Internal Revenue Code
(the "Southern Union Tax Opinion"). The obligation of Fall River Gas to
consummate the merger is conditioned on its receipt on the closing date of an
opinion from Rich, May, Bilodeau & Flaherty, P.C., Fall River Gas' counsel,
that the merger will qualify as a reorganization under Section 368(a) of the
Internal Revenue Code (the "Fall River Gas Tax Opinion").
Each of the Southern Union Tax Opinion and the Fall River Gas Tax Opinion will
be based on certain representations contained in letters from Southern Union,
Fall River Gas and others delivered for the purpose of the opinions and will
be subject to certain limitations and qualifications similar to those set
forth in this discussion of significant U.S. federal income tax consequences
of the merger. Each of the Southern Union Tax Opinion and the Fall River Gas
Tax Opinion will be based on certain assumptions, including that the merger
will be consummated exactly as described in this proxy statement/prospectus
and in the merger agreement.
An opinion of counsel represents only counsel's best judgment and has no
binding effect or official status of any kind; and no assurance can be given
that contrary positions will not be taken by the IRS or by a court
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considering the issues. Neither Southern Union nor Fall River Gas has
requested or intends to request a ruling from the IRS with regard to any of
the federal income tax consequences of the merger.
The discussions below of "CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS" and
"CONSEQUENCES TO SOUTHERN UNION AND FALL RIVER GAS" assume that the merger
will qualify as a reorganization under Section 368(a) of the Internal Revenue
Code.
CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS RECEIVING SOLELY SOUTHERN UNION
COMMON STOCK. A Fall River Gas stockholder will generally recognize neither
gain nor loss for U.S. federal income tax purposes with respect to the receipt
solely of Southern Union common stock in exchange for Fall River Gas common
stock pursuant to the merger. The aggregate tax basis of the Southern Union
common stock received by a Fall River Gas stockholder will be the same as the
aggregate tax basis of the Fall River Gas common stock surrendered in exchange
therefor pursuant to the merger. The holding period of the Southern Union
common stock will include the holding period of the Fall River Gas common
stock surrendered in exchange therefor.
CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS RECEIVING SOLELY CASH. A Fall
River Gas stockholder will generally recognize gain or loss for U.S. federal
income tax purposes with respect to the receipt solely of cash in exchange for
Fall River Gas common stock pursuant to the merger. Any gain or loss
recognized by a Fall River Gas stockholder will be capital gain or loss, and
will be long-term capital gain or loss if the holding period for the Fall
River Gas common stock surrendered is more than one year. The amount of gain
or loss will be equal to the difference between the amount of cash received
and the tax basis of the Fall River Gas common stock surrendered.
CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS RECEIVING CASH AND SOUTHERN UNION
COMMON STOCK. A Fall River Gas stockholder will generally recognize gain, but
not loss, for U.S. federal income tax purposes with respect to the receipt of
Southern Union common stock and cash in exchange for Fall River Gas common
stock pursuant to the merger. The amount of gain, if any, recognized by a Fall
River Gas stockholder will be equal to the lesser of (i) the amount of gain
realized (i.e., the excess of the amount of cash, including cash received in
lieu of fractional shares, and the fair market value of Southern Union common
stock received in the merger over the tax basis of the Fall River Gas common
stock surrendered) or (ii) the amount of cash, including cash received in lieu
of fractional shares, received in the merger. In the case of a Fall River Gas
stockholder that owns more than one "block" of Fall River Gas common stock,
the amount of gain recognized should be calculated separately with respect to
each "block" surrendered in the merger. For purposes of such calculation, the
aggregate amount of cash and Southern Union common stock received by the Fall
River Gas stockholder will be allocated proportionally among the "blocks" of
Fall River Gas common stock surrendered in exchange therefor pursuant to the
merger. The aggregate tax basis of the Southern Union common stock received by
a Fall River Gas stockholder will be the same as the aggregate tax basis of
the Fall River Gas common stock surrendered in exchange therefor pursuant to
the merger, decreased by the total amount of cash received and increased by
the amount of gain recognized. The holding period of the Southern Union common
stock will include the holding period of the Fall River Gas common stock
surrendered in exchange therefor.
Any gain recognized by a Fall River Gas stockholder receiving both Southern
Union common stock and cash will be capital gain, and will be long-term
capital gain if the holding period for the Fall River Gas
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common stock surrendered is more than one year, unless the receipt of cash has
"the effect of the distribution of a dividend" within the meaning of Section
356 of the Internal Revenue Code. If the receipt of cash has such an effect,
the recognized gain will be taxed as ordinary income to the extent of the Fall
River Gas stockholder's ratable share of Fall River Gas', and arguably
Southern Union's, undistributed earnings and profits, and any remaining gain
will be taxed as capital gain.
In determining whether cash received by a stockholder who also receives stock
in a reorganization has the effect of a dividend distribution, principles
similar to those governing redemptions under Section 302 of the Internal
Revenue Code apply. In applying those principles, Fall River Gas stockholders
will be treated as if they had received solely Southern Union common stock in
the merger (instead of the combination of shares of Southern Union common
stock and cash actually received) and Southern Union had then redeemed for
cash a portion of the Southern Union common stock the Fall River Gas
stockholders would be treated as having received. Generally, under Section 302
of the Internal Revenue Code, amounts distributed in redemption of a
stockholder's stock will not be taxed as a dividend if (a) the distribution is
"substantially disproportionate" with respect to the stockholder, or (b) the
distribution is "not essentially equivalent to a dividend" with respect to the
stockholder. A distribution in redemption is "substantially disproportionate"
with respect to a stockholder if the percentage of outstanding voting shares
of the issuing corporation owned by such stockholder immediately after the
redemption is less than 50% of the total outstanding and less than 80% of the
percentage of voting shares owned by such stockholder immediately prior to the
redemption. Whether a distribution in redemption is "not essentially
equivalent to a dividend" depends on whether, under the particular
stockholder's facts and circumstances, the redemption results in a "meaningful
reduction" of the stockholder's proportionate interest in the issuer. The IRS
has indicated in published rulings that even a small reduction in the
proportionate interest of a stockholder in a publicly held corporation whose
relative stock interest is minimal and who exercises no control or management
power over the affairs of the corporation may constitute such a "meaningful
reduction." In applying these tests, a stockholder is treated as owning shares
owned by certain related persons, and sales or acquisitions of Fall River Gas
common stock or Southern Union common stock which occur contemporaneously with
the merger may be taken into account. Because of the complexity of the tests
under Section 302 of the Internal Revenue Code, Fall River Gas stockholders
are urged to consult their own tax advisors regarding the proper treatment of
the gain recognized by such stockholder in the merger.
BACKUP WITHHOLDING TAX. Unless an exemption applies, the paying agent will be
required to withhold 31% of any cash payments to which a Fall River Gas
stockholder or other payee is entitled pursuant to the merger, unless the
stockholder or other payee provides his or her tax identification number
(social security number or employer identification number) and certifies that
such number is correct. Each Fall River Gas stockholder and, if applicable,
each other payee is required to complete and sign the Form W-9 that will be
included as part of the transmittal letter sent to Fall River Gas stockholders
by Southern Union to avoid backup withholding, unless an applicable exemption
exists and is proved in a manner satisfactory to Southern Union and the paying
agent.
CONSEQUENCES TO SOUTHERN UNION AND FALL RIVER GAS. No gain or loss will be
recognized by Southern Union or Fall River Gas by reason of the merger.
REGULATORY MATTERS
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The following is a summary of the material regulatory requirements affecting
the merger. There can be no guarantee if and when any of the consents or
approvals required for the merger will be obtained or as to the conditions
that they may contain. Southern Union and Fall River Gas have filed for the
required approvals from all of the agencies discussed. The managements of
Southern Union and Fall River Gas believe that the necessary approvals can be
obtained in 2000, and presently expect that they all will be received by
September, 2000. See "Risk Factors and Other Considerations - Approvals May
Not Be Obtained or May Contain Unacceptable Restrictions."
STATE APPROVALS AND RELATED MATTERS. The utility operations of Southern Union
are subject to the regulatory jurisdiction of the Missouri Public Service
Commission ("MPSC"), the Pennsylvania Public Utility Commission ("PPUC"), the
Railroad Commission of Texas ("RRC") and various municipalities in Texas where
Southern Union conducts business, and the Florida Public Service Commission
("FPSC"). On May 11, 2000, the PPUC approved the Fall River Gas merger. The
MPSC approved the Fall River Gas merger on June 28, 2000. The approvals of the
PPUC and the FPSC for the securities issuance and debt assumption in
connection with the merger are still required. None of the other required
state approvals had been received as of the date of this proxy statement. No
RRC or Texas municipality approvals are required in connection with the merger.
The utility operations of Fall River Gas are subject to the regulatory
jurisdiction of the Massachusetts Department of Telecommunications and Energy
("MDTE") and subsequent to the merger, those operations, conducted as a
division of Southern Union, will remain subject to MDTE jurisdiction. Among
the key provisions are those addressing rates and charges, standards of
service, and accounting and approval of certain financing transactions.
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 MDTE. In order to eliminate any uncertainty concerning
this issue and to facilitate the closing of the transaction, Southern Union
has advised Fall River Gas and the MDTE that it intends to seek, and through
its proxy statement, is seeking such stockholder approval at the Southern
Union special meeting.
Assuming the requisite regulatory approvals are obtained, the combined company
and its utility operations will remain subject to the regulatory jurisdiction
of the MDTE, MPSC, PPUC, RRC and various municipalities in Texas, and the
FPSC. Upon completion of the Valley Resources and ProvEnergy mergers, the
combined company and its utility operations will also be subject to the
regulatory jurisdiction of the Rhode Island Public Utilities Commission and
the Rhode Island Division of Public Utilities and Carriers.
ANTI-TRUST CONSIDERATIONS. Under the HSR Act, Southern Union and Fall River
Gas cannot complete the Fall River Gas merger until we give notification and
furnish information to the Federal Trade Commission ("FTC") and the Antitrust
Division of the Department of Justice, and the specified waiting period
requirements have been satisfied. Southern Union and Fall River Gas filed the
required notification and report forms with the FTC and the Antitrust Division
on March 1, 2000. A request for additional information from the FTC was
received on March 31, 2000, to which Southern Union and Fall River Gas have
responded. At any time before or after the effective time of the mergers, and
notwithstanding that the
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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 Fall River Gas merger. Private parties may also institute
legal actions under the antitrust laws under some circumstances. If the merger
is not consummated within twelve months after the expiration or earlier
termination of the HSR Act waiting period, Southern Union and Fall River Gas
would be required to submit new filings to the Department of Justice and the
FTC, and a new HSR Act waiting period would have to expire or be earlier
terminated before the merger could be consummated.
GENERAL. Fall River Gas possesses rights and franchises, and environmental
permits and licenses. Some of these may need to be transferred, renewed or
replaced as a result of the merger. The companies do not anticipate any
difficulties at the present time in making or obtaining such transfers,
renewals or replacements.
Under the merger agreement, Southern Union and Fall River Gas have agreed to
use their reasonable best efforts to obtain all necessary material permits,
licenses, franchises and other governmental authorizations needed to
consummate or effect the transactions contemplated by the merger agreement.
Various parties may seek intervention in the proceedings associated with the
regulatory approval process in an attempt to oppose the merger or to have
conditions imposed upon the receipt of the necessary approvals. Although
Southern Union and Fall River Gas believe that they will receive the requisite
regulatory approvals for the merger, the timing of their receipt cannot be
determined. It is a condition to the consummation of the merger (subject to
waiver by Southern Union and Fall River Gas) that final non-appealable orders
approving the merger be obtained from the various federal and state
commissions described above. See "The Merger Agreement - Conditions to the
Completion of the Merger."
ACCOUNTING TREATMENT
The Unaudited Pro Forma Combined Condensed Financial Statements appearing
elsewhere in this proxy statement/prospectus are based upon certain
assumptions, as described in the pro forma combined condensed financial
statements, and are included for informational purposes only. The merger will
be accounted for under the purchase method of accounting, in accordance with
generally accepted accounting principles. Under the purchase method of
accounting, Southern Union's historical results for periods before the merger
will remain unchanged. On the closing date, the combined company will record
Fall River Gas' assets and liabilities of regulated entities at their
historical cost basis, and Fall River Gas' assets and liabilities of
non-regulated entities will be recorded at fair value, with any excess
recorded as additional purchase cost assigned to utility plant. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
NO APPRAISAL RIGHTS
Under Massachusetts law, stockholders of Fall River Gas who object to approval
of the merger agreement are not entitled to demand separate payment or an
appraisal of their shares in connection with the merger.
LISTING OF SOUTHERN UNION COMMON STOCK
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It is a condition to the completion of the merger that the shares of Southern
Union common stock to be issued in connection with the merger be approved for
listing on the NYSE at or before the time the merger is completed. See "The
Merger Agreement - Conditions to the Completion of the Merger."
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Southern Union common stock received by Fall River Gas
stockholders in connection with the merger will be freely transferable, except
that shares of Southern Union common stock received by individuals and
entities who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Fall River Gas before the merger may be resold by them only
in transactions permitted by the resale provisions of Rule 145 under the
Securities Act (or Rule 144 under the Securities Act, in the case of
individuals and entities who become affiliates of Southern Union) or as
otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Southern Union or Fall River Gas
generally include individuals or entities that control, are controlled by, or
are under common control with, Southern Union or Fall River Gas and may
include certain officers and directors of Southern Union or Fall River Gas as
well as principal stockholders of Southern Union or Fall River Gas. The merger
agreement requires Fall River Gas to use commercially reasonable efforts to
cause each of its affiliates to execute and deliver to Southern Union a letter
to the effect that such affiliate will not offer or sell or otherwise dispose
of Southern Union common stock issued to such affiliate in or pursuant to the
merger in violation of the Securities Act or the rules and regulations adopted
by the SEC thereunder. See "The Merger Agreement - Covenants and Other
Agreements - Certain Other Covenants and Agreements." The delivery of such
agreements is also a condition to Southern Union's obligation to complete the
merger. See "The Merger Agreement - Conditions to the Completion of the Merger
- Additional Closing Conditions for Southern Union's Benefit."
This proxy statement/prospectus does not cover resales of Southern Union
common stock received by any person who may be deemed to be an affiliate of
Fall River Gas.
MERGER-RELATED FINANCING
Southern Union's management is evaluating various sources and methods of
financing the amount necessary to fund the cash portion of the consideration
to be paid to Fall River Gas stockholders under the merger agreement, the all
cash consideration to be paid to the ProvEnergy and Valley Resources
stockholders, and all related costs and refinancings anticipated in connection
with these mergers. See "The Merger Agreement - Merger Consideration."
Southern Union's management currently anticipates that substantially all of
these costs will be financed through external sources. The financings may
include the refinancing by Southern Union of some or all of the approximately
$19.5 million of outstanding debt of Fall River Gas in connection with or soon
after the consummation of the merger. Southern Union anticipates soliciting
consents from the holders of Fall River Gas' mortgage bonds to revise or
eliminate certain of their indenture terms, primarily to conform to certain
terms in the indenture for Southern Union's outstanding senior notes.
Southern Union's pending acquisitions of Fall River Gas, ProvEnergy and Valley
Resources would require up to approximately $600 million of new financing if
Fall River Gas shareholders choose to receive the maximum of 50% of the
aggregate merger consideration that may be paid to them in cash and if all of
the
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approximately $140 million of existing long-term debt of the three companies
being acquired must be refinanced rather than amended and assumed as planned.
Presently, Southern Union expects to be able to amend the terms of outstanding
long-term debt of the three companies being acquired in order to assume such
debt. Southern Union presently plans to fund all other costs for the three
acquisitions with bank borrowings, although it has not yet received
commitments.
After closing the mergers, Southern Union may choose or need to refinance some
portion or all of the bank borrowings that it plans for funding the pending
acquisitions. Sources of future or alternative financing that Southern Union
may consider include commercial and investment banks, institutional lenders,
institutional investors and public securities markets. The methods of
financing that Southern Union may consider include bank lines of credit, debt
and preferred securities of various maturities and terms, and common stock.
Southern Union's management believes that Southern Union will have access if
and when needed to many sources and types of short-term and long-term capital
sources at reasonable rates.
All of these considerations and assumptions relate to the financing required
for mergers and acquisitions that Southern Union has agreed to consummate but
not completed. See "Risk Factors and Other Considerations The Terms of
Merger-Related Financings May Adversely Affect the Combined Company." As a
result of its planned financing and as shown in the Pro Forma Combined
Condensed Financial Statements, the consolidated capitalization of Southern
Union after completion of Southern Union's three pending mergers is expected
to consist of at least 32% common equity, approximately 5% preferred equity
and approximately 63% long-term debt.
THE MERGER AGREEMENT
This section is a summary of the material terms of the merger agreement, a
copy of which is attached as Appendix A 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 merger and the terms and conditions of the
merger agreement.
STRUCTURE OF THE MERGER
Under the merger agreement, Fall River Gas will be merged with and into
Southern Union. After the merger, Southern Union will continue as the
surviving corporation. Southern Union's existing certificate of incorporation
and bylaws will remain in effect after the merger, and Southern Union's
management and Board of Directors will remain the same as a result of the
merger, except as specifically discussed in this proxy statement/prospectus.
See "Comparison of Fall River Gas and Southern Union Stockholder Rights."
As a result of the merger, Fall River Gas will be a division of Southern
Union. Fall River Gas' non-regulated subsidiary will become a subsidiary of
Southern Union.
CLOSING; EFFECTIVE TIME
On the closing date, we will file articles of merger and a certificate of
merger with the Secretary of State of the Commonwealth of Massachusetts in
accordance with the Massachusetts General Laws ("MGL") and a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
the Delaware
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General Corporation Law ("DGCL"). The merger will become effective upon filing
of these documents. This moment is referred to as the "effective time."
MERGER CONSIDERATION
You will have the option to elect either cash or Southern Union common stock
or a combination of both in exchange for your shares of Fall River Gas,
subject to certain limitations.
Each share of your Fall River Gas common stock that you elect to exchange for
cash will be converted into the right to receive $23.50 in cash, unless too
many Fall River Gas stockholders elect to receive cash. No more than 50% of
the aggregate consideration paid to all Fall River Gas stockholders may
consist of cash, including cash paid to Fall River Gas stockholders in lieu of
issuing them fractional shares of Southern Union common stock. If the Fall
River Gas stockholders exceed this cash limitation, the amount of cash paid to
each Fall River Gas stockholder electing cash will be reduced proportionately.
Thus, if too many Fall River Gas stockholders elect to receive cash,
consequently exceeding the cash limitation, a combination of cash and Southern
Union common stock having a deemed value of $23.50 will be delivered to Fall
River Gas stockholders in exchange for each share they selected to be
exchanged for cash.
Each share of your Fall River Gas common stock that you elect to exchange for
Southern Union common stock will be converted into the right to receive that
number of whole shares of Southern Union common stock having a value of
$23.50, except as described below. Southern Union will not issue any
fractional shares of its common stock in connection with the merger. Instead,
you will be given cash for any fractional shares of Southern Union common
stock you would otherwise receive.
You will be entitled to receive Southern Union common stock in the merger if:
- you elect to receive Southern Union common stock;
- you elect to receive cash and Fall River Gas stockholders exceed the cash
limitation;
- you do not indicate a preference as to the type of consideration you want
to receive; or
- you do not properly complete the form of election provided to you by the
company Southern Union has selected to be the paying agent in connection
with the merger.
The exact number of shares of Southern Union common stock you will receive for
each share of your Fall River Gas common stock will depend on the average
trading price of Southern Union common stock on the New York Stock Exchange
for the ten trading day period beginning on the twelfth trading day and ending
on the third trading day before the closing of the merger (counting from and
including the trading day immediately preceding the closing).
If the average price of Southern Union's common stock during this ten
trading-day period is:
- Above $19.6875, the number of shares of Southern Union common stock will be
fixed at 1.19365 for each share of Fall River Gas common stock.
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- Between $16.875 and $19.6875, the number of shares of Southern Union common
stock will be adjusted so that each share of Fall River Gas' common stock
will be exchanged for Southern Union common stock having a value equal to
$23.50 divided by the average trading price during the period of time
described above.
- Below $16.875, but at least $15.00, the number of shares of Southern Union
common stock will be fixed at 1.39259 for each share of Fall River Gas
common stock.
- Below $15.00, Fall River Gas has the option to terminate the merger
agreement. If Fall River Gas does not terminate the merger agreement, you
will receive 1.39259 shares of Southern Union common stock per share of
Fall River Gas common stock.
PROCEDURE FOR FILING ELECTIONS AND CONVERTING FALL RIVER GAS COMMON STOCK INTO
MERGER CONSIDERATION
A form of election and complete instructions for properly making an election
to receive either cash or Southern Union common stock or a combination of cash
and Southern Union common stock will be delivered under separate cover to
stockholders of record of Fall River Gas (determined as of a record date as
close as practicable to the date of mailing) at least 15 business days prior
to the anticipated closing date of the merger, which is expected to occur in
September 2000.
Fall River Gas stockholders will be entitled to choose one of the following
consideration options, which will be listed on their form of election:
- to receive cash for each share of Fall River Gas they own;
- to receive Southern Union common stock for each share of Fall River Gas
they own;
- to exchange some of their shares of Fall River Gas for cash and some for
Southern Union common stock; or
- to indicate no preference as to type of consideration.
You will be eligible to receive cash only if the paying agent has received a
properly completed form of election at its designated office or offices by
4:00 p.m., Eastern Time, on the third business day prior to the closing date
of the merger. You will be eligible to receive as consideration only shares of
Southern Union common stock if:
- the form of election you submit indicates a preference to receive only
shares of Southern Union common stock;
- the form of election you submit indicates no preference as to form of
consideration; or
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- you fail to submit a properly completed form of election prior to the
deadline for submitting cash elections.
An election may be revoked only if Southern Union's paying agent receives
written notice of revocation prior to the deadline for submitting cash
elections.
PAYING AGENT; LOST CERTIFICATES
BankBoston, N.A. c/o EquiServe, L.P. will act as paying agent for you in
connection with the merger.
Promptly following the effective time, the exchange agent will mail to you a
letter of transmittal and instructions regarding the surrender of your Fall
River Gas common stock certificates for cancellation. Promptly after receiving
your certificates together with the letter of transmittal, duly executed, the
exchange agent will send you the Southern Union common stock and/or the cash
you will be entitled to receive.
No fractional shares of Southern Union common stock will be issued in the
merger. Instead of fractional shares, you will receive cash in an amount equal
to the value of the fractional shares to which you would otherwise have been
entitled based on the closing price of a share of Southern Union common stock
on the NYSE on the trading day immediately prior to the closing date.
If the merger consideration is to be paid to a person other than the person in
whose name the surrendered certificate is registered, the surrendered
certificate must be properly endorsed and the person requesting payment must
have paid any transfer and other taxes required in connection with payment of
the merger consideration to a person other than the registered holder of the
surrendered certificate or must establish to the satisfaction of Southern
Union that taxes do not apply.
If your certificates have been lost, stolen or destroyed, you must provide the
exchange agent with an affidavit to that effect. In addition, you will be
required to give the paying agent a bond in an amount as it may ordinarily
require and you must indemnify Southern Union against any claim that may be
made against Southern Union with respect to the certificate claimed to have
been lost, stolen or destroyed.
Southern Union will not be liable to you for merger consideration delivered to
a public official pursuant to applicable law. Seven years after the effective
time, any portion of the merger consideration that remains unclaimed by Fall
River Gas' stockholders will, to the extent permitted by applicable law,
become the property of Southern Union.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE A TRANSMITTAL
LETTER.
FALL RIVER GAS INDENTURE
Fall River Gas will use its reasonable best efforts to obtain, prior to the
effective time of the merger, consents from all holders of First Mortgage
Bonds outstanding under the Indenture of First Mortgage, dated as of December
1, 1952, between Fall River Gas and State Street Bank and Trust Company (the
"Fall River Gas Indenture"), to amendments to the Fall River Gas Indenture
requested by Southern Union pursuant to
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Section 6.1(n) of agreement. Fall River Gas and its subsidiaries, however,
will not be required to make any payment to any bondholder prior to the
effective time of the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains certain substantially mutual representations and
warranties made by Southern Union and Fall River Gas to each other, relating
to, among other things:
- corporate organization, existence, qualification, standing and power;
- capitalization;
- subsidiaries and investments;
- authorization, execution, delivery, performance and enforceability of the
merger agreement, and absence of violations, breaches or defaults under
organizational documents, certain agreements and government orders as a
result of execution, delivery and performance of the merger agreement;
- governmental approvals and authorizations necessary to complete the merger;
- public utility holding company status and regulation as a public utility;
- absence of violations of applicable legal requirements and material
compliance with governmental authorizations;
- legal proceedings;
- documents filed by each of Southern Union and Fall River Gas with the SEC;
- tax matters;
- intellectual property matters;
- disclosure of indebtedness;
- absence of defaults under material contracts;
- employee benefit matters;
- environmental matters;
- absence of material adverse changes since specified balance sheet dates;
- broker's or finder's fees;
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- information provided for inclusion in this proxy statement/prospectus,
Southern Union's proxy statement and the registration statement; and
- required stockholder votes in connection with the merger.
In addition, Fall River Gas has made representations and warranties to
Southern Union relating to:
- title to assets;
- machinery and equipment;
- insurance policies;
- labor and employment matters;
- regulatory proceedings; and
- delivery of a fairness opinion of Legg Mason Wood Walker, Incorporated.
COVENANTS AND OTHER AGREEMENTS
Each of Southern Union and Fall River Gas has undertaken certain covenants and
other agreements in the merger agreement. The following summarizes the more
significant of these covenants:
INTERIM OPERATIONS. In the merger agreement, Southern Union and Fall River Gas
have agreed that, except as provided by the merger agreement or as consented
to by the other party, during the period from the date of the merger agreement
until the effective time, each of Southern Union and Fall River Gas and its
subsidiary will:
- not make or permit any material change in the general nature of its
business;
- maintain its ordinary course of business (for Southern Union, only with
respect to its present operations) in accordance with prudent business
judgment and consistent with past practice and policy, and maintain its
assets in good repair, order and condition, reasonable wear and tear
excepted, subject to retirements in the ordinary course of business;
- preserve its ongoing business and use reasonable efforts to maintain its
goodwill; and
- preserve its franchises, tariffs, certificates of public convenience and
necessity, licenses, authorizations and other governmental rights and
permits.
In addition, except as provided by the merger agreement or as consented to by
Southern Union, during the period from the date of the merger agreement until
the effective time, Fall River Gas and its subsidiary will:
- not enter into any material transaction or contract other than in the
ordinary course of business;
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- not purchase, sell, lease, dispose of or otherwise transfer or subject to
lien, any of its assets other than in the ordinary course of business;
- not hire any new employee unless the employee is a bona fide replacement
for a presently-filled position;
- not file any material applications, petitions, motions, orders, briefs,
settlements or agreements in any material proceeding or related appeal
before a government body;
- not engage in any new or modify any existing material intercompany
transactions, except in the ordinary course of business, involving any
subsidiary of Fall River Gas;
- not voluntarily change in any material respect or terminate any of Fall
River Gas' insurance policies unless equivalent coverage is obtained;
- not make any capital expenditure or capital expenditure commitment;
- not make any changes in financial policies or practices, or strategic or
operating policies or practices, subject to adjustments in the ordinary
course of business and other deviations (which in the aggregate will not
exceed 5% on an annualized basis during the period from the date the merger
agreement was signed until the completion of the merger);
- comply in all material respects with all applicable legal requirements and
permits;
- not adopt, amend or assume an obligation to contribute to any of Fall River
Gas' employee benefit plans or collective bargaining agreements or enter
into any employment, severance or similar contract or amend any such
existing contracts;
- not grant any increase or change in total compensation, benefits or pay any
bonus to any employees, directors or consultants, except in the ordinary
course of business or in accordance with the terms of any existing
contract, employee benefit plan of Fall River Gas or collective bargaining
agreement;
- not grant or enter into or extend the term of any contract, written or
oral, with respect to continued employment for any employee, officer,
director or consultant;
- not make any loan or advance to any officer, director, stockholder,
employee, individual or entity other than in the ordinary course of
business;
- not terminate any existing, or enter into any new, gas purchase, exchange,
storage, supply or transportation contract or renew, extend or negotiate
any existing gas purchase, exchange, storage, supply or transportation
contract that is not terminable within sixty days without penalty;
- not amend its organizational documents; and
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- not issue or assume any note, debenture or other evidence of indebtedness
which by its terms does not mature within one year.
FALL RIVER GAS SPECIAL MEETING; SOLICITATION OF PROXIES. Fall River Gas has
agreed:
- to use its reasonable best efforts to solicit from its stockholders proxies
in favor of the merger;
- to take all steps necessary to duly call, give notice of, convene and hold
a meeting of its stockholders for the purpose of securing the approval and
adoption of the merger agreement and the consummation of transactions
related to the merger agreement by its stockholders;
- to distribute proxy statements to its stockholders in accordance with
applicable federal and state law and its organizational documents; and
- to recommend to its stockholders the approval of the merger agreement,
subject to the fiduciary duties of its board of directors.
FALL RIVER GAS VOTING AGREEMENT. In connection with the merger, Barbara N.
Jarabek, as trustee of The Jarabek Family Limited Partnership, Ronald J.
Ferris, Bradford J. Faxon, Raymond H. Faxon, Cindy L.J. Audette, Gilbert C.
Oliveira, Jr. and Thomas H. Bilodeau entered into a voting agreement with
Southern Union. According to the terms of the voting agreement, these
stockholders agreed: 1) to vote or cause to be voted their shares of Fall
River Gas common stock in favor of the merger and the adoption and approval of
the merger agreement, and 2) to grant Southern Union an irrevocable proxy to
vote their shares of Fall River Gas common stock for the approval and adoption
by the Fall River Gas stockholders of the merger agreement and the performance
of transactions related to the merger. As of the special meeting record date,
the number of shares beneficially owned by the Fall River Gas stockholders who
entered the voting agreement and granted this irrevocable proxy represent
approximately 25.6% of the outstanding shares of Fall River Gas common stock
entitled to vote on the approval and adoption of the merger agreement and
performance of transactions related to the merger agreement.
Of the 572,510 shares of Fall River Gas common stock represented by the
stockholders who are parties to the voting agreement, as of May 31, 2000,
276,800 shares were beneficially owned by executive officers and directors of
Fall River Gas. The voting agreement is attached as Appendix C to this proxy
statement/prospectus.
EMPLOYEES; BENEFITS. For employees (excluding unionized employees) of Fall
River Gas and its subsidiary, Southern Union has agreed:
- to provide such employees who continue their service with Southern Union
with benefits no less favorable in the aggregate than the benefits provided
under Fall River Gas' benefit plans during the 12 months immediately
following the closing date;
- to recognize, for purposes of eligibility, vesting and benefit accrual
under all benefit plans provided to such employees after the closing date,
the tenure of employment, as recognized by Fall River Gas or of its
subsidiary as of the closing date;
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- that all vacation time earned by such employees prior to the closing date
must be taken by the end of the calendar year of the closing date, except
where Fall River Gas or Southern Union requests that an employee forgo his
or her vacation for business-related reasons; and
- to recognize, for purposes of awarding vacation time at the beginning of
each calendar year following the closing date, the tenure of employment, as
recognized by Fall River Gas or of its subsidiary as of the closing date.
Southern Union has also agreed to assume, at the effective time, all
collective bargaining agreements covering employees of Fall River Gas and its
subsidiary, and to discharge when due any and all liabilities of Fall River
Gas and its subsidiary under the collective bargaining agreements relating to
periods after the effective time.
CERTAIN OTHER COVENANTS AND AGREEMENTS. The merger agreement contains certain
mutual covenants and other agreements of the parties, including covenants and
other agreements relating to: filings with the SEC; access to offices,
properties, financial statements and other records; use of reasonable efforts
to obtain all necessary consents; approvals and waivers from governmental
bodies and other third parties; and further assurances.
The merger agreement also contains additional covenants by Fall River Gas to,
except as provided in the merger agreement:
- permit Southern Union to insert preprinted single-page customer education
materials into billing documentation to be delivered to customers affected
by the merger agreement;
- not declare or pay or permit its subsidiary to declare or pay any
dividends, or make other distributions in respect of Fall River Gas' or its
subsidiary's capital stock, except for regular dividends on Fall River Gas
common stock;
- not redeem or repurchase or otherwise acquire any shares of its capital
stock or the capital stock of its subsidiary other than in connection with
the administration of employee benefit and dividend reinvestment and
customer stock purchase plans that were in effect on October 4, 1999;
- not split, combine, reclassify, issue or encumber or permit its subsidiary
to split, combine, reclassify, issue or encumber any shares of its capital
stock or securities convertible into any such shares;
- not make any changes or permit its subsidiary to make changes in its
accounting methods, principles or practices except as required by law,
rule, regulation or generally accepted accounting principles;
- identify persons who are "affiliates" of Fall River Gas within the meaning
of Rule 145 under the Securities Act and to use its reasonable efforts to
provide to Southern Union letters from such persons to the effect that they
will not dispose of their shares of Southern Union common stock received in
the merger except in accordance with the applicable provisions of Rule 145
or in a transaction exempt from registration under the Securities Act
("Rule 145 Letters");
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- cooperate and cause its subsidiaries to cooperate with Southern Union's
requests with respect to the refinancing, repurchase, redemption or
repayment of Fall River Gas or its subsidiary's indebtedness that may be
required or that Southern Union may request prior to the merger;
- except in certain instances, not initiate or encourage any inquiry or
proposal about mergers with other parties, sales of substantial assets,
sales of shares representing a majority or greater interest in Fall River
Gas or its subsidiary or other business combinations or, except in certain
instances, negotiate, discuss, approve or recommend any such alternative
acquisition proposal (see "-No Solicitation by Fall River Gas"); and
- obtain consents for the merger from all holders of each series of First
Mortgage Bonds issued and outstanding under the Fall River Gas Indenture.
The merger agreement also contains certain additional covenants of Southern
Union to, except as provided in the merger agreement:
- use its reasonable best efforts to obtain, prior to the effective date of
the merger agreement, all necessary state securities laws or "blue sky"
permits and approvals and pay all related expenses; and
- cause the shares of Southern Union's common stock required to be reserved
for issuance in connection with the merger to be listed on the NYSE.
NO SOLICITATION BY FALL RIVER GAS
The merger agreement provides that Fall River Gas must terminate all existing
discussions or negotiations with third parties, if any, with respect to a
"Business Combination," which we define below, and that Fall River Gas may
not, and may not authorize or permit its or its subsidiary's officers,
directors, agents, financial advisors, attorneys, accountants or other
representatives to, directly or indirectly:
- solicit, initiate or encourage submission of proposals or offers relating
to, or that could reasonably be expected to lead to, a Business
Combination; or
- participate in any negotiations or discussions regarding, furnish to any
person any information with respect to, or otherwise cooperate, assist,
participate in, facilitate or encourage any effort or attempt by any other
person to do or seek, a Business Combination.
A "Business Combination" is, except as provided in the merger agreement:
- a merger, consolidation or other business combination, share exchange, sale
of shares of capital stock, tender offer or exchange offer or similar
transaction involving Fall River Gas or its subsidiary;
- the acquisition in any manner, directly or indirectly, of a material
interest in any capital stock of, or a material equity interest in a
substantial portion of the assets of, Fall River Gas or of its subsidiary,
including any single or multi-step transaction or series of related
transactions that is structured to permit
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a third party to acquire beneficial ownership of a majority or greater
equity interest in Fall River Gas or its subsidiary; or
- the acquisition in any manner, directly or indirectly, of any material
portion of the business or assets (other than immaterial or insubstantial
assets or inventory in the ordinary course of business or assets held for
sale) of Fall River Gas or its subsidiary.
Prior to receiving the approval of the merger by Fall River Gas stockholders,
if the Fall River Gas board of directors receives an unsolicited written
proposal from a third party with respect to a Business Combination that the
Fall River Gas board of directors determines, in its good faith judgment,
after consulting with its financial advisor and outside counsel, with
customary qualifications, is a "Superior Proposal," which we define below,
Fall River Gas may:
- furnish information to, and negotiate, explore or otherwise engage in
substantive discussions with the third party that submitted the unsolicited
Superior Proposal if the Fall River Gas board determines that it is
reasonably necessary to engage in such discussions in order to comply with
its fiduciary duties under applicable law; and
- take and disclose to Fall River Gas' stockholders a position with respect
to another Business Combination proposal, or amend or withdraw such
position, pursuant to Rule 14d-9 and 14e-2 under the Exchange Act, or make
such disclosure to Fall River Gas' stockholders which in the good faith
judgment of the Fall River Gas board of directors is required by applicable
law, based on the advice of its outside counsel.
A proposed Business Combination is a "Superior Proposal" if it involves at
least 50% of the shares of capital stock or a material portion of the assets
of Fall River Gas and the Fall River Gas board determines, after consulting
with Fall River Gas' financial advisor and outside counsel, that:
- the proposal is financially superior to the merger; and
- it appears that the party making the proposal is reasonably likely to have
the funds necessary to consummate the Business Combination.
The merger agreement also prohibits the Fall River Gas board from withdrawing
or modifying, or proposing publicly to withdraw or modify, in a manner adverse
to Southern Union, its approval or recommendation of the merger agreement or
the merger, approving or recommending, or proposing publicly to approve or
recommend, a Business Combination, or causing Fall River Gas to enter into any
letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to any Business Combination unless the following
conditions are satisfied:
- the Fall River Gas board determines, in its good faith judgment, after
consulting with its financial advisor and outside counsel, that an
unsolicited proposal regarding a Business Combination is a Superior
Proposal; and
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- the Fall River Gas board determines, in its good faith judgment, after
consulting with its financial advisor and outside counsel, that the failure
to either withdraw or modify its approval or recommendation of the merger
agreement or the merger, approve or recommend a Business Combination, or
cause Fall River Gas to enter into any agreement related to any Business
Combination would create a reasonable possibility of a breach of the
fiduciary duties of the Fall River Gas board under applicable law.
Fall River Gas must promptly notify Southern Union of the receipt of any
alternative acquisition proposal regarding a Business Combination, the
material terms and conditions of any such proposal, the identity of the person
or entity making the proposal and the status and details of any such request
or proposal within one business day of Fall River Gas' receipt of any such
proposal. Fall River Gas is required to use all reasonable efforts to keep
Southern Union informed of the status and details of any such inquiry, offer
or proposal and provide notice, consisting of two days, to Southern Union
prior to the first delivery of non-public information to any such person or
entity. If any such inquiry, offer or proposal is in writing, Fall River Gas
has agreed to promptly deliver to Southern Union a copy of such inquiry, offer
or proposal. If Fall River Gas decides to accept such a Business Combination
proposal and enter into a definitive agreement with respect to such proposal,
Fall River Gas must give Southern Union notice, consisting of five business
days, of its intent to enter into a definitive agreement. In addition, during
this five-day period, Fall River Gas must give Southern Union an opportunity
to adjust the terms of the merger agreement so that the parties can proceed
with the merger and negotiate in good faith with Southern Union with respect
to any such adjustments. Concurrently with the termination of the merger
agreement in connection with a Business Combination, Fall River Gas must also
pay the required termination fee (see "-Termination of the Merger Agreement"
and "-Termination Fees and Expenses - Fall River Gas Termination Fee").
Prior to furnishing any non-public information to, entering into negotiations
with or accepting a Superior Proposal from a third party, Fall River Gas will
provide written notice to Southern Union to the effect that it is furnishing
information to or entering into discussions or negotiations with such third
party and receive from such third party an executed confidentiality agreement
containing substantially the same terms and conditions as the confidentiality
agreement between Fall River Gas and Southern Union.
CONDITIONS TO THE COMPLETION OF THE MERGER
MUTUAL CLOSING CONDITIONS. The obligations of Southern Union and Fall River
Gas to complete the merger are subject to the satisfaction or, to the extent
legally permissible and permitted by the merger agreement, waiver of the
following conditions:
- Accuracy as of the closing date of the representations and warranties made
by the other party to the extent specified in the merger agreement.
- Performance in all material respects by the other party of the obligations
required to be performed by it at or before the closing date.
- All governmental approvals required in order to complete the merger having
been obtained without conditions that would be reasonably likely to be
materially adverse to Fall River Gas' or Southern Union's businesses,
operations, properties, financial condition, or results of operations. To
facilitate
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obtaining the approval of the transaction by the Massachusetts Department
of Telecommunications and Energy, Southern Union is seeking approval of the
transaction by holders of two-thirds of the outstanding shares of Southern
Union common stock.
- No court, administrative agency, governmental body or arbitrator having
issued an order to restrain, enjoin or otherwise prevent the consummation
of the merger agreement or the merger.
- Southern Union's registration statement on Form S-4, which includes
portions of this proxy statement/prospectus, being effective and not
subject to any stop order by the SEC.
- Authorization for listing on the NYSE of the shares of Southern Union
common stock to be issued in the merger.
ADDITIONAL CLOSING CONDITIONS FOR SOUTHERN UNION'S BENEFIT. Southern Union's
obligation to complete the merger is subject to the following additional
conditions:
- Receipt of third party consents required to consummate the merger, other
than any consents which, if not obtained, are not, individually or in the
aggregate, reasonably likely to result in a material adverse effect on the
business, operations, properties, financial condition or results of
operations of Fall River Gas and its subsidiary after the closing.
- Receipt of all consents and approvals required, under the terms of any
note, bond or indenture to which Fall River Gas or its subsidiary is a
party.
- The resignation of each director of Fall River Gas or its subsidiary of his
or her position as a director of Fall River Gas or its subsidiary effective
as of the closing date.
- The receipt by Southern Union on the closing date of an opinion of its
counsel to the effect that the merger will constitute a "reorganization"
within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code,
and that no gain or loss will be recognized by Southern Union or Fall River
Gas with respect to the merger.
- Each of the individuals and entities who are "affiliates" of Fall River Gas
within the meaning of Rule 145 have delivered to Southern Union a Rule 145
Letter.
- Receipt of all consents required and necessary to approve any amendments
requested by Southern Union to the Fall River Gas Indenture from the
holders of each series of First Mortgage Bonds issued and outstanding under
the Indenture.
ADDITIONAL CLOSING CONDITION FOR FALL RIVER GAS' BENEFIT. Fall River Gas'
obligation to complete the merger is subject to the additional condition that
on the closing date, Fall River Gas shall have received an opinion of its
counsel to the effect that the merger will be treated for federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code, and that no gain or loss will be recognized for federal
income tax purposes by the stockholders of Fall River Gas upon their
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receipt of the merger consideration, except that any realized gain will be
recognized to the extent of the amount of cash received.
INDEMNIFICATION AND INSURANCE FOR FALL RIVER GAS OFFICERS AND DIRECTORS
For six years after the completion of the merger, Southern Union will
indemnify and hold harmless the present and former officers and directors of
Fall River Gas and its subsidiary in respect of acts or omissions which
occurred prior to the effective time. In addition, for six years after the
effective time, Southern Union will use its reasonable best efforts to provide
officers' and directors' liability insurance regarding acts or omissions
occurring prior to the effective time covering each such person covered by
Fall River Gas' officers' and directors' liability insurance policy on the
date of the merger agreement on terms with respect to coverage and amount no
less favorable than those of such policy in effect on the date of the merger
agreement. However, if the annual premiums of such insurance coverage exceed
200% of the previous year's premiums, Southern Union will be obligated to
obtain a policy with the best coverage available for a cost not exceeding such
amount. See "The Merger - Potential Conflicts and Interests of Certain Persons
in the Merger."
AMENDMENTS
Fall River Gas and Southern Union may amend in writing the terms of the merger
agreement before the closing.
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TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the closing:
- by mutual written consent of Southern Union and Fall River Gas;
- by either Fall River Gas or Southern Union:
- if a court issues a non-appealable order that prohibits the
consummation of the merger; or
- at any time after 5:00 p.m., Eastern Time on October 15, 2000, if the
closing of the merger has not occurred and the party asserting its
right to terminate is not in material breach of its representations,
warranties, covenants or agreements contained in the merger agreement;
however, this date will be extended to February 28, 2001, even though
all other conditions to the closing of the merger have been fulfilled
or are capable of being fulfilled if: (i) all approvals, consents,
opinions, rulings or authorizations of any federal state and local
governmental agencies required in order to consummate the merger have
not been obtained or become a final order or (ii) the applicable
waiting period under the Hart-Scott-Rodino Act relating to the merger
has not expired or been terminated;
- by Southern Union if:
- there is a breach of any representation, warranty, covenant or
agreement of Fall River Gas, where the breach cannot be cured and
would make Fall River Gas' representations and warranties
substantially inaccurate;
- less than two-thirds of the holders of Fall River Gas' outstanding
common stock vote to approve the merger and there has not been a
material misrepresentation or a material breach by Southern Union of
any of its covenants, warranties or agreements contained in the merger
agreement;
- the Fall River Gas board or any committee thereof: (i) withdraws or
modifies, or proposes publicly to withdraw or modify, in a manner
adverse to Southern Union, its approval or recommendation of the
merger agreement or the merger, (ii) approves or recommends, or
proposes publicly to approve or recommend, a Business Combination,
(iii) causes Fall River Gas to enter into a definitive agreement
related to any Business Combination or (iv) resolves to take any of
the foregoing actions; or
- 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 Fall River Gas; and
- by Fall River Gas if:
- there is a breach of any representation, warranty, covenant or
agreement of Southern Union, where the breach cannot be cured and would
make Southern Union's representations and warranties materially
inaccurate;
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- (i) Fall River Gas gives Southern Union at least five business days'
notice of its intent to enter into a definitive agreement with respect
to a Business Combination proposal, and during this five-day period
gives Southern Union an opportunity to adjust the terms of the merger
agreement so that the parties can proceed with the merger and
negotiate in good faith with Southern Union with respect to any such
adjustments, (ii) Fall River Gas has paid the required termination
fees and (iii) Fall River Gas has entered into a definitive agreement
with respect to a Business Combination proposal;
- less than two-thirds of the holders of Fall River Gas' outstanding
common stock approve the merger agreement and there has not been a
material misrepresentation or a material breach by Fall River Gas of
any of its covenants, warranties or agreements contained in the merger
agreement; or
- the average trading price of Southern Union common stock as of the
closing date is lower than $15.00. For this purpose, "average trading
price" means the average of the reported closing prices of Southern
Union common stock on the NYSE for the ten consecutive trading days
ending on the third trading day before the closing date (counting from
and including the trading day immediately before the closing date).
The closing price for each day in question will be the last sale
price, regular way, or, if no sale takes place on that day, the
average of the closing bid and asked prices, regular way.
If the merger agreement is validly terminated, no provision of the merger
agreement will survive (except for the provisions relating to expenses,
termination fees and miscellaneous provisions of general application) and
termination shall be without any liability on the part of any party, unless
such party is negligent or in willful breach of any provision of the merger
agreement.
TERMINATION FEES AND EXPENSES
PAYMENT OF THE MERGER EXPENSES GENERALLY. Each of Fall River Gas and Southern
Union will pay all costs and expenses of its performance of and compliance
with the merger agreement except as expressly provided in the merger agreement
and as follows:
- Fall River Gas will pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken by Southern Union to collect the
termination fee payable to Southern Union under the merger agreement,
together with interest on the amount of any portion of the unpaid
termination fee. This interest will be calculated using an annual
percentage rate of interest equal to the prime rate published in THE WALL
STREET JOURNAL on the date (or preceding business day if this date is not a
business day) the fee was required to be paid, compounded on a daily basis
using a 360-day year;
- Fall River Gas will pay all fees and expenses of counsel for Fall River Gas;
- 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 federal, state or local
government agencies in connection with the merger; and
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- Southern Union and Fall River Gas will each pay half of the combined costs
of printing and mailing to Fall River Gas' stockholders this proxy
statement/prospectus.
FALL RIVER GAS TERMINATION FEE. Fall River Gas has agreed to pay Southern
Union $1.5 million in cash if:
- Fall River Gas provides Southern Union at least five business days' notice
of its intent to terminate the merger agreement and has entered into a
definitive agreement with respect to a Business Combination proposal;
- Southern Union terminates the merger agreement because the Fall River Gas
board or any committee thereof has (i) withdrawn or modified, or proposed
publicly to withdraw or modify, in a manner adverse to Southern Union, its
approval or recommendation of the merger agreement; (ii) approved or
recommended, or proposed publicly to approve or recommend, a Business
Combination; (iii) caused Fall River Gas to enter into a definitive
agreement related to any Business Combination; or
- Southern Union terminates the merger agreement because a third party,
including a group (as defined under the Exchange Act), has acquired
securities representing greater than 50% of the voting power of the
outstanding voting securities of Fall River Gas.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Financial Statements
present the combined financial data of Southern Union, PEI, Fall River Gas,
ProvEnergy and Valley Resources, including their respective subsidiaries,
after giving effect to Southern Union's merger with each of them. The PEI
merger, completed on November 4, 1999, was, and the Fall River Gas, ProvEnergy
and Valley Resources mergers will be, accounted for as a purchase. The
Unaudited Pro Forma Combined Condensed Financial Statements also give effect
to Southern Union's issuance of $300 million of senior notes that was
completed on November 3, 1999, in anticipation of the PEI merger, prospective
financing for the pending acquisitions by merger of Fall River Gas, ProvEnergy
and Valley Resources, and the assumption of certain debt of the acquired
companies.
The Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2000,
gives effect to the previously identified acquisitions and financing
transactions as if they had occurred on that date. The Unaudited Pro Forma
Combined Condensed Statements of Operations for the year ended June 30, 1999,
and the nine months ended March 31, 2000, give effect to the previously
identified acquisitions and financing transactions as if they had occurred on
July 1, 1998, and July 1, 1999, respectively, which are the beginning dates
for such periods.
The fiscal year of Southern Union ends on June 30. The fiscal year of PEI
ended on December 31. The fiscal years of Fall River Gas and ProvEnergy end on
September 30. The fiscal year of Valley Resources ends on August 31.
Accordingly, the Unaudited Pro Forma Combined Condensed Balance Sheet as of
March 31, 2000, is derived from the March 31, 2000, balance sheets for each of
Southern Union, Fall River Gas and ProvEnergy, and the February 29, 2000,
balance sheet of Valley Resources. Also, the Unaudited Pro Forma Combined
Condensed Statements of Operations for the year ended June 30, 1999, and the
nine months ended March 31, 2000, have been prepared using comparable
financial statement periods of PEI, Fall River Gas and ProvEnergy, and the
results of operations for the twelve-month period ended May 31, 1999 and the
nine-month period ended February 29, 2000 of Valley Resources. The foregoing
financial statements have all been incorporated by reference to previous
filings with the SEC made by Southern Union or such other company. The
following Unaudited Pro Forma Combined Condensed Financial Statements have
been prepared from, and should be read in conjunction with, those historical
financial statements and related notes thereto of Southern Union, PEI, Fall
River Gas, ProvEnergy and Valley Resources. See "Where You Can Find More
Information."
The historical financial statements of the acquired companies that appear in
or were used for the Unaudited Pro Forma Combined Condensed Financial
Statements include or required certain reclassifications to conform to
Southern Union's presentation. These reclassifications have no impact on net
income or total stockholders' equity.
The pro forma adjustments reflect an estimated additional purchase cost
assigned to utility plant based on the historical cost of the regulated assets
and liabilities of the acquired companies and an estimate of the fair value of
the non-regulated assets and liabilities of the acquired companies, plus
estimated acquisition costs for the pending transactions. The estimate of the
fair value of the non-regulated assets are preliminary and may be revised,
including to reflect independent appraisals, which have not been completed.
67
<PAGE>
The Unaudited Pro Forma Combined Condensed Financial Statements are based on
the assumption that upon completion of the Fall River Gas merger each Fall
River Gas stockholder will receive, in exchange for each share of Fall River
Gas common stock he or she owns, a combination of Southern Union common stock
and/or cash worth in the aggregate $23.50; the cash consideration is limited
to 50% of the aggregate consideration paid to all Fall River Gas stockholders.
The following pro forma adjustments reflect a payment of 50% cash and 50%
Southern Union common stock for each share of Fall River Gas common stock.
The following Unaudited Pro Forma Combined Condensed Financial Statements are
presented in accordance with the assumptions set forth below for purposes of
illustration only and are not necessarily indicative of the financial position
or operating results that would have occurred if the previously identified
acquisitions and financing transactions had been consummated on the date as of
which, or at the beginning of the periods for which, they are being given
effect nor are they necessarily indicative of the future operating results or
financial position of the combined enterprise. The Unaudited Pro Forma
Combined Condensed Financial Statements do not contain any adjustments to
reflect cost savings or other synergies anticipated as a result of the
mergers. The weighted average shares of common stock and common stock
equivalents outstanding have been adjusted for the 5% stock dividend
distributed on June 30, 2000. Operating results for the nine months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending June 30, 2000.
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<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2000
ASSETS
HISTORICAL
--------------------------------------------------
SOUTHERN FALL RIVER PROVIDENCE VALLEY PRO FORMA
UNION GAS ENERGY RESOURCES ---------------------------
COMPANY (1) COMPANY CORPORATION INC. (2) ADJUSTMENTS COMBINED
------------ ----------- ------------ ----------- ------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Property, plant and equipment .................... $ 1,582,405 $ 63,101 $ 347,969 $ 88,317 $ -- $ 2,081,792
Less accumulated depreciation and amortization ... (497,227) (23,934) (128,546) (35,543) -- (685,250)
----------- --------- ---------- ---------- ---------- -----------
1,085,178 39,167 219,423 52,774 -- 1,396,542
Additional purchase cost assigned to utility
plant, net .................................... 378,085 -- -- -- 293,040 (A) 671,125
----------- --------- ---------- ---------- ---------- -----------
Net property, plant and equpment .............. 1,463,263 39,167 219,423 52,774 293,040 2,067,667
Current assets ................................... 216,529 13,395 75,911 25,305 2,503 (B) 333,643
Deferred charges ................................. 160,154 370 42,140 23,674 1,279 (C) 227,617
Investment securities ............................ 15,587 -- 13,568 1,701 -- 30,856
Real estate and other ............................ 9,438 4,240 3,669 5,425 -- 22,772
----------- --------- ---------- ---------- ---------- -----------
Total ......................................... $ 1,864,971 $ 57,172 $ 354,711 $ 108,879 $ 296,822 $ 2,682,555
=========== ========= ========== ========== ========== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stockholders' equity ...................... $ 630,953 $ 19,369 $ 103,238 $ 36,590 $ (159,197)(D) $ 656,972
26,019 (E)
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust ...... 100,000 -- -- -- -- 100,000
Long-term debt and capital lease obligation ...... 734,320 19,500 88,452 32,251 430,000 (F) 321,046
----------- --------- ---------- ---------- ---------- -----------
Total capitalization .......................... 1,465,273 38,869 191,690 68,841 296,822 2,061,495
Current liabilities .............................. 160,956 10,200 127,955 21,935 -- 1,304,523
Deferred credits and other ....................... 112,581 3,570 10,626 4,494 -- 131,271
Accumulated deferred income taxes ................ 126,161 4,533 24,440 13,609 -- 168,743
Commitments and contingencies ....................
----------- --------- ---------- ---------- ---------- -----------
Total ......................................... $ 1,864,971 $ 57,172 $ 354,711 $ 108,879 $ 296,822 $ 2,682,555
=========== ========= ========== ========== ========== ===========
</TABLE>
------------------
(1) Amounts include Pennsylvania Enterprises, Inc.
(2) Amounts presented are as of February 29, 2000.
69
<PAGE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
70
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1999
HISTORICAL
----------------------------------------------------------------
SOUTHERN PENNSYLVANIA FALL RIVER PROVIDENCE VALLEY PRO FORMA
UNION ENTERPRISES GAS ENERGY RESOURCES --------------------------
COMPANY INC. COMPANY CORPORATION INC. (1) ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------ ----------- ------------ ------------
(THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues .................... $ 605,231 $ 233,605 $ 42,967 $ 223,095 $ 80,802 $ -- $ 1,185,700
Cost of gas and other energy ........... 342,301 145,319 23,291 118,746 45,528 -- 675,185
----------- ----------- ---------- ----------- ---------- ----------- -----------
Operating margin .................... 262,930 88,286 19,676 104,349 35,274 -- 510,515
Operating expenses:
Operating, maintenance and general .. 109,693 36,696 12,659 53,233 19,168 -- 231,449
Depreciation and amortization ....... 41,855 10,291 2,118 16,451 3,361 13,628 (G) 87,704
Taxes, other than on income ......... 46,535 12,415 1,528 14,210 4,124 -- 78,812
----------- ----------- ---------- ----------- ---------- ----------- -----------
Total operating expenses .......... 198,083 59,402 16,305 83,894 26,653 13,628 397,965
----------- ----------- ---------- ----------- ---------- ----------- -----------
Net operating revenues ............ 64,847 28,884 3,371 20,455 8,621 (13,628) 112,550
Other income (expenses):
Interest ............................ (35,999) (11,395) (1,647) (8,350) (3,027) (58,939)(H) (111,451)
7,906 (I)
Dividends on preferred securities ... (9,480) -- -- -- -- -- (9,480)
Other, net .......................... (1,814) 1,173 1,561 1,036 324 -- 2,280
----------- ----------- ---------- ----------- ---------- ----------- -----------
Total other expenses, net ......... (47,293) (10,222) (86) (7,314) (2,703) (51,033) (118,651)
----------- ----------- ---------- ----------- ---------- ----------- -----------
Earnings (loss) before income taxes
(benefit) ........................... 17,554 18,662 3,285 13,141 5,918 (64,661) (6,101)
Federal and state income taxes
(benefit) ........................... 7,109 7,090 1,247 4,448 1,635 (17,862)(J) 3,667
----------- ----------- ---------- ----------- ---------- ----------- -----------
Net earnings (loss) before preferred
stock dividend requirements ......... 10,445 11,572 2,038 8,693 4,283 (46,799) (9,768)
Preferred stock dividend requirements .. -- (653) -- (382) -- 1,035 (K) --
----------- ----------- ---------- ----------- ---------- ----------- -----------
Net earnings (loss) available for
common stock ...................... $ 10,445 $ 10,919 $ 2,038 $ 8,311 $ 4,283 $ (45,764) $ (9,768)
=========== =========== ========== =========== ========== =========== ===========
Net earnings (loss) per share:
Basic ............................... $ 0.32 $ (0.19)
=========== ===========
Diluted ............................. $ 0.31 $ (0.19)
=========== ===========
Weighted average shares outstanding:
Basic ............................... 32,437,516 18,095,204 (L) 50,532,720
=========== =========== ===========
Diluted ............................. 34,217,262 16,315,458 (L) 50,532,720
=========== =========== ===========
</TABLE>
------------------
(1) Amounts presented are for twelve months ended May 31, 1999.
71
<PAGE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
72
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
HISTORICAL
----------------------------------------------------------------
SOUTHERN PENNSYLVANIA FALL RIVER PROVIDENCE VALLEY PRO FORMA
UNION ENTERPRISES GAS ENERGY RESOURCES ---------------------------
COMPANY INC. (1) COMPANY CORPORATION INC. (2) ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------ ----------- ------------ ------------
(THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues ..................... $ 669,170 $ 48,486 $ 34,422 $ 209,407 $ 62,901 $ -- $ 1,024,386
Cost of gas and other energy ........... 402,182 30,342 18,998 121,734 37,384 -- 610,640
----------- ----------- ---------- ----------- ---------- ----------- -----------
Operating margin .................... 266,988 18,144 15,424 87,673 25,517 -- 413,746
Operating expenses:
Operating, maintenance and general .. 98,647 14,116 9,750 41,753 14,595 -- 178,861
Depreciation and amortization ....... 39,539 3,549 1,719 14,134 2,661 7,595 (G) 69,197
Taxes, other than on income ......... 43,195 2,629 1,196 11,796 3,098 -- 61,914
----------- ----------- ---------- ----------- ---------- ----------- -----------
Total opeating expenses ........... 181,381 20,294 12,665 67,683 20,354 7,595 309,972
----------- ----------- ---------- ----------- ---------- ----------- -----------
Net operating revenues ............ 85,607 (2,150) 2,759 19,990 5,163 (7,595) 103,774
Other income (expenses):
Interest ............................ (36,603) (3,935) (1,240) (7,708) (2,339) (33,796)(M) (82,985)
2,636 (I)
Dividends on preferred securities ... (7,110) -- -- -- -- -- (7,110)
Other, net .......................... (5,527) (2,351) 1,104 (1,270) (171) -- (8,215)
----------- ----------- ---------- ----------- ---------- ----------- -----------
Total other expenses, net ......... (49,240) (6,286) (136) (8,978) (2,510) (31,160) (98,310)
----------- ----------- ---------- ----------- ---------- ----------- -----------
Earnings (loss) before income taxes
(benefit) ........................... 36,367 (8,436) 2,623 11,012 2,653 (38,755) 5,464
Federal and state income taxes
(benefit) ........................... 15,820 (3,206) 1,058 4,214 901 (10,906)(J) 7,881
----------- ----------- ---------- ----------- ---------- ----------- -----------
Net earnings (loss) before preferred
stock dividend requirements ......... 20,547 (5,230) 1,565 6,798 1,752 (27,849) (2,417)
Preferred stock dividend requirements .. -- (68) -- (215) -- 283 (K) --
----------- ----------- ---------- ----------- ---------- ----------- -----------
Net earnings (loss) available for
common stock ........................ $ 20,547 $ (5,298) $ 1,565 $ 6,583 $ 1,752 $ (27,566) $ (2,417)
=========== =========== ========== =========== ========== =========== ===========
Net earnings (loss) per share:
Basic .............................. $ 0.49 $ (0.05)
=========== ===========
Diluted ............................ $ 0.47 $ (0.05)
=========== ===========
Weighted average shares outstanding:
Basic .............................. 41,688,408 8,714,151 (N) 50,402,559
=========== =========== ===========
Diluted ............................ 43,733,332 6,669,227 (N) 50,402,559
=========== =========== ===========
</TABLE>
------------------
(1) Amounts presented are for four months ended October 31, 1999 (five months
ended March 31, 2000 are included in Southern Union's amounts).
(2) Amounts presented are for nine months ended February 29, 2000.
73
<PAGE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
74
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
ADJUSTMENTS TO THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(A) Reflects the estimated excess of the purchase price and other transaction
costs over the historical cost of the regulated net assets and the
estimated fair value of the non-regulated net assets of Fall River Gas,
ProvEnergy, and Valley Resources, collectively "the pending acquisitions."
(B) Reflects excess cash after application of the net proceeds from the merger
financing of the pending acquisitions. See Note (F).
(C) Reflects the capitalization of estimated costs associated with the bank
borrowings as more specifically described in Note (G) to be incurred in
connection with the pending acquisitions. These financing costs are
amortized on a straight-line basis over the life of the bank borrowings.
(D) Reflects the elimination of common stockholders' equity of Fall River Gas,
ProvEnergy, and Valley Resources.
(E) Reflects the issuance of Southern Union common stock to Fall River Gas
stockholders. See Notes (L) and (N).
(F) Reflects bank borrowings at an estimated annual interest rate of 7.60%,
which Southern Union believes would be obtained based on current market
rates. The bank borrowings are assumed to be utilized: to finance the cash
portion of the purchase of Fall River Gas, ProvEnergy, and Valley Resources
and the settlement of any respective stock options; and to pay various
professional fees and change of control agreements expected to be incurred
in connection with the pending acquisitions estimated to total $9 million.
See Notes (H) and (M).
ADJUSTMENTS TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF
OPERATIONS
(G) Reflects amortization of the estimated excess purchase price over the
historical cost of the regulated net assets and the estimated fair value of
the non-regulated net assets of PEI, Fall River Gas, ProvEnergy, and Valley
Resources on a straight-line basis over a 40-year period based on the
estimated useful lives of these assets. The pro forma adjustment for the
nine-month period ended March 31, 2000 reflects only four months of
amortization of additional purchase cost related to the acquisition of PEI,
as five months of actual are included in Southern Union's historical
balances due to the closing of this merger on November 4, 1999.
(H) Reflects interest expense on bank borrowings for the pending acquisitions
at an estimated annual interest rate of 7.60%, which Southern Union
believes would be obtained based on current market rates, and interest
expense on the $300 million of long-term debt at 8.25% issued on November
3, 1999 in connection with the PEI merger. The bank borrowings and
long-term debt are assumed to be utilized:
75
<PAGE>
to finance the cash portion of the purchase of PEI, Fall River Gas,
ProvEnergy and Valley Resources and the settlement of any respective stock
options; to refinance certain debt of PEI, and Southern Union; to fund
PEI's Director Retirement Plan, Director Deferred Compensation Plan and
supplemental retirement benefits and the payments for severance benefits
for certain PEI executives; and to pay various professional fees and change
of control agreements expected to be incurred in connection with all
mergers estimated to total $12 million. For every 1/8 percent change in the
interest rate assumed for the bank borrowings, expense for the 12-month
period would change by approximately $550,000. The rate on the $300 million
issued for PEI is fixed at 8.25%, so no variation in the rate for this
long-term debt was calculated.
(I) Reflects the elimination of historical interest expense of PEI as a result
of refinancing certain debt in connection with the PEI merger. See Notes
(H) and (M).
(J) Reflects the income tax consequences at the federal statutory rate of the
pro forma adjustments after excluding nondeductible goodwill amortization.
(K) Reflects the elimination of preferred stock dividend requirement due to the
repurchase of all outstanding PEI and ProvEnergy preferred stock prior to
the closing of the mergers for PEI and ProvEnergy.
(L) Reflects the issuance of 16,713,735 pre-stock dividend shares of Southern
Union stock for the purchase of PEI. Also reflects the estimated issuance
of 1,541,867 shares of Southern Union stock for the purchase of Fall River
Gas, based on an average trading price of $15.7954 for the ten trading-day
period ending on the third trading day before June 30, 2000 and an exchange
ratio of 1.39259. The actual exchange ratio for the Fall River Gas merger
will be based upon the average closing price per share for Southern Union
common stock for the ten trading day period ending on the third full
trading day the day the merger is completed. The exchange ratio will not be
lower than 1.19365 nor greater than 1.39259. Due to the loss position
resulting from the pro forma adjustments, the diluted shares outstanding
were adjusted for 1,779,747 shares of common stock equivalents that had
been included in Southern Union's historical amounts.
(M) Reflects interest expense on bank borrowings for the pending acquisitions
at an estimated annual interest rate of 7.60%, which Southern Union
believes would be obtained based on current market rates, and interest
expense on the $300 million of long-term debt at 8.25% issued on November
3, 1999 in connection with the PEI merger. The non-PEI merger-related
long-term debt is assumed to be utilized: to finance the cash portion of
the purchase of Fall River Gas, ProvEnergy, and Valley Resources; and the
settlement of any respective stock options; and to pay various professional
fees and change of control agreements incurred in connection with the three
pending mergers estimated to total $9 million. The pro forma adjustment for
the nine-month period ended March 31, 2000 reflects only four months of
interest expense related to the $300 million of long-term debt issued for
the acquisition of PEI, as five months of actual are included in Southern
Union's historical balances due to the closing of this merger on November
4, 1999. For every 1/8 percent change in the interest rate assumed for the
bank borrowings, expense for the nine-month period would change by
approximately $400,000. The rate on the $300 million issued for PEI is
fixed at 8.25%, so no variation in the rate for this portion of debt was
calculated.
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<PAGE>
(N) Reflects the issuance of 16,713,735 pre-stock dividend shares of Southern
Union stock for the purchase of PEI. Also reflects the estimated issuance
of 1,541,867 shares of Southern Union stock for the purchase of Fall River
Gas, based on an average trading price of $15.7954 for the ten trading-day
period ending on the third trading day before June 30, 2000 and an exchange
ratio of 1.39259. The actual exchange ratio for the Fall River Gas merger
will be based upon the average closing price per share for Southern Union
common stock for the ten trading day period ending on the third full
trading day prior to the day the merger is completed. The exchange ratio
will not be lower than 1.19365 nor greater than 1.39259. Due to the loss
position resulting from the pro forma adjustments, the diluted shares
outstanding were adjusted for 2,044,899 shares of common stock equivalents
that had been included in Southern Union's historical amounts.
77
<PAGE>
THE COMPANIES
SOUTHERN UNION
GENERAL
Southern Union was incorporated under the laws of the State of Delaware in
1932 and is one of the fifteen largest gas utility companies 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, 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 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 491,000 customers in central and western Missouri (including
the cities of Kansas City, St. Joseph, Joplin and Monett). PG Energy,
headquartered in Wilkes-Barre, Pennsylvania, serves 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 5,000 customers in central Florida (including the cities of New Smyrna
Beach, Edgewater and areas of Volusia County, Florida). The diverse geographic
area of Southern Union's natural gas distribution systems reduces the
sensitivity of Southern Union's operations to weather risk and local economic
conditions.
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 and electricity to
end-users, operate natural gas pipeline systems, generate electricity,
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, 1,800 and 1,100 customers in
Texas, Pennsylvania and Florida, respectively. Through PG Energy Services,
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 in northeastern and central
Pennsylvania. Through Keystone Pipeline Services, Inc. (a wholly owned
subsidiary of PG Energy Services, Inc.) Southern Union is engaged primarily in
the construction, maintenance and rehabilitation of natural gas distribution
pipelines. Additionally, certain subsidiaries own or hold interests in real
estate and other assets. Central to all of Southern Union's present businesses
and strategies are the sale and transportation of natural gas and related
energy services.
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 principally consist of: (i) promoting new sales
opportunities and markets for natural gas and propane; (ii) enhancing
financial and operating performance; and (iii) expanding Southern Union
through development of existing utility businesses and selective acquisition
of new utility businesses. Southern Union's management develops and
continually evaluates these strategies
78
<PAGE>
and their implementation by applying their experience and expertise in
analyzing the energy industry, technological advances, market opportunities
and general business trends. Each of these strategies, as implemented
throughout Southern Union's existing businesses, reflects Southern Union's
commitment to its core gas utility business.
Southern Union has a goal of selected growth and expansion, primarily in the
utilities industry. To that extent, Southern Union intends to consider, when
appropriate, and if financially practicable to pursue, the acquisition of
other utility distribution or transmission businesses. The nature and location
of any such properties, the structure of any such acquisitions and the method
of financing any such expansion or growth will be determined by Southern
Union's management and the Southern Union board. See "Forward-Looking
Statements May Prove Inaccurate."
ACQUISITIONS
ACQUISITION OF PEI. Effective November 4, 1999, Southern Union acquired PEI
and its subsidiaries for approximately 17 million shares of Southern Union
common stock and approximately $36 million in cash plus the assumption of
approximately $150 million of debt. PEI's natural gas utility businesses are
being operated as PG Energy, 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 nonregulated activities, including the construction,
maintenance and rehabilitation of natural gas distribution pipelines.
MERGER WITH PROVENERGY. On November 14, 1999, Southern Union and ProvEnergy
(NYSE: "PVY") entered into a definitive merger agreement. The agreement calls
for ProvEnergy to merge into Southern Union in a transaction valued at
approximately $400 million, including the assumption of debt. ProvEnergy's
utility subsidiaries will also be merged into Southern Union. ProvEnergy
shareholders will receive $42.50 in cash for each of the approximately 6.1
million shares of ProvEnergy common stock outstanding. ProvEnergy,
headquartered in Providence, Rhode Island, is the parent of two natural gas
subsidiaries. Providence Gas, founded in 1847, is Rhode Island's largest gas
distributor and serves approximately 168,000 natural gas customers in
Providence and Newport and 23 other cities and towns in Rhode Island. North
Attleboro Gas serves approximately 6,000 customers in North Attleboro and
Plainville, Massachusetts. ProvEnergy's oil business serves over 14,000
residential and commercial customers. ProvEnergy's utility service territories
encompass approximately 760 square miles with a population of approximately
850,000. Southern Union anticipates completing the ProvEnergy merger in
September 2000 once all remaining conditions are satisfied, including receipt
of all regulatory approvals. On May 22, 2000, the stockholders of ProvEnergy
approved the terms of the ProvEnergy merger.
MERGER WITH VALLEY RESOURCES. On November 30, 1999, Southern Union, SUG
Acquisition Corporation, a Rhode Island corporation and wholly-owned
subsidiary of Southern Union and Valley Resources (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
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<PAGE>
of Valley Resources common stock outstanding. Valley Resources, headquartered
in Cumberland, Rhode Island, provides natural gas utility service to more than
64,000 customers through its subsidiaries, Valley Gas Company and Bristol &
Warren Gas Company, each of which will also be merged into Southern Union.
Valley Gas Company's service area covers a 92 square mile area in the
Blackstone Valley Region located in the northeastern portion of Rhode Island
that has a population of approximately 250,000. Bristol & Warren Gas Company's
service area covers approximately 15 square miles in the eastern portion of
Rhode Island that has a population of approximately 35,000. Other Valley
Resources subsidiaries rent and sell gas appliances primarily for residential
use in its service area, sell liquid propane in Rhode Island and nearby
Massachusetts, and distribute as a wholesaler franchised lines to plumbing and
heating contractors. Valley Resources also has an 80% interest in Alternate
Energy Corporation, which sells, installs and designs natural gas conversion
systems and facilities, is an authorized representative of the ONSI fuel cell,
holds a patent for a natural gas/diesel co-firing system and has a patent
pending for a device to control the flow of fuel on dual-fuel equipment.
Southern Union anticipates completing the Valley Resources merger in September
2000 once all remaining conditions are satisfied, including receipt of all
regulatory approvals for the Valley Resources merger. Valley Resources
shareholders approved the Valley Resources merger at their special meeting on
June 13, 2000.
FALL RIVER GAS
Fall River Gas was organized as a Massachusetts corporation on September 25,
1880 and is an investor-owned public utility company that sells, distributes
and transports natural gas (mixed with propane and liquefied natural gas
during winter months) at retail through a pipeline distribution system
throughout its 50 square mile service territory in the City of Fall River and
the towns of Somerset, Swansea and Westport, all located within the
southeastern portion of the Commonwealth of Massachusetts. This area has a
population of approximately 140,000. The principal markets served by Fall
River Gas are (1) residential customers using gas for heating, cooking and
water heating, (2) industrial customers using gas for processing items such as
textile and metal goods, (3) commercial customers using gas for cooking and
heating, and (4) federal and state housing projects using gas for heating,
cooking and water heating.
Fall River Gas is engaged in only one line of business as described above, and
in activities incidental to this business. Fall River Gas has one wholly-owned
subsidiary, Fall River Gas Appliance Company, Ltd. (the "Appliance Company"),
a Massachusetts corporation, which rents water heaters and conversion burners
(primarily for residential use) in Fall River Gas' gas service area. Earnings
from the Appliance Company are primarily the result of revenues from the
rental of water heaters and conversion burners. The Appliance Company also
derives revenues from the sale of central heating and air-conditioning systems
and water heaters.
As of May 1, 2000, Fall River Gas provided service to approximately 48,000
natural gas customers.
Fall River Gas and its subsidiary employed approximately 175 persons as of May
1, 2000.
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DESCRIPTION OF SOUTHERN UNION CAPITAL STOCK
GENERAL
Under the provisions of the Delaware General Corporation Law ("DGCL"), a
corporation may not issue a greater number of shares than have been authorized
by its certificate of incorporation. Southern Union's restated certificate of
incorporation provides that the authorized capital stock of Southern Union
consists of (i) 200,000,000 shares of common stock, par value $1.00 per share,
and (ii) 6,000,000 shares of preferred stock, no par value. At the close of
business on July 3, 2000, 49,509,738 shares of Southern Union common stock
were issued and outstanding and no shares of Southern Union preferred stock
were issued and outstanding.
SOUTHERN UNION COMMON STOCK
VOTING RIGHTS. Except with respect to the election of directors, the holders
of Southern Union common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. At all elections of
directors of Southern Union, the holders of Southern Union common stock have
cumulative voting rights. Accordingly, each holder of Southern Union common
stock is entitled to that number of votes which equals the number of shares
held by such stockholder multiplied by the number of directors to be elected,
and such stockholder may cast all of such votes for a single nominee or
distribute them among the nominees as such stockholder deems appropriate.
DIVIDENDS. The holders of Southern Union common stock are entitled to receive
dividends as and when declared by the Southern Union board out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding shares of Southern Union preferred stock.
LIQUIDATION RIGHTS. Subject to the rights of holders of Southern Union
cumulative preferred stock, upon liquidation, dissolution or winding up of
Southern Union, the holders of Southern Union common stock are entitled to
receive ratably the net assets of Southern Union available after the payment
of all debts and other liabilities.
NO OTHER RIGHTS. Holders of Southern Union common stock have no preemptive,
subscription, redemption or conversion rights.
EFFECT OF THE MERGER. Upon completion of the merger, Fall River Gas'
stockholders will receive shares of Southern Union common stock. Accordingly,
the total number of outstanding shares of Southern Union common stock will
change.
SOUTHERN UNION PREFERRED STOCK
GENERAL. Southern Union, by resolution of the Southern Union board and without
any further vote or action by the holders of Southern Union common stock, has
the authority, subject to certain limitations, to issue up to an aggregate of
6,000,000 shares of Southern Union preferred stock in one or more classes or
series, and to determine the designation and the number of shares of any class
or series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof.
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As of July 3, 2000, there were no shares of Southern Union preferred stock
outstanding and Southern Union presently has no plans to issue any shares of
Southern Union preferred stock.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A. c/o EquiServe, L.P. acts as transfer agent and registrar for
the Southern Union common stock.
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COMPARISON OF FALL RIVER GAS AND SOUTHERN UNION
STOCKHOLDER RIGHTS
Southern Union is a Delaware corporation. The rights of a holder of Southern
Union common stock are presently governed by Southern Union's restated
certificate of incorporation and bylaws and the Delaware General Corporation
Law ("DGCL"). Fall River Gas is a Massachusetts corporation. The rights of a
holder of Fall River Gas common stock are governed by Fall River Gas' restated
articles of organization and bylaws. In addition, Chapter 164 of the
Massachusetts General Laws ("MGL, Chapter 164") provides that the rights of
stockholders of Massachusetts gas companies, such as Fall River Gas, are also
governed by certain provisions of MGL, Chapter 164, as well as certain
provisions of MGL, Chapter 156B (Massachusetts' general business corporation
statute).
Even though Southern Union will continue to exist as a Delaware corporation
following its merger with Fall River Gas and Southern Union's restated
certificate of incorporation and bylaws will survive rather than those of Fall
River Gas, there are certain areas where the provisions of MGL, Chapter 164
differ from those of the DGCL with respect to certain corporate governance
matters, including, more specifically, with regard to requirements for
shareholder approval in certain instances. While Southern Union believes that
following the merger, the provisions of the DGCL should take precedence with
regard to these areas where differences exist, it is uncertain whether in any
or all of these instances, the corporate affairs, including the rights of
stockholders to vote on certain matters, of the combined company may be
subject to some or all of the corporate governance provisions of Chapter 164
which are applicable to Massachusetts gas companies subject to that Chapter.
Neither the Massachusetts Department of Telecommunications and Energy
("MDTE"), which regulates Massachusetts gas distribution companies, nor the
Courts of the Commonwealth of Massachusetts, have determined whether under
MGL, Chapter 164, a utility that distributes gas to customers within
Massachusetts but is not incorporated under Massachusetts law is subject to
all or any portions of MGL, Chapter 164's corporate governance provisions that
would otherwise pertain to a gas distribution company incorporated
domestically in Massachusetts.
There are also differences between the restated certificate of incorporation
and bylaws of Southern Union and the articles of organization and bylaws of
Fall River Gas. As a result, the rights of a holder of Southern Union common
stock differ from the rights of a holder of Fall River Gas common stock.
In addition, a company operating as a utility in either Massachusetts or Rhode
Island cannot issue a stock dividend without approval from the MDTE or the
RIDPUC, whichever is applicable. Because we have a policy of declaring and
distributing an annual 5% stock dividend, we intend to seek approval for our
dividend policy from both agencies after the mergers are completed. We will
seek such approvals before we declare and distribute the first such
anticipated dividend after the anticipated closing of the pending mergers,
which would be the 2001 stock dividend.
The following information is a summary of some of the important differences
between the DGCL and the restated certificate of incorporation and bylaws of
Southern Union, on one hand, and the MGL, Chapter 164 and the articles of
organization and bylaws of Fall River Gas, on the other. The provisions of the
MGL, Chapter 164, that could be applicable to Southern Union after the merger
are highlighted in the right hand columns of this summary. This summary does
not purport to be a complete discussion of, and is qualified in its entirety
by reference to, the DGCL and MGL, Chapter 164, as well as the restated
certificate of
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incorporation and bylaws of Southern Union and the articles of organization
and bylaws of Fall River Gas, copies of which are on file with the SEC.
<TABLE>
<CAPTION>
SOUTHERN UNION FALL RIVER GAS
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CORPORATE GOVERNANCE GENERALLY
<S> <C>
Currently governed by Delaware law and the Currently governed by Massachusetts law, specif-
restated certificate of incorporation and bylaws of ically including MGL, Chapter 164, relating to gas
Southern Union. companies subject to that chapter, and to certain
provisions of MGL, Chapter 156B, which are spe-
cifically enumerated in MGL, Chapter 164,
Section 4; also governed by the articles of
organization and bylaws of Fall River Gas.
Upon completion of the merger, the rights of stock- Upon completion of the merger, the rights of
holders of the combined company will be governed stockholders of the combined company will be
by Delaware law and the restated certificate of governed by Delaware law and the restated certifi-
incorporation and bylaws of Southern Union, cate of incorporation and bylaws of Southern
subject to the discussion set forth immediately Union, subject to the discussion set forth immedi-
above regarding certain areas involving shareholder ately above regarding certain areas involving
voting requirements where differences exist with shareholder voting requirements where differences
respect to MGL, Chapters 164 and 156B. exist with respect to MGL, Chapters 164 or 156B.
AUTHORIZED CAPITAL STOCK
200,000,000 shares of common stock, par value $1 2,951,334 shares of common stock, $.83 1/3 par
per share. 6,000,000 shares of preferred stock, no value per share.
par value per share.
SIZE OF THE BOARD OF DIRECTORS
Not less than five nor more than fifteen. The Not less than three nor more than nine. The Fall
Southern Union board may increase or decrease the River Gas board may increase or decrease the
number of directors within these limits without a number of directors within these limits without a
stockholder vote. Holders of cumulative preferred stockholder vote. The Fall River Gas board
stock may elect additional directors if dividends are currently consists of nine directors.
in arrears. The Southern Union board currently is
comprised of twelve members.
ELECTION AND CLASSIFICATION OF BOARD OF DIRECTORS
The Southern Union board is divided into three The Fall River Gas board is divided into three
classes, with the term of office of one class classes, with the term of office of one class expiring
expiring each year. In the case of any increase in each year. In the case of any increase in the
the number of directors, the number of directors in number of directors, the number of directors in
each class shall be as nearly equal as possible. each class shall be as nearly equal as possible.
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SOUTHERN UNION FALL RIVER GAS
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Each director elected for a three-year term. Each director elected for a three-year term.
VOTING RIGHTS
The stockholders have cumulative voting rights at Each stockholder is entitled to one vote for every
all elections of directors. Any stockholder who share held. Stockholders do not have cumulative
intends to cumulate votes must give written notice voting rights.
to the secretary no later than ten days after the
notice of meeting was first sent to the stockholders.
REMOVAL OF DIRECTORS; FILLING VACANCIES
Any and all of the directors may be removed with Any one or more of the directors may be removed
cause by a vote of the holders of a majority of with or without cause, at any time, by a majority
shares entitled to vote at an election of directors. vote of the stockholders entitled to vote at any
New directorships resulting from an increase in the regular or annual meeting (or by a majority of the
authorized number of directors or any vacancy on directors then in office). The successor to any
the Southern Union board may be filled by a director so removed shall be elected by the
majority vote of the directors then in office, though remaining directors.
less than a quorum.
INTERESTED DIRECTOR TRANSACTIONS
Under the DGCL, certain contracts or transactions Pursuant to Section 62 of Chapter 156B of the
in which one or more of a corporation's directors MGL, which is made applicable to gas companies
has an interest are not void or voidable because of and other corporations subject to MGL, Chapter
such interest, provided that either: 164, by application of Chapter 164, Section 4,
directors who vote for and officers who knowingly
- the stockholders or the disinterested directors participate in any loan of any assets of Fall River
must approve any such contract or transaction Gas to any of its officers or directors are jointly and
after full disclosure of material facts, or severally liable for any portion of the loan which is
not repaid. This provision does not apply if the
- the contract or transaction must have been fair loan is approved or ratified as a loan which is
as to the corporation at the time it was reasonably expected to benefit Fall River Gas, by
approved. If board approval is sought, the either a majority of the directors who are not direct
contract or transactions must be approved by or indirect recipients of the loan, or by shareholders
a majority of the disinterested directors (even who are not direct or indirect recipients of the loan
though less than a quorum). and hold a majority of the shares entitled to vote for
directors.
Southern Union's bylaws provide that no contract,
transaction or act of Southern Union shall be
affected by the fact that a director is in any way
interested in, or connected with, any party to such
contract, transaction or act, if the interested
director, at least five days prior to the date of any
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SOUTHERN UNION FALL RIVER GAS
-------------- --------------
regular or special meeting of the Southern Union
board at which such contract, transaction or act is
to be considered, gives notice in writing to each of
the remaining directors of his interest in or in
connection with the proposed contract, transaction
or act. If this condition is complied with, the
interested director may be counted in determining
a quorum at any meeting of the Southern Union
board at which the contract, transaction or act will
be authorized, but may not vote on the resolution
pertaining to the interested director transaction.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Southern Union's bylaws provide that Southern Fall River Gas' bylaws provide that, except as
Union shall indemnify each of its directors and prohibited by law, Fall River Gas shall indemnify
officers to the fullest extent permitted by law in every director, officer or employee of Fall River
connection with any actual or threatened action or Gas against expenses reasonably incurred by him in
proceeding (including civil, criminal, administra- connection with any action, suit or proceeding to
tive or investigative proceedings) arising out of which he may be made a party, by reason of such
their service to Southern Union or to any other person being or having been a director, officer or
organization at Southern Union's request. employee of Fall River Gas or by reason of the fact
Employees and agents of Southern Union who are not that such person is or was serving at the request of
directors and officers may be similarly indem- Fall River Gas as a director, officer or employee, of
nified in respect of such service to the extent autho- another corporation, except in relation to matters as
rized at any time by the Southern Union board. to which he shall be finally adjudged in such
action, suit or proceeding to be liable for
Under the DGCL, other than an action brought by negligence or misconduct.
or in the right of the corporation, such indemni-
fication is available if it is determined that the
proposed indemnitee acted in good faith and in
a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation,
and, with respect to any criminal action or pro-
ceedings, had no reasonable cause to believe his or
her conduct was unlawful. In actions brought by or
in the right of the corporation, such indemnification
is limited to expenses actually and reasonably
incurred and permitted only if the indemnitee acted
in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests
of the corporation, except that no indemnification
may be made in respect of any claim, issue or
matter as to which such person is adjudged to be
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SOUTHERN UNION FALL RIVER GAS
-------------- --------------
liable to the corporation, unless and only to the
extent that the court in which the action was
brought determines that, despite the adjudication of
liability, but in view of all of the circumstances of
the case, the person is fairly and reasonably entitled
to indemnity for such expenses which the court
deems proper. To the extent that the proposed
indemnitee has been successful in defense of any
action, suit or proceeding, he must be indemnified
against expenses actually and reasonably incurred
by him in connection with the action.
LIMITATION OF DIRECTOR LIABILITY
Section 102(b)(7) of the DGCL provides that the Pursuant to Section 65 of Chapter 156B of the
certificate of incorporation of a Delaware corpora- MGL, which is made applicable to gas companies
tion may contain a provision eliminating or limiting and other corporations subject to MGL, Chapter
the personal liability of a director to the corporation 164, by application of Chapter 164 Section 4, the
or its stockholders for monetary damages for a fact that a director performed his or her duties shall
breach of fiduciary duty as a director. This provi- be a complete defense to any claim asserted against
sion can not eliminate or limit the director's him or her, except as expressly provided by statute,
liability for: by reason of his or her being or having been a
director of a corporation.
- any breach of the director's duty of loyalty to
the corporation or its shareholders, Fall River Gas' articles of organization further
provide that to the fullest extent permitted by the
- any acts or omissions not in good faith or MGL, no director shall be personally liable to the
which involve intentional misconduct or a corporation or its stockholders for monetary
knowing violation of the law, damages for any breach of fiduciary duty by such
director as a director notwithstanding any provision
- under section 174 of the DGCL, which of law imposing such liability. This provision shall
governs liability of directors for unlawful not eliminate or limit the liability of a director for
payment of dividends or unlawful stock any act or omission occurring prior to the date upon
repurchases, or which this provision became effective, and no
amendment or repeal of this provision shall deprive
- any transaction from which the director a director of the benefits hereof with respect to any
derived an improper personal benefit. Article act or omission occurring prior to such amendment
TWELFTH of the Restated Certificate of or repeal.
Incorporation of Southern Union eliminates
personal liability of directors to the fullest
extent permitted by Delaware law.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION OR ARTICLES OF ORGANIZATION
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SOUTHERN UNION FALL RIVER GAS
-------------- --------------
The restated certificate of incorporation may be THE ARTICLES OF ORGANIZATION CAN BE AMENDED BY THE
amended by the affirmative vote of the Southern AFFIRMATIVE VOTE OF THE FALL RIVER GAS BOARD,
Union board followed by the affirmative vote of the FOLLOWED BY THE AFFIRMATIVE VOTE OF TWO-THIRDS OF
holders of a majority of the outstanding stock EACH CLASS OF STOCK OUTSTANDING, except that the
entitled to vote thereon and the majority of the following actions require the vote only of a
outstanding stock entitled to vote thereon as a class. majority of the shares of each class outstanding and
entitled to vote: (i) changes in par value of its
capital stock; (ii) amount of capital stock
authorized; and (iii) change in corporate name
(MGL, Chapter 164, Section 8). However, Fall
River Gas' articles of organization also provide that
any amendment relating to business combinations
and the staggered election of directors requires the
affirmative vote of the holders of not less than 75%
of the shares entitled to vote.
AMENDMENT OF BYLAWS
The stockholders may amend, alter or repeal the Only the stockholders, by the affirmative vote of
bylaws by the affirmative vote of the holders of a the holders of a majority of the stock issued and
majority of the voting power of the then outstanding of the class or classes entitled to vote,
outstanding shares of stock entitled to vote may at any meeting, provided the substance of the
generally in the election of directors, voting proposed amendment shall have been stated in the
together as a single class. In addition, the Southern notice of the meeting, amend, alter or repeal the
Union board, by the affirmative vote of a majority bylaws; provided, however, that pursuant to Fall
of the directors, may at any meeting, if the River's articles of organization, any amendment
substance of the proposed amendment shall have relating to business combinations or the staggered
been stated in the notice of meeting, amend, alter or election of directors requires the affirmative vote of
repeal the bylaws. the holders of not less than 75% of the shares
entitled to vote. Chapter 156B, Section 17, which
is made applicable to gas companies and other
corporations subject to MGL, Chapter 164, by
application of Chapter 164, Section 4, provides that
directors alone may amend the bylaws if a com-
pany's articles of organization specifically provide
for this power. Fall River Gas' articles of organiza-
tion do not currently contain such a provision.
POWER TO CALL SPECIAL STOCKHOLDERS MEETING
Special meetings of stockholders may be called A stockholders meeting for any purpose may be
only by the Southern Union board pursuant to a called at any time by: the chairman, president or a
resolution adopted by a majority of the total majority of the board of directors and shall be
number of authorized directors (whether or not called by the chairman, the president or the clerk
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SOUTHERN UNION FALL RIVER GAS
-------------- --------------
there exist any vacancies in previously authorized upon the request of stockholders of record owning
directorships at the time any such resolution is at least 33 1/3% of the issued and outstanding
presented to the Southern Union board for voting stock. The MGL provides that stockholders
adoption) or by the holders of not less than a owning 10% of the voting stock can call such a
majority of the voting power of all of the then- meeting, unless the company's articles of
outstanding shares of any class or series of capital incorporation require a higher percentage of not
stock entitled to vote generally in the election of more than 50%.
directors.
ACTION BY WRITTEN CONSENT
Any action required or permitted to be taken by the Any action required or permitted to be taken at a
stockholders must be effected at a duly called stockholders meeting may be taken without a
annual or special meeting of the stockholders, and meeting but only if, before or after the action,
may not be effected by the written consent of the consents thereto by all the stockholders who would
stockholders. be entitled to vote at a meeting for such purpose are
filed with the secretary.
INSPECTION OF STOCKHOLDERS LIST
The officer who has charge of the stock ledger must Stockholders of Fall River Gas have no specific
prepare and make, at least 10 days before every statutory right to inspect the stock record books of
stockholders meeting, a complete list of the the company, for any purpose other than as a
stockholders entitled to vote at the meeting, stockholder relative to the affairs of the
arranged in alphabetical order, and showing the corporation. The original, or attested copies, of the
address of each stockholder and the number of Articles of Organization, Bylaws, and records of all
shares registered in the name of each stockholder. meetings of incorporators and stockholders, and the
The list must be open to the examination of any stock and transfer records, containing the names of
stockholder, for any purpose germane to the all stockholders and the record address and the
meeting, during ordinary business hours, for a amount of stock held by each, must be kept by Fall
period of at least 10 days before the meeting. The River Gas for inspection by its stockholders at its
list must also be produced and kept at the time and principal office or an office of its transfer agent or
place of the meeting during the whole time thereof, of its clerk or of its resident agent. The copies and
and may be inspected by any stockholder present. records need not all be kept in the same office.
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SOUTHERN UNION FALL RIVER GAS
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DIVIDENDS AND REPURCHASES OF SHARES
Dividends on the stock of Southern Union of any The directors, in their discretion, may from time to
class are payable only out of assets, profits or funds time declare dividends payable at any fixed date out
of the corporation at the time legally available of the earned surplus of Fall River Gas.
therefor, and only when and as declared by the
Southern Union board. Dividends may be paid
upon common stock as and when declared by the
Southern Union board, subject to all of the rights of
the preferred stockholders. See "Description of
Southern Union Capital Stock - Southern Union
Preferred Stock."
In addition, the DGCL generally provides that a
corporation may redeem or repurchase its shares
only if such redemption or repurchase would not
impair the capital of the corporation. The ability of
a Delaware corporation to pay dividends on, or to
make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation
standing alone and not on a consolidated basis. In
determining the amount of surplus of a Delaware
corporation, the assets of the corporation, including
stock of subsidiaries owned by the corporation,
must be valued at their fair market value as deter-
mined by the Southern Union board, regardless of
their historical book value.
MERGERS AND MAJOR TRANSACTIONS
Under the DGCL, whenever the approval of the Under Section 96 of MGL, Chapter 164, a merger
stockholders of a corporation is required for an or consolidation of, or sale or purchase of all or
agreement of merger or consolidation, or for a sale, substantially all corporate properties involving
lease or exchange of all or substantially all of its companies both or all of which are subject to MGL,
assets, such agreement, sale, lease or exchange Chapter 164 by virtue of conducting utility
must be approved by the affirmative vote of the operations in the Commonwealth of Massachusetts,
holders of a majority of outstanding shares entitled must be approved by each such company by at least
to vote thereon. Notwithstanding the foregoing, two-thirds of the shares entitled to vote thereon.
unless required by its certificate of incorporation,
no vote of the stockholders of a constituent cor-
poration surviving a merger is necessary to
authorize such merger if:
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SOUTHERN UNION FALL RIVER GAS
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- the agreement of merger does not amend the
certificate of incorporation of such constituent
corporation;
- each share of stock of such constituent cor-
poration outstanding prior to such merger is to
be an identical outstanding or treasury share of
the surviving corporation after the merger;
- either no shares of common stock of the
surviving corporation and no shares, securities
or obligations convertible into such common
stock are to be issued under such agreement of
merger, or the number of shares of common
stock issued or so issuable does not exceed
20% of the number thereof outstanding
immediately prior to such merger.
In addition, the DGCL provides that a parent
corporation that is the record holder of at least 90%
of the outstanding shares of each class of stock of
a subsidiary may merge such subsidiary into such
parent corporation without the approval of such
subsidiary's stockholders or board and without the
approval of the parent's stockholders.
APPRAISAL RIGHTS/DISSENTERS RIGHTS
Under the DGCL, unless the certificate of incor- The stockholders of Fall River Gas have no
poration of a corporation provides otherwise, there appraisal rights.
are no appraisal rights provided in the case of cer-
tain mergers, a sale or transfer of all or
substantially all of the corporation's assets or an
amendment to the corporation's certificate of
incorporation. Moreover, the DGCL does not
provide appraisal rights in connection with a
merger or consolidation, unless the certificate of
incorporation provides otherwise, to stockholders
of a constituent corporation that:
- has its common stock listed on a national
securities exchange or designated as a national
market system security by the National
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SOUTHERN UNION FALL RIVER GAS
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Association of Securities Dealers or
- held of record by more than 2,000 stock-
holders, unless the applicable agreement of
merger or consolidation requires that such
stockholders will be entitled to receive, in
exchange for their shares of such constituent
corporation, anything except:
- shares of stock of the resulting or surviving
corporation;
- shares of stock of any other corporation listed
on a national securities exchange or designated
as a national market system security on an
interdealer quotation system by the National
Association of Securities Dealers, or held of
record by more than 2,000 holders;
- cash in lieu of fractional shares; or
- any combination of the prior three bullets.
The DGCL denies appraisal rights to the stock-
holders of the surviving corporation if such merger
did not require for its approval the vote of the
stockholders of such surviving corporation.
ANTI-TAKEOVER PROVISIONS
Southern Union is subject to DGCL Section 203, Chapter 110F of the MGL prohibits any business
which generally prohibits a Delaware corporation combination with an "interested stockholder"
from engaging in a "business combination" (defined generally as a person owning 5% or more
(defined as a variety of transactions, including of a corporation's outstanding voting stock) for
mergers, asset sales, issuance of stock and other three years after that person becomes an interested
transactions resulting in a financial benefit to the stockholder unless: (i) the board gives prior
interested stockholder) with an "interested stock- approval to the 5% purchase of the interested
holder" (defined generally as a person that is the stockholder; (ii) upon consummation of the trans-
beneficial owner of 15% or more of a corporation's action that resulted in the person becoming an
outstanding voting stock) for a period of three years interested stockholder, the interested stockholder
following the date that such person became an owns at least 90% of the voting stock of the
interested stockholder unless certain conditions are corporation, excluding certain shares; or (iii) con-
met. currently with or subsequent to the acquirer
becoming an interested stockholder, the board of
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SOUTHERN UNION FALL RIVER GAS
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directors and two-thirds of the noninterested shares
approve the business combination. Fall River Gas
has not opted out of Chapter 110F of the MGL and
the provisions of Chapter 110F of the MGL apply
to an acquisition of Fall River Gas. The Fall River
Gas board has given its approval to the proposed
merger.
In addition, the Articles of Organization of Fall
River Gas require the affirmative vote of 75% of
the outstanding voting shares for adoption or
authorization of any business combination with
another entity unless the business combination has
been authorized by a two-thirds vote of the
directors. The directors of Fall River Gas have
unanimously authorized the merger.
DISSOLUTION
Under the DGCL, if the Southern Union board Under MGL 156B, the dissolution of Fall River
deems it advisable that the corporation should be Gas may be authorized by a vote of two-thirds of
dissolved and a majority of the outstanding stock of each class of its stock outstanding and entitled to
the corporation entitled to vote thereon votes in vote.
favor of the proposed dissolution, the corporation
shall be dissolved upon the filing of a certificate of Within thirty days of the date of the authorization
dissolution with the Secretary of State of the State of dissolution, notice of that section must be mailed
of Delaware. The corporation shall continue after by the corporation to the Commission of Revenue.
dissolution for the purposes of defending suits and Then articles of dissolution must be submitted to
settling its affairs for a three-year period. The the State Secretary. The dissolution will be
DGCL sets forth certain payment and distribution effective either at the time of the filing of the
procedures a dissolving corporation must follow in articles of dissolution or at a later date specified in the
connection with winding down notification require- articles. The corporation will continue for a
ments, and, under certain circumstances, obtaining three-year period after dissolution for the purpose
the approval of the Delaware Court of Chancery. of prosecuting and defending lawsuits, settling its
Directors of a dissolved corporation that comply affairs, disposing of its assets and making
with the DGCL's payment and distribution pro- distributions to its stockholders of any assets
cedures shall not be personally liable to the remaining after payment of its debts and
claimants of the dissolved corporation. obligations. For purpose of any suit brought by or
against the corporation prior to or during the three-
year period, the existence of the corporation may
continue beyond the three-year period for an
additional ninety days after the final judgment in
the suit. The MGL provides procedures for
distribution of assets upon petition to the supreme
93
<PAGE>
SOUTHERN UNION FALL RIVER GAS
-------------- --------------
judicial or superior court, and for the appointment
of receivers.
94
<PAGE>
MORTGAGE AND CERTAIN OTHER FINANCINGS
Under the DGCL, Southern Union may enter into A GAS COMPANY OR OTHER CORPORATION SUBJECT TO THE
a mortgage of, or issue a bond in which a lien may MGL, CHAPTER 164, MAY ENTER INTO A MORTGAGE OF,
be placed on, all or substantially all of the assets of OR ISSUE A BOND IN WHICH A LIEN IS PLACED ON, ALL OR
the company without submitting this action for SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY
shareholder approval. ESSENTIALLY ONLY WITH THE APPROVAL BY A VOTE OF A
MAJORITY OF ITS SHAREHOLDERS ENTITLED TO VOTE THEREON.
Fall River Gas obtained on April 16, 1981
shareholder authorization to allow the Board of
Directors to take such action without further
shareholder approval.
</TABLE>
95
<PAGE>
PRINCIPAL STOCKHOLDERS
BENEFICIAL OWNERS OF MORE THAN 5% OF SOUTHERN UNION'S OUTSTANDING COMMON STOCK
The following table shows, as of June 30, 2000, any person who is known by
Southern Union to be the beneficial owner individually or collectively of more
than five percent of the outstanding Southern Union common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
NUMBER OF SHARES OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) CLASS
------------------------------------ ---------------------- -------
<S> <C> <C>
George L. and Frayada B. Lindemann 5,320,998 (2)(3) 10.63%
767 Fifth Avenue, 50th Floor
New York, New York 10153
Adam M. Lindemann 2,893,420 (3)(4) 5.84%
767 Fifth Avenue, 50th Floor
New York, New York 10153
George Lindemann, Jr. 2,897,599 (3)(5) 5.85%
11950 Maidstone Drive
Wellington, Florida 33414
Sloan N. Lindemann 2,896,544 (3) 5.85%
767 Fifth Avenue, 50th Floor
New York, New York 10153
Bass Reporting Persons 3,145,661 (6) 6.35%
201 Main Street
Fort Worth, Texas 76102
Baron Capital Group, 4,897,244 (7) 9.89%
767 Fifth Avenue, 49th Floor
New York, New York 10153
----------------
</TABLE>
(1) Includes options to acquire shares of Southern Union common stock that are
exercisable within 60 days of June 30, 2000.
(2) Includes: 2,180,560 shares owned by SUG 1 L.P. in which Mr. Lindemann is
the sole general partner; 2,578,242 shares owned by SUG 2 L.P. in which Mr.
Lindemann's wife, Dr. F.B. Lindemann, is the sole general partner; 14,441
vested shares held through the Southern Union Supplemental Deferred
Compensation Plan (the "Supplemental Plan") for Mr. Lindemann; 9,653 vested
shares held by the 401(k) Southern Union Savings Plan (the "401(k) Plan")
for Mr. Lindemann; and 538,102 shares of Southern Union common stock Mr.
Lindemann is entitled to purchase upon the exercise of stock options
exerciseable presently or within 60 days of June 30, 2000 pursuant to the
Southern Union 1992 Long-Term Incentive Plan (the "1992 Plan").
Substantially all shares beneficially held by Mr. and Dr. Lindemann and
their three children (Adam M., George, Jr., and Sloan N.) (together, the
"Lindemann Family") have been pledged to Activated Communications Limited
Partnership ("Activated"). Activated, which is owned and managed by or for
the benefit of the Lindemann Family, provided the funds used to purchase
certain of such shares. Mr. Lindemann is the Chairman of the Board and
President, and, Dr. Lindemann and Adam Lindemann are each a director of the
sole general partner of Activated.
(3) This information regarding direct share ownership by members of the
Lindemann Family generally was obtained from and is reported herein in
reliance upon a Schedule 13D (as amended through April 19, 2000) as
adjusted for any stock dividends and splits since the date of such report
filed by George L. Lindemann, Adam M. Lindemann, Sloan N. Lindemann, SUG 1
L.P., SUG 2 L.P., and SUG 3 L.P. In addition, information regarding share
ownership by George L. Lindemann (including shares beneficially owned by
his wife, Dr. F.B. Lindemann) and Adam M. Lindemann reflects information
derived from their respective reports on Form 4 and Form 5 under the
Exchange Act filed to date. Each member of the Lindemann Family disclaims
beneficial ownership of any shares owned by any other member of the
Lindemann Family. Accordingly, with respect to each member of the Lindemann
Family, the above table reflects only individual share ownership except
that the shares beneficially held by Dr. F. B. Lindemann are reflected as
owned by George L. Lindemann, as explained in Note (2).
(4) Includes 4,431 vested shares pursuant to the Southern Union Directors'
Deferred Compensation Plan (the "Directors' Plan").
(5) These shares are owned by SUG 3 L.P. in which George Lindemann Jr. is the
sole general partner.
(6) The information set forth in the table above with respect to the Bass
reporting persons and the information in this note were obtained from and
are reported herein in reliance upon a Schedule 13G filed by: Sid R. Bass
Management Trust, 820 Management Trust, Bass Enterprises Production
Company, the Bass Foundation, and the Lee and Ramona Bass Foundation
(collectively, the "Bass Reporting Persons"), on November 3, 1999 (as
adjusted for any stock dividends since the date of such report). Because of
their relationships with certain of these persons, Sid R. Bass, Perry M.
Bass and Lee M. Bass may be considered controlling persons with respect to
certain of the Bass Reporting Persons, all as described in said Schedule
13G.
(7) This information regarding share ownership by Baron Capital Group, ("BCG")
was obtained from and is reported herein in reliance upon a Schedule 13G,
as amended through December 31, 1999 (as adjusted for any stock dividends
since the date of such report) (the "Baron Filing") filed by BCG, BAMCO,
("BAMCO"), Baron Capital Management, ("BCM"), Baron Asset Fund ("BAF") and
Ronald Baron (collectively, the "Baron Filing Group"). Pursuant to the
Baron Filing, the members of the Baron Filing Group own beneficially and
have shared power to vote or direct the vote of and to dispose or direct
the disposition of the following number of shares of Southern Union common
stock: BCG--4,765,994 shares; BAMCO--3,832,500 shares; BCM--933,494
96
<PAGE>
shares; BAF--2,572,500 shares; and Mr. Baron--4,765,994 shares. The members
of the Baron Filing Group disclaim beneficial ownership in each other's
shares.
97
<PAGE>
SOUTHERN UNION MANAGEMENT OWNERSHIP
The following table shows the number of shares of Southern Union common stock,
beneficially owned, directly or indirectly, as of June 30, 2000, by individual
directors and named executive officers, and all directors and named executive
officers as a group, who held such positions as of the Southern Union record
date. Unless otherwise specified, shares are beneficially owned directly by
the director or officer.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
NUMBER OF SHARES OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) CLASS
------------------------ ---------------------- -------
<S> <C> <C>
George L. Lindemann 5,320,998 (2)(3) 10.63%
Adam M. Lindemann 2,893,420 (3)(4) 5.84%
John E. Brennan 692,375 (5) 1.39%
Frank W. Denius 67,480 (6) *
Aaron I. Fleischman 564,302 (7) 1.14%
Kurt A. Gitter, M.D 194,229 (8) *
Thomas F. Karam 660,759 (9) 1.32%
Peter H. Kelley 554,825 (10) 1.11%
Roger J. Pearson 42,446 (11) *
George Rountree, III 63,502 (12) *
Ronald W. Simms 630,346 (13) 1.27%
Dan K. Wassong 59,471 (14) *
Steve W. Cattron 12,758 (15) *
Ronald J. Endres 379,070 (16) *
David J. Kvapil 59,001 (17) *
Dennis K. Morgan 80,805 (18) *
David W. Stevens 89,791 (19) *
All directors and officers as a group (17 persons) 12,971,583 (20) 26.20%
</TABLE>
----------------
* Less than one percent.
(1) Includes options to acquire shares of Southern Union common stock that are
exercisable presently or within 60 days of June 30, 2000.
(2) For a description of the shares of Southern Union common stock
beneficially owned by Mr. George L. Lindemann and included in the above
table, see note (2) to the table set forth in "--Beneficial Owners of More
Than 5% of Southern Union's Outstanding Securities."
(3) For information regarding beneficial share ownership by members of the
Lindemann Family, see note (3) to the table set forth in "--Beneficial
Owners of More Than 5% of Southern Union's Outstanding Securities."
(4) For a description of the shares of Southern Union common stock
beneficially owned by Mr. Adam M. Lindemann and included in the above
table, see note (4) to the table set forth in "--Beneficial Owners of More
Than 5% of Southern Union's Outstanding Securities."
(5) Of these shares, 5,079 vested shares are held by the 401(k) Plan; 6,284
vested shares are held through the Supplemental Plan; 4,993 shares are
owned by his wife; 211,806 are held in two separate trusts for the benefit
of members of his family; 56,010 are held in an irrevocable trust under
the Southern Union Executive Deferred Stock Plan (the "Stock Plan"); and
247,506 represent shares that Mr. Brennan is entitled to purchase upon the
exercise of stock options exercisable presently or within 60 days of June
30, 2000 pursuant to the 1992 Plan.
(6) Includes: 955 shares owned by his wife; 44,017 shares that The Effie and
Wofford Cain Foundation (the "Foundation"), in which Mr. Denius is a
director, owns; and 8,360 vested shares pursuant to the Directors' Plan.
Mr. Denius disclaims beneficial ownership of those shares held by the
Foundation since he does not have a pecuniary interest in or control of
the Foundation's assets.
(7) Includes: 105,531 shares that Fleischman and Walsh, L.L.P., in which Mr.
Fleischman is Senior Partner, is entitled to purchase upon exercise of a
Warrant exercisable presently or within 60 days of June 30, 2000; 13,737
vested shares pursuant to the Directors' Plan; 112,215 shares owned by the
Fleischman and Walsh 401(k) Profit Sharing Plan for which Mr. Fleischman
is a trustee and a beneficiary; and 22,204 shares owned by the Aaron I.
Fleischman Foundation for which Mr. Fleischman is the sole trustee. Mr.
Fleischman disclaims beneficial ownership of those shares held by the
Fleischman and Walsh 401(k) Profit Sharing Plan, to the extent that he
does not have a pecuniary interest, and those shares held by the Aaron I.
Fleischman Foundation.
(8) Includes 6,829 vested shares pursuant to the Directors' Plan.
(9) Includes: 89,983 shares held by various entities through which Mr. Karam
has voting power; 21,703 shares held in the name of Lakeside Drive
Association, in which Mr. Karam's wife has an interest; 2,619 vested
shares held by the Southern Union Pennsylvania Division Employees' Savings
Plan for Mr. Karam; 1,160 vested shares held through the Supplemental
Plan; and 474,784 shares of Southern Union common stock Mr. Karam is
entitled to purchase upon the exercise of stock options exercisable
presently or within 60 days of June 30, 2000.
(10) Includes 309,913 shares that Mr. Kelley is entitled to purchase upon the
exercise of stock options exercisable presently or within 60 days of June
30, 2000 pursuant to the 1992 Plan. Such number also includes: 35,306
shares held in the Stock Plan; 22,818 vested shares held by the 401(k)
Plan; 3,708 shares held through the Southern Union Company Direct Stock
Purchase Plan; and 38,332 vested shares held through the Supplemental
Plan.
(11) Includes 3,082 shares held by Mr. Pearson as Custodian (pursuant to the
Uniform Gifts to Minors Act) for his children; and 4,998 vested shares
pursuant to the Directors' Plan.
(12) Includes 1,444 shares owned by his wife and 16,032 vested shares allocated
to Mr. Rountree pursuant to the Directors' Plan. Also includes 3,150
shares owned by the Rountree & Seagle Profit Sharing Plan & Trust for
which Mr. Rountree is a co-trustee and co-administrator. Mr. Rountree
disclaims beneficial ownership of shares held by such plan to the extent
that he has no pecuniary interest.
(13) Includes: 149,364 shares owned by Mr. Simms's wife; 178,796 shares for
which Mr. Simms has voting power; and 59,348 shares of Southern Union
common stock Mr. Simms is entitled to purchase upon the exercise of stock
options exercisable presently or within 60 days of June 30, 2000.
98
<PAGE>
(14) Includes 6,362 vested shares pursuant to the Directors' Plan.
(15) Includes 2,187 vested shares held through the Supplemental Plan, 153
vested shares held by the 401(k) Plan and 10,418 shares Mr. Cattron is
entitled to purchase upon the exercise of stock options exercisable
presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan.
(16) Includes 253,526 shares Mr. Endres is entitled to purchase upon the
exercise of stock options exercisable presently or within 60 days of June
30, 2000 pursuant to the 1992 Plan. Such number also includes: 12,776
vested shares held through the 401(k) Plan; 23,228 vested shares held
through the Supplemental Plan; and 315 shares owned by Mr. Endres's
children.
(17) Includes 34,779 shares that Mr. Kvapil is entitled to purchase upon the
exercise of stock options exercisable presently or within 60 days of June
30, 2000 pursuant to the1992 Plan. Such number also includes 11,571 vested
shares held through the Supplemental Plan; 4,248 vested shares held by the
401(k) Plan; and 3,804 shares held through the Southern Union Company
Direct Stock Purchase Plan.
(18) Includes 60,182 shares Mr. Morgan is entitled to purchase upon the
exercise of stock options presently or within 60 days of June 30, 2000
pursuant to the 1992 Plan. Such number also includes 4,664 vested shares
held through the 401(k) Plan and 12,678 vested shares held through the
Supplemental Plan.
(19) Includes 58,430 shares that Mr. Stevens is entitled to purchase upon the
exercise of stock options exercisable presently or within 60 days of June
30, 2000 pursuant to the 1992 Plan. Such number also includes: 12,722
vested shares held by the 401(k) Plan; 1,825 vested shares held through
the Southern Union Company Direct Stock Purchase Plan and 14,061 vested
shares held through the Supplemental Plan.
(20) Excludes options granted pursuant to the 1992 Plan to acquire shares of
Southern Union common stock that are not presently exercisable or do not
become exercisable within 60 days of June 30, 2000. Includes vested shares
held through certain Southern Union benefit and deferred savings plans for
which certain executive officers and directors may be deemed beneficial
owners, but excludes shares which have not vested under the terms of such
plans. Also, includes 606,005 shares held by a "Rabbi Trust" known as the
Trust for Miscellaneous Southern Union Company Deferred Compensation
Arrangements ("Rabbi Trust"). The shares are held as a part of Southern
Union's efforts to provide funding for a portion of the future liability
under the Southern Union Supplemental Executive Retirement Plan ("SERP").
Any assets held for the benefit of the SERP are held in the Rabbi Trust.
Southern Union management directly or indirectly controls the investment
of any assets, and the voting of any securities, held for the SERP.
BENEFICIAL OWNERS OF MORE THAN 5% OF FALL RIVER GAS' COMMON STOCK
At the close of business on May 31, 2000, directors and officers of Fall River
Gas beneficially owned and were entitled to vote approximately 297,216 shares
of Fall River Gas common stock, which represented approximately 13.3% of the
shares of Fall River Gas common stock outstanding on that date. Each of them
has indicated his or her present intention to vote, or cause to be voted, the
Fall River Gas common stock owned by him or her for the proposal to approve
and adopt the merger agreement. Ronald J. Ferris and Barabara N. Jarabek, as
trustee to The Jarabek Family Limited Partnership, entered into a voting
agreement with Southern Union along with certain other stockholders of Fall
River Gas, each of whom own less than 5% of the common stock of Fall River
Gas. Under the terms of the voting agreement, they have agreed to vote or
cause to be voted the Fall River Gas common stock owned by them for the
approval and adoption of the merger agreement and they have granted Southern
Union an irrevocable proxy to vote the shares of Fall River Gas common stock
owned by them (see "The Fall River Gas Merger Agreement--Covenants and Other
Agreements-Fall River Gas Voting Agreement"). No person or group owns of
record or is known by Fall River Gas to own beneficially more than 5% of Fall
River Gas's outstanding common stock, other than as set forth in the following
table.
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT
NAME AND ADDRESS OF OWNED AS OF OF
BENEFICIAL OWNER MAY 31, 2000 CLASS
------------------- ------------------ -------
Ronald J. Ferris 145,059 Shares (1) 6.6%
75 GAR Highway
Swansea, Massachusetts
Barbara N. Jarabek 295,710 Shares (2) 13.2%
103 South Washington Drive
Sarasota, Florida
99
<PAGE>
-----------------------
(1) Includes 5,852 shares owned jointly with Dale Ferris; 4,000 shares owned
jointly with children of Mr. Ferris; 36,990 shares owned by Lee's River
Realty, Inc., 3,926 shares held in trusts for the children of Mr. Ferris;
and 53,594 shares owned by the Swansea Lounge, Inc. Pension Trust for
which Mr. Ferris is a co-trustee. Mr. Ferris has shared voting and
investment power with respect to all shares beneficially owned by him
except for 40,697 shares owned directly and of record by him, with respect
to which he has sole voting and investment power. Mr. Ferris disclaims
beneficial ownership with respect to the 3,926 shares held in trust for
his children and the 53,594 shares owned by the Swansea Lounge, Inc.
Pension Trust.
(2) Consists of shares held in two trusts for which Barbara N. Jarabek is
trustee, and with respect to which Mrs. Jarabek possesses sole power to
vote and sole investment power.
100
<PAGE>
FALL RIVER GAS MANAGEMENT OWNERSHIP
The following table shows the number of shares of Fall River Gas common stock,
beneficially owned, directly or indirectly, as of May 31, 2000, by individual
directors and officers, and all directors and officers as a group, who held
such positions as of May 31, 2000. Unless otherwise specified, shares are
beneficially owned directly by the director or officer. Bradford J. Faxon,
Raymond H. Faxon, Ronald J. Ferris, Cindy L.J. Audette, Thomas H. Bilodeau and
Gilbert C. Oliveira, Jr., each has entered a voting agreement with Southern
Union. Under the terms of the voting agreement, each has agreed to vote or
cause to be voted the Fall River Gas common stock owned by him or her for the
approval and adoption of the merger agreement and each has granted Southern
Union an irrevocable proxy to vote the shares of Fall River Gas common stock
owned by them (see "The Merger Agreement - Covenants and Other Agreements --
Fall River Gas Voting Agreement").
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
NUMBER OF SHARES OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
------------------------ -------------------- -------
<S> <C> <C>
Bradford J. Faxon 40,306(1) 1.7
Raymond H. Faxon 57,370(2) 2.6
Ronald J. Ferris 145,059(3) 6.5
Cindy L.J. Audette 13,190(4) *
Jack R. McCormick 4,901 *
Donald R. Patnode 1,750 *
Thomas K. Barry 2,200 *
Thomas H. Bilodeau. 9,006(5) *
Gilbert C. Oliveira, Jr. 12,530(6) *
Peter H. Thanas 6,125(7) *
Robert J. Pollock 5,140 *
All directors and officers as a group (13 persons) 297,216 13.3
* Less than one percent.
</TABLE>
-------------------------
(1) Includes 4,952 shares held as custodian for Bradford J. Faxon's children.
(2) Comprised of 57,370 shares held in trust, for which Raymond H. Faxon is a
trustee.
(3) Includes 5,852 shares owned jointly with Dale Ferris, 4,000 shares owned
jointly with children of Mr. Ferris, 36,990 shares owned by Lee's River
Realty, Inc., 3,926 shares held in trusts for the children of Mr. Ferris,
and 53,594 shares owned by the Swansea Lounge, Inc. Pension Trust for
which Mr. Ferris is a co-trustee. Mr. Ferris has shared voting and
investment power with respect to all shares beneficially owned by him
except for 40,697 shares owned directly and of record by him, with respect
to which he has sole voting and investment power. Mr. Ferris disclaims
beneficial ownership with respect to the 3,926 shares held in trust for
his children and the 53,594 shares owned by the Swansea Lounge, Inc.
Pension Trust.
(4) Includes 660 shares held jointly with spouse (with shared voting and
investment power).
(5) Includes 7,746 shares held in trust for Thomas H. Bilodeau's children.
(6) Comprised of 9,529 shares held by Mr. Oliveira's spouse as custodian for a
minor child of Mr. Oliveira.
(7) Includes 2,528 shares held jointly with spouse (with shared voting and
investment power), 671 shares held as custodian for Mr. Thanas's minor son
and 671 shares held as custodian for Mr. Thanas' minor daughter (with sole
voting and investment power).
101
<PAGE>
PROPOSALS OF STOCKHOLDERS
We expect the merger to be completed before Fall River Gas would have its next
annual meeting of stockholders in 2001. If the merger is not completed by
then, and if a stockholder intends to present a proposal at the Fall River
Gas' 2000 annual meeting of stockholders and wants that proposal to be
included in the Fall River Gas' proxy statement and form of proxy for that
meeting, the proposal must be received by the Office of the Clerk, Fall River
Gas, 155 North Main Street, P.O. Box 911, Fall River, Massachusetts 02722-0911
by August 18, 2000. The proxies named in management's proxy for that meeting
will be entitled to exercise their discretionary authority on any proposal,
which a stockholder intends to present to stockholders, that was not included
in the Fall River Gas' proxy statement for the 2001 annual meeting, unless
Fall River Gas receives notice of the matter to be proposed before November 1,
2000. Even if proper notice is received on or prior to November 1, 2000, the
proxies named in management's proxy for that meeting may nevertheless exercise
their discretionary authority with respect to such matter by advising
stockholders of such proposals and how they intend to exercise their
discretion to vote on such matter, unless the stockholder making the proposal
solicits proxies with respect to the proposal as detailed in Rule 14a-4(c)(2)
of the Securities Exchange Act of 1934.
OTHER MATTERS
Except for the matters set forth above, the board of directors knows of no
other matters which may be presented to the special meeting of stockholders,
but if any other matters properly come before such meeting, it is the
intention of the persons named in the accompanying form of proxy to vote such
proxies in accordance with their judgment.
LEGAL MATTERS
The validity of the Southern Union common stock issued pursuant to this
prospectus will be passed upon for Southern Union by Fleischman and Walsh
L.L.P. Certain tax matters in connection with the merger will be passed upon
for Southern Union by Hughes Hubbard & Reed, LLP and for Fall River Gas by
Rich, May, Bilodeau & Flaherty, P.C.
EXPERTS
The consolidated financial statements of Southern Union for the years ended
June 30, 1999, 1998 and 1997, included in its Annual Report on Form 10-K for
the year ended June 30, 1999, and incorporated in this proxy
statement/prospectus by reference, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of PEI for the years ended December 31,
1998 and 1997 included in PEI's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated in this proxy statement/prospectus by
reference, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
102
<PAGE>
The consolidated financial statements and schedules of PEI for the year ended
December 31, 1996 included in PEI's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated in this proxy statement/prospectus
by reference, were audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in giving said report.
The consolidated financial statements and schedules of Fall River Gas
incorporated by reference in this proxy statement/prospectus have been audited
by Arthur Andersen LLP, independent accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
The consolidated financial statements and schedules of ProvEnergy incorporated
by reference in this proxy statement/prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are incorporated herein by reference to a Southern
Union Current Report on Form 8-K in reliance upon the authority of said firm
as experts in giving said report.
The consolidated financial statements of Valley Resources for the years ended
August 31, 1999, 1998 and 1997 included in Southern Union's Form 8-K filed on
June 5, 2000, have been incorporated in this proxy statement/prospectus by
reference to Southern Union's Current Report on Form 8-K in reliance on the
report of Grant Thornton LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
OTHER BUSINESS
The Fall River Gas board does not intend to bring any other business before
the Fall River Gas special meeting, and, so far as is known to the Fall River
Gas board, no other business is to be brought before the meeting. It is
intended that proxies, in the form enclosed, will be voted in regards to any
business that may properly come before the meeting in accordance with the
judgment of the persons voting such proxies.
All holders of common stock of Fall River Gas may obtain, without charge, a
copy of Fall River Gas' Annual Report on Form 10-K for the fiscal year ended
September 30, 1999, including the financial statements and schedules thereto,
required to be filed with the Securities and Exchange Commission. The report
will be furnished upon request made in writing to:
Bradford J. Faxon, President
Fall River Gas
155 North Main Street
Post Office Box 911
Fall River, Massachusetts 02722-0911
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY.
By Order of the Board of Directors,
103
<PAGE>
Robert J. Pollock, Clerk
104
<PAGE>
APPENDIX A
AGREEMENT OF MERGER
BETWEEN
SOUTHERN UNION COMPANY
AND
FALL RIVER GAS COMPANY
DATED AS OF OCTOBER 4, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Defined Terms . . . . . . . . . . . . . . . . . . . 7
ARTICLE II THE MERGER; OTHER TRANSACTIONS. . . . . . . . . . . . . . 9
Section 2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.2 Effective Time of the Merger. . . . . . . . . . . . . . . 9
Section 2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4 Certificate of Incorporation; Bylaws. . . . . . . . . . . 10
Section 2.5 Directors and Officers. . . . . . . . . . . . . . . . . . 10
ARTICLE III CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . 10
Section 3.1 Effect of the Merger. . . . . . . . . . . . . . . . . . . 10
Section 3.2 Exchange of FAL Common Stock Certificates . . . . . . . . 12
Section 3.3 Dissenting Shares . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SUG . . . . . . . . . . 14
Section 4.1 Organization, Existence and Qualification . . . . . . . . 14
Section 4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . 14
Section 4.3 Subsidiaries; Investments . . . . . . . . . . . . . . . . 15
Section 4.4 Authority Relative to this Agreement and Binding Effect . 15
Section 4.5 Governmental Approvals. . . . . . . . . . . . . . . . . . 15
Section 4.6 Public Utility Holding Company Status; Regulation as a
Public Utility. . . . . . . . . . . . . . . . . . . . . . 16
Section 4.7 Compliance with Legal Requirements; Governmental
Authorizations. . . . . . . . . . . . . . . . . . . . . . 16
Section 4.8 Legal Proceedings; Orders . . . . . . . . . . . . . . . . 16
Section 4.9 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.11 Intellectual Property . . . . . . . . . . . . . . . . . . 18
Section 4.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.13 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 18
Section 4.15 Environmental Matters . . . . . . . . . . . . . . . . . . 20
Section 4.16 No Material Adverse Change. . . . . . . . . . . . . . . . 21
Section 4.17 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.18 Proxy Statement; Registration Statement . . . . . . . . . 21
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Section 4.19 No Vote Required. . . . . . . . . . . . . . . . . . . . . 21
Section 4.20 Disclaimer of Representations and Warranties. . . . . . . 21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF FAL . . . . . . . . . . 22
Section 5.1 Organization, Existence and Qualification . . . . . . . . 22
Section 5.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Subsidiaries; Investments . . . . . . . . . . . . . . . . 23
Section 5.4 Authority Relative to this Agreement and Binding Effect . 23
Section 5.5 Governmental Approvals. . . . . . . . . . . . . . . . . . 23
Section 5.6 Public Utility Holding Company Status; Regulation as a
Public Utility. . . . . . . . . . . . . . . . . . . . . . 23
Section 5.7 Compliance with Legal Requirements; Governmental
Authorizations. . . . . . . . . . . . . . . . . . . . . . 24
Section 5.8 Legal Proceedings; Orders . . . . . . . . . . . . . . . . 24
Section 5.9 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.11 Intellectual Property . . . . . . . . . . . . . . . . . . 25
Section 5.12 Title to Assets . . . . . . . . . . . . . . . . . . . . . 25
Section 5.13 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.14 Machinery and Equipment . . . . . . . . . . . . . . . . . 26
Section 5.15 Applicable Contracts. . . . . . . . . . . . . . . . . . . 26
Section 5.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.17 Employees . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.18 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 27
Section 5.19 Environmental Matters . . . . . . . . . . . . . . . . . . 30
Section 5.20 No Material Adverse Change. . . . . . . . . . . . . . . . 30
Section 5.21 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.22 Regulatory Proceedings. . . . . . . . . . . . . . . . . . 31
Section 5.23 Proxy Statement; Registration Statement . . . . . . . . . 31
Section 5.24 Vote Required . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.25 Opinion of Financial Advisor. . . . . . . . . . . . . . . 31
Section 5.26 Disclaimer of Representations and Warranties. . . . . . . 31
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.1 Covenants of FAL. . . . . . . . . . . . . . . . . . . . . 32
(a) Conduct of the Business Prior to the Closing Date . . . . 32
(b) Customer Notifications. . . . . . . . . . . . . . . . . . 34
(c) Access to the Acquired Companies' Offices, Properties
and Records; Updating Information . . . . . . . . . . . . 34
(d) Governmental Approvals; Third Party Consents. . . . . . . 35
(e) Dividends . . . . . . . . . . . . . . . . . . . . . . . . 35
(f) Issuance of Securities. . . . . . . . . . . . . . . . . . 36
(h) No Shopping . . . . . . . . . . . . . . . . . . . . . . . 36
(i) Solicitation of Proxies; FAL Proxy Statement. . . . . . . 38
(j) FAL Stockholders' Approval. . . . . . . . . . . . . . . . 38
(k) Rule 145 Letters. . . . . . . . . . . . . . . . . . . . . 39
(l) Financing Activities. . . . . . . . . . . . . . . . . . . 39
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(m) FAL Disclosure Schedule . . . . . . . . . . . . . . . . . 39
(n) FAL Bondholders' Consent. . . . . . . . . . . . . . . . . 39
Section 6.2 Covenants of SUG. . . . . . . . . . . . . . . . . . . . . 40
(a) Governmental Approvals; Third Party Consents. . . . . . . 40
(b) Employees; Benefits . . . . . . . . . . . . . . . . . . . 40
(c) Blue Sky Permits. . . . . . . . . . . . . . . . . . . . . 40
(d) Listing Application . . . . . . . . . . . . . . . . . . . 40
(e) Collective Bargaining Agreements. . . . . . . . . . . . . 41
(f) SUG Disclosure Schedule . . . . . . . . . . . . . . . . . 41
(g) Conduct of the Business Prior to the Closing Date . . . . 41
(h) Access to SUG's Offices, Properties and Records; Updating
Information . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.3 Additional Agreements . . . . . . . . . . . . . . . . . . 42
(a) The Registration Statement and the FAL Proxy Statement. . 42
(b) Further Assurances. . . . . . . . . . . . . . . . . . . . 43
(c) Financial Statements to be Provided . . . . . . . . . . . 43
ARTICLE VII CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.1 Conditions to SUG's Obligation to Effect the Merger . . . 43
(a) Representations and Warranties True as of the Closing
Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Compliance with Agreements. . . . . . . . . . . . . . . . 43
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . 44
(d) Governmental Approvals. . . . . . . . . . . . . . . . . . 44
(e) Third Party Consents. . . . . . . . . . . . . . . . . . . 44
(f) Injunctions . . . . . . . . . . . . . . . . . . . . . . . 44
(g) Resignations. . . . . . . . . . . . . . . . . . . . . . . 44
(h) Opinion of Tax Counsel. . . . . . . . . . . . . . . . . . 44
(i) FAL Stockholders' Approval. . . . . . . . . . . . . . . . 44
(j) Appraisal Rights. . . . . . . . . . . . . . . . . . . . . 45
(k) Rule 145 Letters. . . . . . . . . . . . . . . . . . . . . 45
(l) Registration Statement. . . . . . . . . . . . . . . . . . 45
(m) Listing of SUG Common Stock . . . . . . . . . . . . . . . 45
(n) FAL Bondholders' Consent. . . . . . . . . . . . . . . . . 45
Section 7.2 Conditions to FAL's Obligations to Effect the Merger. . . 45
(a) Representations and Warranties True as of the Closing
Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(b) Compliance with Agreements. . . . . . . . . . . . . . . . 45
(c) Certificate . . . . . . . . . . . . . . . . . . . . . . . 45
(d) Governmental Approvals. . . . . . . . . . . . . . . . . . 45
(e) Injunctions . . . . . . . . . . . . . . . . . . . . . . . 46
(f) Opinion of Counsel. . . . . . . . . . . . . . . . . . . . 46
(g) FAL Stockholders' Approval. . . . . . . . . . . . . . . . 46
(h) Registration Statement. . . . . . . . . . . . . . . . . . 46
(i) Listing of SUG Common Stock . . . . . . . . . . . . . . . 46
ARTICLE VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 46
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Section 8.1 Termination Rights. . . . . . . . . . . . . . . . . . . . 46
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . 47
Section 8.3 Termination Fee; Expenses . . . . . . . . . . . . . . . . 48
(a) Termination Fee . . . . . . . . . . . . . . . . . . . . . 48
(b) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE IX INDEMNIFICATION; REMEDIES . . . . . . . . . . . . . . . . 48
Section 9.1 Directors' and Officers' Indemnification. . . . . . . . . 48
(a) Indemnification and Insurance . . . . . . . . . . . . . . 48
(b) Successors. . . . . . . . . . . . . . . . . . . . . . . . 49
(c) Survival of Indemnification . . . . . . . . . . . . . . . 49
Section 9.2 Representations and Warranties. . . . . . . . . . . . . . 49
ARTICLE X GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 49
Section 10.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.3 Assignment. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.4 Successor Bound . . . . . . . . . . . . . . . . . . . . . 51
Section 10.5 Governing Law; Forum; Consent to Jurisdiction . . . . . . 51
Section 10.6 Waiver of Trial By Jury . . . . . . . . . . . . . . . . . 51
Section 10.7 Cooperation; Further Documents. . . . . . . . . . . . . . 52
Section 10.8 Construction of Agreement . . . . . . . . . . . . . . . . 52
Section 10.9 Publicity; Organizational and Operational Announcements . 52
Section 10.10 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.11 Parties in Interest . . . . . . . . . . . . . . . . . . . 53
Section 10.12 Specific Performance. . . . . . . . . . . . . . . . . . . 53
Section 10.13 Section and Paragraph Headings. . . . . . . . . . . . . . 53
Section 10.14 Amendment . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.15 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 53
Section 10.16 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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TABLE OF CONTENTS (Continued)
DISCLOSURE SCHEDULES:
FAL Disclosure Schedule
SUG Disclosure Schedule
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AGREEMENT OF MERGER
This AGREEMENT OF MERGER (this "Agreement") is made as of the 4th day of
October, 1999, by and between SOUTHERN UNION COMPANY, a Delaware corporation
("SUG"), and FALL RIVER GAS COMPANY, a Massachusetts corporation ("FAL").
RECITALS
WHEREAS, the Board of Directors of each of SUG and FAL has approved and
deems it advisable and in the best interests of their respective stockholders
to consummate the merger of FAL with and into SUG upon the terms and subject
to the conditions set forth herein; and
WHEREAS, in furtherance thereof, the Board of Directors of each of SUG
and FAL has approved this Agreement and the merger of FAL with and into SUG,
with SUG being the surviving corporation (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, SUG and FAL 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"--FAL 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.
"AVERAGE TRADING PRICE"--of SUG Common Stock, as of any date, will equal
the average of the reported closing market prices of such stock for the ten
consecutive trading days ending on the third trading day prior to such date
(counting from and including the trading day immediately preceding such
date). The closing market price for each day in question will be the last
sale price, regular way or, if no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system of the
principal national securities exchange on which SUG Common Stock is listed or
admitted to trading.
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"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.
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
(d) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful; or
(e) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets or for damages to natural resources.
"ERISA"--the Employee Retirement Income Security Act of 1974, as amended,
or any successor law, and regulations and rules issued pursuant to that act or
any successor law.
"EXCHANGE ACT"--the Securities Exchange Act of 1934, as amended, or any
successor law, and regulations and rules issued by the SEC pursuant to that
act or any successor law.
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"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.
"FAL BALANCE SHEET"--the audited consolidated balance sheet of the
Acquired Companies at September 30, 1998 (including the notes thereto),
provided by FAL to SUG as part of the FAL Financial Statements.
"FAL COMMON STOCK"--the common stock, par value $.831/3 per share, of
FAL.
"FAL DISCLOSURE SCHEDULE"--the disclosure schedule delivered by FAL to
SUG concurrently with the execution and delivery of this Agreement.
"FAL MATERIAL ADVERSE EFFECT"--a material adverse effect (i) on the
business, operations, financial condition or results of operations of FAL
and its Subsidiaries, taken as a whole, or (ii) on the ability of FAL and its
Subsidiaries to consummate the Merger in accordance with this Agreement.
"FAL 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 the Indenture of
First Mortgage, dated as of December 1, 1952, between FAL and State Street
Bank and Trust Company, successor in interest to the First National Bank of
Boston, successor by merger to Old Colony Trust Company, as Trustee, as
amended or supplemented from time to time; in the case of leased real
property, Encumbrances (not attributable to an Acquired Company as lessee)
affecting the landlord's (and any underlying landlord's) interest in any
leased real property; and such other Encumbrances which are not, individually
or in the aggregate, reasonably likely to have a FAL Material Adverse Effect.
"FINAL ORDER"--an action by a Governmental Body as to which: (a) no
request for stay of the action is pending, no such stay is in effect and if
any time period is permitted by statute or regulation for filing any request
for such stay, such time period has passed; (b) no petition for rehearing,
reconsideration or application for review of the action is pending and the
time for filing any such petition or application has passed; (c) such
Governmental Body does not have the action under reconsideration on its own
motion and the time in which such reconsideration is permitted has passed;
and (d) no appeal to a court, or a request for stay by a court of the
Governmental Body's action is pending or in effect and the deadline for
filing any such appeal or request has passed.
"GAAP"--generally accepted United States accounting principles, applied
on a consistent basis.
"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:
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(a) nation, state, county, city, town, village, district or other
jurisdiction of any nature;
(b) federal, state, county, local, municipal or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or entity
and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, any
other act, business, operation, or thing that increases the danger, or risk
of danger, or poses an unreasonable risk of harm to persons or property on or
off the Facilities, or that may affect the value of the Facilities or the
Acquired Companies.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, or any successor law, and regulations and rules issued by the U.S.
Department of Justice or the Federal Trade Commission pursuant to that act or
any successor law.
"IRC"--the Internal Revenue Code of 1986, as amended.
"IRS"--the Internal Revenue Service or any successor agency.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who
is serving as a director or officer of such Person or any material Subsidiary
of it or other management employee with direct responsibility for such
particular fact or other matter of such Person or any material Subsidiary of
it (or in any similar capacity) has actual knowledge of such fact or other
matter.
"LEGAL REQUIREMENT"--any federal, state, county, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, rule,
tariff, franchise agreement, statute or treaty.
"MATERIAL CONTRACT"--a Contract involving a total commitment by or to
any party thereto of at least $65,000 on an annual basis or at least $250,000
on its remaining term which cannot be terminated on no more than sixty (60)
days' notice without penalty or additional cost to the Acquired Company as
the terminating party.
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"MBCL"--the Massachusetts Business Corporation Law.
"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.
"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.
"PUHCA"--the Public Utility Holding Company Act of 1935, as amended, or
any successor law, and regulations and rules issued by the SEC pursuant to
that act or any successor law.
"RELATED DOCUMENTS"--any Contract provided for in this Agreement to be
entered into by one or more of the parties hereto or their respective
Subsidiaries in connection with the Merger.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of
such Person, including legal counsel, accountants, and financial advisors.
"SEC"--the United States Securities and Exchange Commission or any
successor agency.
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"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 FAL.
"SUG BALANCE SHEET"--the audited consolidated balance sheet of SUG at
June 30, 1999 (including the notes thereto), provided by SUG to FAL as part
of the SUG Financial Statements.
"SUG COMMON STOCK"--the common stock, par value $1.00 per share, of SUG.
"SUG DISCLOSURE SCHEDULE"--the disclosure schedule delivered by SUG to
FAL concurrently with the execution and delivery of this Agreement.
"SUG MATERIAL ADVERSE EFFECT"--a material adverse effect (i) on the
business, operations, financial condition or results of operations of SUG and
its Subsidiaries, taken as a whole, or (ii) on the ability of SUG to
consummate the Merger in accordance with this Agreement.
"TAX"--any tax (including any income tax, capital gains tax, value-added
tax, sales and use tax, franchise tax, payroll tax, withholding tax or
property tax), levy, assessment, tariff, duty (including any customs duty),
deficiency, franchise fee or payment, payroll tax, utility tax, gross
receipts tax or other fee or payment, and any related charge or amount
(including any fine, penalty, interest or addition to tax), imposed, assessed
or 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.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstance exists, that
would lead a director, officer or management employee of a comparable gas
distribution company to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken or
otherwise pursued in the future.
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.
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Agreement Introductory Paragraph
Business Combination 6.1(h)(4)
Cash Consideration 3.1(a)
Cash Election 3.1(b)
Cash Election Number 3.1(b)
Cash Election Shares 3.1(c)
Cash Fraction 3.1(c)
Certificates 3.2(c)
Closing 2.3
Confidentiality Agreement 6.1(c)(1)
Dissenting Shares 3.3
Effective Time 2.2
Election Deadline 3.2(b)
Employees 6.2(b)
Exchange Ratio 3.1(a)
FAL Introductory Paragraph
FAL Benefit Plans 5.18(a)
FAL Commonly Controlled Entity 5.18(e)
FAL Financial Statements 5.9
FAL Meeting 6.1(j)(1)
FAL Proxy Statement 4.18
FAL SEC Documents 5.9
FAL Stockholders' Approval 5.24
Form of Election 3.2(b)
Indemnified Parties 9.1(a)
Initial Termination Date 8.1(k)
Maximum Value 3.1(a)
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Merger Recitals
Merger Consideration 3.1(a)
Minimum Value 3.1(a)
NYSE 3.1(e)
Paying Agent 3.2(a)
PBGC 4.14(b)
PEI 4.2
PEI Merger Agreement 4.2
Registration Statement 4.18
Rule 145 Affiliates 6.1(k)
Rule 145 Letters 6.1(k)
Stock Consideration 3.1(a)
SUG Introductory Paragraph
SUG Benefit Plans 4.14(a)
SUG Commonly Controlled Entity 4.14(d)
SUG Financial Statements 4.9
SUG SEC Documents 4.9
Superior Proposal 6.1(h)(4)
Surviving Corporation 2.1
Third Party Beneficiary 10.11
Total Consideration 3.1(e)
</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, FAL will be merged with and into SUG in
accordance with the laws of the State of Delaware and the Commonwealth of
Massachusetts. SUG will be the surviving corporation in the Merger (the
"Surviving Corporation") and will continue its corporate existence under the
laws of the State of Delaware. The Merger will have the effect as provided in
the applicable provisions of the DGCL and the MBCL. Without limiting the
generality of the foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of FAL and SUG will vest in the Surviving
Corporation and all
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obligations, duties, debts and liabilities of FAL and SUG will be the
obligations, duties, debts and liabilities of the Surviving Corporation.
SECTION 2.2 EFFECTIVE TIME OF THE MERGER. On the Closing Date, with
respect to the Merger, (i) a duly executed certificate of merger complying
with the requirements of the DGCL will be executed and filed with the
Secretary of State of the State of Delaware and (ii) duly executed articles
of merger complying with the requirements of the MBCL will be filed with the
Secretary of State of the Commonwealth of Massachusetts. The Merger will
become effective upon filing the certificate of merger with the Secretary of
State of the State of Delaware and the articles of merger with the Secretary
of State of the Commonwealth of Massachusetts (the "Effective Time").
SECTION 2.3 CLOSING. Unless this Agreement has been terminated and
the transactions contemplated herein have been abandoned pursuant to Article
VIII hereof, the closing of the transactions contemplated by this Agreement
(the "Closing") will take place at 10:00 a.m., Eastern Time, on the Closing
Date to be specified by the parties, which shall be no later than the tenth
business day after satisfaction or waiver of all of the conditions set forth
in Article VII hereof (other than Sections 7.1(a), 7.1(b), 7.1(c), 7.1(f),
7.1(g), 7.1(h), 7.1(k), 7.1(l), 7.2(a), 7.2(b), 7.2(c), 7.2(e), 7.2(f) and
7.2(h), which shall be satisfied or waived on the Closing Date) at the
offices of 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 CERTIFICATE OF INCORPORATION; BYLAWS. Pursuant to the
Merger, the Restated Certificate of Incorporation of SUG, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and (ii) the bylaws of SUG as in effect immediately prior to
the Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended as provided by law.
SECTION 2.5 DIRECTORS AND OFFICERS. The directors and officers of
SUG immediately prior to the Effective Time will be the directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and bylaws of the Surviving Corporation.
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 FAL Common Stock:
(a) Each issued and outstanding share of FAL Common Stock (other
than Dissenting Shares) will be converted into the right of each holder
thereof to receive (i) that number of fully paid and nonassessable shares of
SUG Common Stock (the "Stock Consideration") equal to $23.50 divided by the
Exchange Ratio rounded to the nearest hundred-thousandth or (ii) upon a valid
Cash Election as provided in Section 3.1(b), $23.50 in cash (the "Cash
Consideration"), subject to the limitations set forth in Section 3.1(b),
3.1(c), and 3.1(e). In the case of the consideration to be received by the
holders of FAL Common Stock in the aggregate, "Merger Consideration" shall
mean the Cash Consideration together with the Stock Consideration. In the
case of the consideration to be received by an individual holder of FAL
Common Stock, "Merger Consideration" shall mean the Cash Consideration and/or
the Stock Consideration to be received by such holder, as the case may be.
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"Exchange Ratio" shall mean the Average Trading Price of SUG Common
Stock as of the Closing Date. Notwithstanding the foregoing, if the Exchange
Ratio as calculated pursuant to the preceding sentence and without regard to
this sentence (i) is less than the Minimum Value, then the Exchange Ratio
will be equal to the "Minimum Value," or (ii) is greater than the "Maximum
Value," then the Exchange Ratio will be equal to the "Maximum Value."
"Minimum Value" will be $16.875 and "Maximum Value" will be $19.6875.
(b) Subject to the immediately following sentence and to Section
3.1(c) and 3.1(e), each record holder of shares of FAL Common Stock
immediately prior to the Effective Time shall be entitled to elect to receive
cash for all or any part of such shares of FAL Common Stock (a "Cash
Election"). Notwithstanding the foregoing, the aggregate number of shares of
FAL Common Stock that may be converted into the right to receive cash
consideration shall not exceed the Cash Election Number. To the extent not
covered by a properly given Cash Election, all shares of FAL Common Stock
issued and outstanding immediately prior to the Effective Time shall, except
as provided in Section 3.1(g), be converted solely into shares of SUG Common
Stock.
"Cash Election Number" shall equal, subject to reduction pursuant
to Section 3.1(e), the amount by which (i) 50% of the number of shares of FAL
Common Stock outstanding immediately prior to the Effective Time, exceeds
(ii) the sum of (a) the number of shares of FAL Common Stock to be exchanged
for cash in lieu of fractional shares pursuant to Section 3.1(g), and (b) the
number of Dissenting Shares.
(c) If the aggregate number of shares of FAL Common Stock covered
by Cash Elections (the "Cash Election Shares") exceeds the Cash Election
Number, each Cash Election Share shall be converted into (i) the right to
receive an amount in cash, without interest, equal to the product of (a)
$23.50 and (b) a fraction (the "Cash Fraction"), the numerator of which shall
be the Cash Election Number and the denominator of which shall be the total
number of Cash Election Shares, and (ii) a number of shares of SUG Common
Stock equal to the product of (a) $23.50 divided by the Exchange Ratio and
(b) a fraction equal to one minus the Cash Fraction.
(d) SUG will make all computations to give effect to this
Section 3.1.
(e) If, after having made the calculation under Section 3.1(b),
the value of the SUG Common Stock (excluding fractional shares to be paid in
cash) to be issued in the Merger, valued at the lesser of the Average Trading
Price as of the Closing Date and the closing price of SUG Common Stock on the
last trading day before the Closing Date (or, if determined to be more
appropriate to ensure the status of the Merger as a reorganization under
Section 368(a)(1)(A) of the IRC, the trading price as of the time of the
Closing), as reported on the New York Stock Exchange ("NYSE"), is less than
50% of the total consideration to be paid in exchange for the shares of FAL
Common Stock (including, without limitation, the amount of cash to be paid in
lieu of fractional shares and treating any Dissenting Shares as having been
exchanged for the Cash Consideration) (the "Total Consideration"), then the
Cash Election Number shall be reduced to the extent necessary so that the
value of the SUG Common Stock to be issued in the Merger (as determined
above) is 50% of the Total Consideration.
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(f) Each holder of FAL Common Stock shall surrender all such
holder's certificates formerly representing ownership of FAL Common Stock in
the manner provided in Section 3.2. All such shares of FAL 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
(and cash in lieu of fractional shares) 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.
(g) No fractional share of SUG Common Stock shall be issued in
connection with the Merger. Each holder of shares of FAL Common Stock shall
be entitled to receive in lieu of any fractional share of SUG Common Stock to
which such holder otherwise would have been entitled pursuant to this Section
3.1 (after taking into account all shares of FAL Common Stock then held of
record by such holder) a cash payment in an amount equal to the product of
(i) the fractional interest of a share of SUG Common Stock to which such
holder otherwise would have been entitled and (ii) the closing price of a
share of SUG Common Stock on the NYSE on the trading day immediately prior to
the Effective Time. Payment of such amounts shall be made by SUG.
SECTION 3.2 EXCHANGE OF FAL COMMON STOCK CERTIFICATES.
(a) SUG's registrar and transfer agent, or such other bank or
trust company as may be selected by SUG and be reasonably acceptable to FAL,
will act as paying agent ("Paying Agent") for the holders of FAL 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 FAL.
(b) (i) Not fewer than 15 business days prior to the Closing
Date, SUG will cause the Paying Agent to mail a form of election (the "Form
of Election") to holders of record of shares of FAL Common Stock (as of a
record date as close as practicable to the date of mailing). In addition,
the Paying Agent will use its reasonable efforts to make the Form of Election
available to the Persons who become stockholders of FAL during the period
between such record date and the Election Deadline. Any election to receive
Cash Consideration contemplated by Section 3.1(b) will have been properly
made only if the Paying Agent shall have received at its designated office or
offices, by 4:00 p.m., Eastern Time, on the third business day prior to the
Closing Date (the "Election Deadline"), a Form of Election properly
completed, as set forth in such Form of Election. An election may be revoked
only by written notice received by the Paying Agent prior to the Election
Deadline. In addition, all elections shall automatically be revoked if the
Paying Agent is notified by SUG and FAL that the Merger has been abandoned.
SUG shall have the discretion, which it may delegate in whole or in part to
the Paying Agent, to determine whether Forms of Election have been properly
completed, signed and submitted or revoked pursuant to this Section 3.2(b),
and to disregard immaterial defects in Forms of Election. The decision of
SUG (or the Paying Agent, as the case may be) in such matters shall be
conclusive and binding.
(c) At the Effective Time of the Merger, SUG will instruct the
Paying Agent to promptly, and in any event not later than three (3) business
days following the Effective Time, mail (and to make available for
collection by hand) to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of FAL Common Stock (the
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"Certificates"), whose shares of FAL Common Stock were converted pursuant to
Section 3.1(a) into the right to receive the Merger Consideration (and cash
in lieu of fractional shares) (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 (and cash in lieu of fractional shares). Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by SUG, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for each share of FAL Common Stock
formerly represented by such Certificate (and cash in lieu of fractional
shares), to be mailed (or made available for collection by hand if so elected
by the surrendering holder) within three (3) business days of receipt
thereof, and the Certificate so surrendered shall forthwith be canceled. If
payment of the Merger Consideration (and cash in lieu of fractional shares)
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 (and cash in lieu of fractional shares) to a Person
other than the registered holder of the Certificate surrendered or shall have
established to the satisfaction f the Surviving Corporation that such Tax
either has been paid or is not applicable. Until surrendered as contemplated
by this Section 3.2, each Certificate (other than Certificates representing
FAL Common Stock held by SUG or Dissenting Shares) shall be deemed at any
time after the Effective Time to represent only the right to receive the
Merger Consideration (and cash in lieu of fractional shares) as contemplated
by this Section 3.2.
(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 (and cash in lieu of fractional shares) deliverable in
respect thereof as determined in accordance with this Article III, PROVIDED
THAT the Person to whom the Merger Consideration (and cash in lieu of
fractional shares) is paid shall, as a condition precedent to the payment
thereof, give the Paying Agent a bond in such sum as it may ordinarily
require and indemnify the Surviving Corporation in a manner satisfactory to
it against any claim that may be made against the Surviving Corporation with
respect to the Certificate claimed to have been lost, stolen or destroyed.
(e) After the Effective Time, the stock transfer books of FAL
shall be closed and there shall be no transfers on the stock transfer books
of the Surviving Corporation of shares of FAL Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration (and cash in lieu of
fractional shares) as provided in this Article III.
(f) The Surviving Corporation shall not be liable to any holder of
FAL Common Stock for Merger Consideration (and cash in lieu of fractional
shares) 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 FAL Common Stock seven years after the
Effective Time (or such earlier date immediately prior
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to the time at which such amounts would otherwise escheat to or become
property of any Governmental Body) shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and
clear of any claims or interest of any such holders or their successors,
assigns or personal representatives previously entitled thereto.
SECTION 3.3 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, the shares of any holder of FAL Common Stock who
has demanded and perfected appraisal rights for such shares in accordance
with the MBCL and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive the Merger Consideration (and
cash in lieu of fractional shares) pursuant to Section 3.1, but the holder
thereof shall only be entitled to such rights as are granted by the MBCL.
Notwithstanding the foregoing, if any holder of shares of FAL Common Stock
who demands appraisal of such shares under the MBCL shall effectively
withdraw the request for appraisal or lose the right to appraisal, then, as
of the later of the Effective Time and the occurrence of such event, such
holder's shares shall automatically be converted into and represent only the
right to receive the Merger Consideration and cash in lieu of fractional
shares, without interest thereon, upon surrender of the certificate
representing such shares. FAL shall give SUG prompt notice of any demands
received by FAL for appraisal of FAL Common Stock, and, prior to the
Effective Time, SUG shall have the right to participate in all negotiations
and proceedings with respect to such demands. Prior to the Effective Time,
FAL shall not, except with the prior written consent of SUG, make any payment
with respect to or offer to settle, any such demands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUG
SUG, as to SUG and its Subsidiaries, represents and warrants to FAL that:
SECTION 4.1 ORGANIZATION, EXISTENCE AND QUALIFICATION. SUG is a
corporation duly incorporated, validly existing, and in good standing under
the laws of the State of Delaware, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, to perform its
obligations under all Contracts to which it is a party, and to execute and
deliver this Agreement. SUG is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the business conducted by it, requires such
qualification as a foreign corporation except 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 CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of SUG consists of (i) 50,000,000 shares of SUG
Common Stock, of which 31,288,321 shares were issued and 31,236,696 were
outstanding on September 30, 1999, and (ii) 1,500,000 shares of Cumulative
Preferred Stock, no par value, none of which are issued or outstanding. The
issued and outstanding shares of SUG Common Stock have been validly issued
and are fully paid and nonassessable. The shares of SUG Common Stock to be
issued as the Merger Consideration have been duly authorized and when issued
and delivered in accordance with the terms of this Agreement, will have been
validly issued and will be fully paid and nonassessable and the issuance
thereof is not subject to any preemptive or other similar right. Except as
specifically described in the SUG SEC Documents delivered to FAL prior to the
date of this Agreement, as of the date of this Agreement, no shares of SUG
Common Stock are held, in treasury or otherwise, by SUG
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or any of its Subsidiaries and except as set forth in Section 4.2 of the SUG
Disclosure Schedule, as of the date of this Agreement, there are no
outstanding (i) securities convertible into SUG Common Stock or other capital
stock of SUG or any of its material Subsidiaries, (ii) warrants or options to
purchase SUG Common Stock or other securities of SUG or any of its material
Subsidiaries or (iii) commitments to issue shares of SUG Common Stock (other
than pursuant to the Merger and other than pursuant to the Agreement of
Merger, dated as of June 7, 1999 (the "PEI Merger Agreement"), by and between
SUG and Pennsylvania Enterprises, Inc. ("PEI")) or other securities of SUG or
any of its material Subsidiaries.
SECTION 4.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in
Section 4.3 of the SUG Disclosure Schedule, as of the date of this Agreement,
SUG has no Subsidiaries or investments in any Person except for marketable
securities reflected in the SUG SEC Documents delivered to FAL prior to the
date of this Agreement, and SUG is the registered owner and holder of all of
the issued and outstanding shares of capital stock of its Subsidiaries and
has good title to such shares. The outstanding capital stock of each
material Subsidiary of SUG has been validly issued and is fully paid and
nonassessable.
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT AND BINDING EFFECT.
The execution, delivery and performance of this Agreement and the Related
Documents by SUG have been duly authorized by all requisite corporate action.
The execution, delivery and performance of this Agreement and the Related
Documents by SUG will not result in a violation or breach of any term or
provision of, constitute a default, or require a consent, approval or
notification, or accelerate the performance required under, the
Organizational Documents of SUG, any indenture, mortgage, deed of trust,
security agreement, loan agreement, or other Contract to which SUG 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 when executed and delivered will constitute valid and
binding obligations of SUG, enforceable against SUG in accordance with their
terms, except as enforceability may be limited by (i) bankruptcy or similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally or (ii) the availability of equitable remedies generally.
SECTION 4.5 GOVERNMENTAL APPROVALS. Except as set forth in Section
4.5 of the SUG 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 SUG is required
to be obtained by SUG in connection with the execution and delivery by SUG of
this Agreement or the Related Documents or the consummation by SUG 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 4.6 PUBLIC UTILITY HOLDING COMPANY STATUS; REGULATION AS A
PUBLIC UTILITY. SUG is a "gas utility company" (as such term is defined in
PUHCA). SUG indirectly owns a minority interest in a "foreign utility
company" (as such term is defined in PUHCA) that is exempt from, and is
deemed not to be a public utility company for purposes of, PUHCA pursuant to
Section 33 thereof with respect to which SUG has filed with the SEC a Form
U-57 notification of foreign utility company status. Except as stated above
in this Section 4.6, neither SUG nor any of its Subsidiaries is a "holding
company," a "subsidiary company," a "public utility company" or an
"affiliate" of a "public utility company," or a "holding company" within the
meaning of such terms in PUHCA.
SECTION 4.7 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS.
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(a) Except as set forth in Section 4.7 of the SUG Disclosure
Schedule or specifically described in the SUG SEC Documents delivered to FAL
prior to the date of this Agreement, and subject to Section 4.15 of this
Agreement, to the Knowledge of SUG, SUG is not in violation of any Legal
Requirement that is applicable to it, to the conduct or operation of its
business, or to the ownership or use of any of its assets, other than such
violations, if any, which are not, individually or in the aggregate,
reasonably likely to have a SUG Material Adverse Effect.
(b) The SUG SEC Documents delivered to FAL prior to the date of
this Agreement accurately describe all material regulation of SUG that
relates to the utility business of SUG as of the date of this Agreement.
Except as set forth in Section 4.7 of the SUG Disclosure Schedule, SUG has,
and is in material compliance with, all material Governmental Authorizations
necessary to conduct its business and to own, operate and use all of its
assets as currently conducted.
SECTION 4.8 LEGAL PROCEEDINGS; ORDERS. Except as set forth in
Section 4.8 of the SUG Disclosure Schedule or as specifically described in
the SUG SEC Documents delivered to FAL prior to the date of this Agreement,
there is no pending Proceeding:
(1) that has been commenced by or against, or that otherwise
relates to, SUG or, if the merger with PEI is consummated, PEI, that
is reasonably likely to have a SUG Material Adverse Effect; or
(2) as of the date of this Agreement, that challenges, or that
may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, the Merger or any of the transactions
contemplated hereby.
To the Knowledge of SUG, no such Proceedings, audits or investigations have
been Threatened that are, individually or in the aggregate, reasonably likely
to have a SUG Material Adverse Effect. As of the date of this Agreement, SUG
is not subject to any Orders that are, individually or in the aggregate,
reasonably likely to have a SUG Material Adverse Effect.
SECTION 4.9 SEC DOCUMENTS. SUG has made (and, with respect to such
documents filed after the date hereof through the Closing Date, will make)
available to FAL a true and complete copy of each report, schedule,
registration statement (other than on Form S-8), and definitive proxy
statement filed by SUG with the SEC since September 16, 1999 and through the
Closing Date in substantially the form filed with the SEC (the "SUG SEC
Documents"). As of their respective dates, the SUG SEC Documents, including
without limitation any financial statements or schedules included therein,
complied (or will comply), in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SUG SEC Documents, and
did not (or will not) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of SUG included in the SUG SEC
Documents (collectively, the "SUG Financial Statements") were (or will be)
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q) and fairly present (or will
fairly present) in all material respects the financial position of
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SUG as of the respective dates thereof or the results of operations and cash
flows for the respective periods then ended, as the case may be, subject, in
the case of unaudited interim financial statements, to normal, recurring
adjustments which are not material in the aggregate.
SECTION 4.10 TAXES. Except as set forth in Section 4.10 of the SUG
Disclosure Schedule:
(a) SUG and its Subsidiaries have timely filed all United States
federal, state and local income Tax Returns required to be filed by or with
respect to them or requests for extensions to file such Tax Returns have been
timely filed, granted and have not expired, and SUG and its Subsidiaries have
timely paid and discharged all Taxes due in connection with or with respect
to the periods or transactions covered by such Tax Returns and have paid all
other Taxes as are due or made adequate provision therefor in accordance with
GAAP except where the failures to so file, pay or discharge are not,
individually or in the aggregate, reasonably likely to have a SUG Material
Adverse Effect. As of the date of this Agreement, there are no pending
audits or other examinations relating to any Tax matters. There are no Tax
liens on any assets of SUG or its Subsidiaries. As of the date of this
Agreement, SUG and its Subsidiaries have not granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. The accruals and reserves (including deferred taxes)
reflected in the SUG Balance Sheet are in all material respects adequate to
cover all material Taxes accruable through the date thereof (including
interest and penalties, if any, thereon and Taxes being contested) in
accordance with GAAP.
(b) Neither SUG nor any of its Subsidiaries is obligated under any
Contract with respect to industrial development bonds or other obligations
with respect to which the excludability from gross income of the holder for
federal or state income tax purposes could be affected by the Merger or any
of the transactions contemplated by this Agreement.
(c) SUG has no present plan or intention after the Merger to (i)
sell or otherwise dispose of any of the assets of the Surviving Corporation,
including the assets of FAL acquired pursuant to the Merger, except for
dispositions made in the ordinary course of business or to a corporation
controlled by the Surviving Corporation within the meaning of Section
368(a)(2)(C) of the IRC, or (ii) reacquire any of the SUG Common Stock
included in the Merger Consideration, other than repurchases in the open
market pursuant to stock repurchase plans undertaken for reasons unrelated to
the transactions contemplated by this Agreement.
SECTION 4.11 INTELLECTUAL PROPERTY. SUG has no Knowledge of (i) any
infringement or claimed infringement by it of any patent rights or copyrights
of others or (ii) any infringement of the patent or patent license rights,
trademarks or copyrights owned by or under license to it, except for any such
infringements of the type described in clause (i) or (ii) that are not,
individually or in the aggregate, reasonably likely to have a SUG Material
Adverse Effect.
SECTION 4.12 CONTRACTS. Except as described in Section 4.12 of the
SUG Disclosure Schedule or as specifically described in the SUG SEC Documents
delivered to FAL prior to the date of this Agreement, and with such
exceptions as are not, individually or in the aggregate, reasonably likely to
have a SUG Material Adverse Effect, all of SUG's Contracts are in full force
and effect and neither SUG nor, to the Knowledge of SUG, any other party
thereto is in default thereunder nor has any event occurred or is any event
occurring that, with notice or the passage of time or otherwise, is
reasonably likely to give rise to an event of default thereunder by any party
thereto.
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SECTION 4.13 INDEBTEDNESS. All outstanding principal amounts of
indebtedness for borrowed money of SUG as of October 1, 1999 are set forth in
Section 4.13 of the SUG Disclosure Schedule.
SECTION 4.14 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, each of the SUG Benefit Plans has been operated and administered in
all material respects in accordance with its governing documents and
applicable federal and state laws (including, but not limited to, ERISA and
the IRC). For purposes of this Agreement, "SUG Benefit Plans" shall mean all
employee retirement, welfare, 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 SUG or its Subsidiaries or maintained by or contributed to by
SUG or its Subsidiaries.
(b) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, as to any SUG Benefit Plan subject to Title IV of ERISA, there is
no event or condition which presents the material risk of plan termination,
no accumulated funding deficiency, whether or not waived, within the meaning
of Section 302 of ERISA or Section 412 of the IRC has been incurred for which
any liability is outstanding, no reportable event within the meaning of
Section 4043 of ERISA (for which the notice requirements of Regulation
Section 4043 promulgated by the Pension Benefit Guaranty Corporation ("PBGC")
have not been waived) has occurred within the last six years, no notice of
intent to terminate the SUG Benefit Plan has been given under Section 4041 of
ERISA, no proceeding has been instituted under Section 4042 of ERISA to
terminate the SUG Benefit Plan, there has been no termination or partial
termination of the SUG Benefit Plan within the meaning of Section 411(d)(3)
of the IRC within the last six years, except with respect to the conversion
of the retirement income plan to a cash balance plan for which full vesting
was granted with respect to affected employees, no event described in
Sections 4062 or 4063 of ERISA has occurred, all PBGC premiums have been
timely paid and no liability to the PBGC has been incurred, except for PBGC
premiums not yet due.
(c) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, each trust funding a SUG Benefit Plan, which trust is intended to
be exempt from federal income taxation pursuant to Section 501(c)(9) of the
IRC, satisfies the requirements of such section and has, whenever required by
law, received a favorable determination letter from the IRS regarding such
exempt status, and to the Knowledge of SUG has not, since receipt of the most
recent favorable determination letter, been amended or operated in any way
which would adversely affect such exempt status.
(d) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, with respect to any SUG Benefit Plan or any other "employee benefit
plan" as defined in Section 3(3) of ERISA which is established, sponsored,
maintained or contributed to, or has been established, sponsored, maintained
or contributed to or, to the Knowledge of SUG, with respect to any such plan
which has been established, sponsored, maintained or contributed to within
six years prior to the Closing Date, by SUG or its Subsidiaries or any
corporation, trade, business or entity under common control or being a part
of an affiliated service group with SUG, within the meaning of Section
414(b), (c) or (m) of the IRC or Section 4001 of ERISA ("SUG Commonly
Controlled Entity"), (i) no withdrawal liability, within the meaning of
Section 4201 of ERISA, has been incurred, which withdrawal liability has not
been satisfied and no such withdrawal liability is reasonably expected to be
incurred, (ii) no liability under Title IV of ERISA
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(including, but not limited to, liability to the PBGC) has been incurred by
SUG or any SUG Commonly Controlled Entity, which liability has not been
satisfied (other than for PBGC premiums not yet due), (iii) no accumulated
funding deficiency, whether or not waived, within the meaning of Section 302
of ERISA or Section 412 of the IRC has been incurred for which any liability
is outstanding, (iv) there has been no failure to make any contribution
(including installments) to such plan required by Section 302 of ERISA and
Section 412 of the IRC which has resulted in a lien under Section 302 of
ERISA or Section 412 of the IRC and for which any liability is currently
outstanding, (v) to the Knowledge of SUG, no action, omission or transaction
has occurred with respect to any such plan or any other SUG Benefit Plan
which could subject SUG or the plan or trust forming a part thereof to a
material civil liability or penalty under ERISA or other applicable laws, or
a material Tax under the IRC, (vi) any such plan which is a Group Health Plan
has complied in all material respects with the provisions of Sections 601-608
of ERISA and Section 4980B of the IRC, (vii) there are no pending or, to the
Knowledge of SUG, Threatened claims by or on behalf of any such plan or any
other SUG Benefit Plan, by any employees, former employees or plan
beneficiaries covered by such plan or otherwise by or on behalf of any person
involving any such plan (other than routine non-contested claims for
benefits) which could result in a material liability to SUG and its
Subsidiaries, taken as a whole, and (viii) neither SUG nor any SUG Commonly
Controlled Entity has engaged in, or is a successor or parent corporation to
any entity or person that has engaged in, a transaction described in Section
4069 of ERISA.
(e) 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 SUG Benefit Plan, (ii)
result in the acceleration of the time of eligibility to participate in any
SUG Benefit Plan, or of any payment, exercisability, funding or vesting of
any benefit under any SUG Benefit Plan, (iii) result in payment becoming due
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.
(f) SUG is not a party to any Contract nor has it established any
policy or practice, which would require SUG to make a payment or provide any
other form of compensation or benefit to any Person performing (or who within
the past twelve months performed) services for SUG during or upon termination
of such services which would not be payable or provided in the absence of the
consummation of the transactions contemplated by this Agreement.
(g) Except as would affect unionized employees and/or retirees who
are covered by bargaining agreements, if any, and as otherwise set forth in
Section 4.14 of the SUG Disclosure Schedule, each SUG Benefit Plan which is
an "employee welfare benefit plan," as such term is defined in Section 3(1)
of ERISA, may be unilaterally amended or terminated in its entirety without
any liability being incurred by SUG or any Affiliate of SUG, except as to
benefits accrued thereunder prior to such amendment or termination.
(h) As of the date of this Agreement, SUG has not contributed nor
been obligated to contribute to any "multi-employer plan" within the meaning
of Section 3(37) of ERISA within the last six years and has no outstanding
liability with respect to any such plan.
SECTION 4.15 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.15
of the SUG Disclosure Schedule or as specifically described in the SUG SEC
Documents delivered to FAL prior to the date of this
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Agreement, and with such other exceptions as are not, individually or in the
aggregate, reasonably likely to have a SUG Material Adverse Effect:
(a) To the Knowledge of SUG, SUG and any Person for whose conduct
SUG is reasonably likely to be held responsible, is currently and at all
times has been, in material compliance with any Environmental Law. SUG has
not received any Order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest, or (ii)
the current or prior owner or operator of any Facilities, of any violation or
failure to comply with any Environmental Law, or of any obligation to
undertake or bear the cost of any environmental cleanup, or with respect to
any property or Facility at which Hazardous Materials generated by SUG or any
other Person for whose conduct SUG may be held responsible were transported
for disposal; and
(b) There are no pending or, to the Knowledge of SUG, Threatened
claims or Encumbrances arising under or pursuant to any Environmental Law
with respect to or affecting any of the Facilities or any other properties
and assets (whether real, personal, or mixed) in which SUG has or had a
direct or indirect interest (including by ownership or use).
SECTION 4.16 NO MATERIAL ADVERSE CHANGE. Except as described in the
SUG SEC Documents that have been provided to FAL prior to the date of this
Agreement, since the date of the SUG Balance Sheet, there has not been any
SUG Material Adverse Effect, and no events have occurred or circumstances
exist that are, individually or in the aggregate, reasonably likely to have a
SUG Material Adverse Effect, except that any SUG Material Adverse Effect that
results from or relates to (a) general business or economic conditions, (b)
conditions generally affecting the industries in which SUG competes or (c)
the announcement of the transactions contemplated by this Agreement shall be
disregarded.
SECTION 4.17 BROKERS. SUG is not a party to, or in any way obligated
under any Contract, and there are no outstanding claims against SUG, for the
payment of any broker's or finder's fees in connection with the origin,
negotiation, execution or performance of this Agreement.
SECTION 4.18 PROXY STATEMENT; REGISTRATION STATEMENT. None of the
information supplied or to be supplied to FAL by or on behalf of SUG for
inclusion in the proxy statement, in definitive form, relating to the FAL
Meeting to be held in connection with the Merger (the "FAL Proxy Statement"),
or supplied by or on behalf of SUG in the Registration Statement on Form S-4
(and any amendments thereto) to be filed by SUG with the SEC pursuant to the
Securities Act to register the shares of SUG Common Stock constituting the
Stock Consideration (the "Registration Statement") will, in the case of the
Registration Statement, at the effective time of the Registration Statement,
at any time the Registration Statement is amended or supplemented, at the
date the FAL Proxy Statement is first mailed to FAL's stockholders, at any
time the FAL Proxy Statement is amended or supplemented, at the time of the
FAL Meeting and at the Effective Time, and in the case of the FAL Proxy
Statement, at the date the FAL Proxy Statement is first mailed to FAL's
stockholders, at any time the FAL Proxy Statement is amended or supplemented
and at the time of the FAL Meeting (giving effect to any documents
incorporated by reference therein), contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement will comply as to form and in substance in all material respects
with the applicable provisions of the Securities Act and the rules and
regulations thereunder.
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SECTION 4.19 NO VOTE REQUIRED. No vote of the holders of any class or
series of the capital stock of SUG is required to approve this Agreement and
the Merger.
SECTION 4.20 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 FAL 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.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FAL
FAL, 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 or organization, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to perform all its
obligations under all Applicable Contracts. Section 5.1(a) of the FAL
Disclosure Schedule sets forth the name of each Acquired Company, the state
or jurisdiction of its incorporation or organization, and 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 FAL Material Adverse Effect.
(b) FAL 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 FAL consists of
2,951,334 shares of FAL Common Stock, of which 2,220,086 shares are issued
and outstanding. The issued and outstanding shares of FAL Common Stock have
been validly issued and are fully paid and nonassessable. Except as
specifically described in the FAL SEC Documents delivered to SUG prior to the
date of this Agreement, no shares of FAL Common Stock are held, in treasury
or otherwise, by FAL or any of its Subsidiaries and there are no outstanding
(i) securities convertible into FAL Common Stock or other capital stock of
FAL or any of its Subsidiaries, (ii) warrants or options to purchase FAL
Common Stock or other securities of FAL or
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any of its Subsidiaries or (iii) other commitments to issue shares of FAL
Common Stock or other securities of FAL or any of its Subsidiaries.
SECTION 5.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in
Section 5.3 of the FAL Disclosure Schedule, FAL has no Subsidiaries or
investments in any Person (except for marketable securities disclosed to SUG
prior to the date of this Agreement) and FAL 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 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 FAL
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 FAL have been duly authorized by all requisite corporate action,
except, as of the date of this Agreement, for the FAL Stockholders' Approval.
Except as set forth in Section 5.4 of the FAL Disclosure Schedule, the
execution, delivery and performance of this Agreement and the Related
Documents by FAL will not result in a violation or breach of any term or
provision of, or constitute a default, require a consent, approval or
notification, 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 FAL
Material Adverse Effect. This Agreement constitutes and the Related
Documents to be executed by any of the Acquired Companies when executed and
delivered will constitute valid and binding obligations of such Acquired
Company, enforceable against such Acquired Company in accordance with their
terms, except as enforceability may be limited by (i) bankruptcy or similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally or (ii) the availability of equitable remedies generally.
SECTION 5.5 GOVERNMENTAL APPROVALS. Except as set forth in Section
5.5 of the FAL 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 FAL in connection with the execution
and delivery by FAL 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 FAL Material Adverse Effect.
SECTION 5.6 PUBLIC UTILITY HOLDING COMPANY STATUS; REGULATION AS A
PUBLIC UTILITY. None of the Acquired Companies is a "holding company," a
"subsidiary company," a "public utility company," or an "affiliate" of a
"public utility company" or a "holding company" within the meaning of such
terms in PUHCA.
SECTION 5.7 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS.
(a) Except as set forth in Section 5.7(a) of the FAL Disclosure
Schedule or as specifically described in the FAL 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
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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 FAL Material
Adverse Effect.
(b) The FAL 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 FAL 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 FAL Disclosure Schedule or as specifically described in
the FAL 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
FAL Material Adverse Effect; or
(2) as of the date of this Agreement, that challenges, or that
may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, the Merger or any of the transactions
contemplated hereby.
To the Knowledge of FAL, except as set forth in Section 5.8 of the FAL
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 FAL 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 FAL Material Adverse Effect.
SECTION 5.9 SEC DOCUMENTS. FAL has made (and, with respect to such
documents filed after the date hereof through the Closing Date, will make)
available to SUG a true and complete copy of each report, schedule,
registration statement (other than on Form S-8), and definitive proxy
statement filed by FAL with the SEC since September 30, 1998 through the
Closing Date in substantially the form filed with the SEC (the "FAL SEC
Documents"). As of their respective dates, the FAL 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 FAL 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 FAL included in the FAL SEC
Documents (collectively, the "FAL 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 FAL and its Subsidiaries, as of
the respective dates thereof or the results of operations and cash flows for
the respective periods then ended, as the case may be, subject, in the case
of unaudited interim financial statements, to normal, recurring adjustments
which are not material in the aggregate.
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SECTION 5.10 TAXES. Except as set forth in Section 5.10 of the FAL
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 FAL 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 FAL 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. 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 infringements of the type
described in clause (i) or (ii) that are not, individually or in the aggregate,
reasonably likely to have a FAL Material Adverse Effect.
SECTION 5.12 TITLE TO ASSETS. Except (i) as set forth in Section 5.12 of
the FAL Disclosure Schedule, (ii) as specifically described in the FAL SEC
Documents delivered to SUG prior to the date of this Agreement, (iii) as set
forth in Section 5.19 of this Agreement or (iv) as set forth in Section 5.19 of
the FAL Disclosure Schedule, none of the Acquired Companies' assets are subject
to any Encumbrance other than FAL Permitted Liens.
SECTION 5.13 INDEBTEDNESS. All outstanding principal amounts of
indebtedness for borrowed money of the Acquired Companies as of October 4, 1999
are set forth in Section 5.13 of the FAL Disclosure Schedule.
SECTION 5.14 MACHINERY AND EQUIPMENT. Except for normal wear and tear,
and with such exceptions as are not, individually or in the aggregate,
reasonably likely to have a FAL 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 good
operating condition and in a state of reasonable maintenance and repair.
SECTION 5.15 APPLICABLE CONTRACTS. Set forth in Section 5.15(a) of the
FAL Disclosure Schedule is a list as the date hereof of all Applicable Contracts
to which any Acquired Company is a party
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involving a total commitment by or to any party thereto of more than $65,000
on an annual basis or more than $250,000 on its remaining term which cannot
be terminated on no more than sixty (60) days' notice without penalty or
additional cost to the Acquired Company as the terminating party. Except as
specifically described in the FAL 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 FAL 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 FAL, 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 FAL Disclosure Schedule
sets forth a list of all policies of insurance held by the Acquired Companies as
of the date of this Agreement. Since June 30, 1994, the assets and the business
of the Acquired Companies have been continuously insured with what FAL 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 FAL
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 FAL 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 FAL Material
Adverse Effect.
SECTION 5.17 EMPLOYEES. Section 5.17(a) of the FAL Disclosure Schedule
sets forth a list as of no more than thirty (30) days prior to the date of this
Agreement of all the present officers and employees of the Acquired Companies,
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(b) of the FAL 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 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 FAL, Threatened labor practice complaint, arbitration, labor
strike or other material labor dispute (excluding grievances) involving any of
the Acquired Companies which are, individually or in the aggregate, reasonably
likely to have a FAL Material Adverse Effect. Except for collective bargaining
agreements or as set forth in Section 5.17(c) of the FAL Disclosure Schedule,
none
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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) Each of the FAL Benefit Plans has been operated and administered
in all material respects in accordance with its governing documents and
applicable federal and state laws (including, but not limited to, ERISA and the
IRC). For purposes of this Agreement, "FAL Benefit Plans" shall mean 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.
(b) As to any FAL Benefit Plan subject to Title IV of ERISA, there is
no event or condition which presents the material risk of plan termination, no
accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the IRC has been incurred for which any
liability is outstanding, no reportable event within the meaning of Section 4043
of ERISA (for which the notice requirements of Regulation Section 4043
promulgated by the PBGC have not been waived) has occurred within the last six
years, no notice of intent to terminate the FAL Benefit Plan has been given
under Section 4041 of ERISA, no proceeding has been instituted under Section
4042 of ERISA to terminate the FAL Benefit Plan, there has been no termination
or partial termination of the FAL Benefit Plan within the meaning of Section
411(d)(3) of the IRC within the last six years, no event described in Sections
4062 or 4063 of ERISA has occurred, all PBGC premiums have been timely paid and
no liability to the PBGC has been incurred, except for PBGC premiums not yet
due.
(c) There is no matter pending (other than qualification
determination applications and filings and other required periodic filings)
with respect to any of the FAL Benefit Plans before the IRS, the Department of
Labor, the PBGC or in or before any other governmental authority.
(d) Each trust funding a FAL Benefit Plan, which trust is intended to
be exempt from federal income taxation pursuant to Section 501(c)(9) of the IRC,
satisfies the requirements of such section and has received a favorable
determination letter from the IRS regarding such exempt status and to the
Knowledge of any Acquired Company has not, since receipt of the most recent
favorable determination letter, been amended or operated in any way which would
adversely affect such exempt status.
(e) With respect to any FAL Benefit Plan or any other "employee
benefit plan" as defined in Section 3(3) of ERISA which is established,
sponsored, maintained or contributed to, or to the Knowledge of the Acquired
Companies, with respect to any such plan which has been established, sponsored,
maintained or contributed to within six years prior to the Closing Date, by the
Acquired Companies or any corporation, trade, business or entity under common
control or being a part of an affiliated service group with any of the Acquired
Companies, within the meaning of Section 414(b), (c) or (m) of the IRC or
Section 4001 of ERISA ("FAL 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 FAL Commonly Controlled Entity, which liability has
not been satisfied (other than for PBGC
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premiums not yet due), (iii) no accumulated funding deficiency, whether or
not waived, within the meaning of Section 302 of ERISA or Section 412 of the
IRC has been incurred for which any liability is outstanding, (iv) there has
been no failure to make any contribution (including installments) to such
plan required by Section 302 of ERISA and Section 412 of the IRC which has
resulted in a lien under Section 302 of ERISA or Section 412 of the IRC and
for which any liability is currently outstanding, (v) to the Knowledge of any
Acquired Company, no action, omission or transaction has occurred with
respect to any such plan or any other FAL Benefit Plan which could subject
any of the Acquired Companies, the plan or trust forming a part thereof, or
SUG to a material civil liability or penalty under ERISA or other applicable
laws, or a material Tax under the IRC, (vi) any such plan which is a Group
Health Plan has complied in all material respects with the provisions of
Sections 601-608 of ERISA and Section 4980B of the IRC, (vii) there are no
pending or, to the Knowledge of any Acquired Company, Threatened claims by or
on behalf of any such plan or any other FAL Benefit Plan, by any employees,
former employees or plan beneficiaries covered by such plan or otherwise by
or on behalf of any person involving any such plan (other than routine
non-contested claims for benefits) which could result in a material liability
to the Acquired Companies taken as a whole, and (viii) neither the Acquired
Companies nor any FAL Commonly Controlled Entity has engaged in, or is a
successor or parent corporation to any entity or person that has engaged in,
a transaction described in Section 4069 of ERISA.
(f) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not (i) increase the amount of
benefits otherwise payable under any FAL Benefit Plan, (ii) result in the
acceleration of the time of eligibility to participate in any FAL Benefit Plan,
or any payment, exercisability, funding or vesting of any benefit under any FAL
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.
(g) None of the Acquired Companies is a party to any Applicable
Contract nor has it established any policy or practice, which would require it
or SUG to make a payment or provide any other form of compensation or benefit to
any Person performing (or who within the past twelve months performed) services
for any of the Acquired Companies during or upon termination of such services
which would not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
(h) Except as would affect unionized employees and/or retirees who
had been unionized employees, each FAL Benefit Plan which is an "employee
welfare benefit plan," as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without any liability being
incurred by any of the Acquired Companies, SUG or any Affiliate of SUG, except
as to benefits accrued thereunder prior to such amendment or termination.
(i) None of the Acquired Companies has contributed nor been obligated
to contribute to any "multi-employer plan" within the meaning of Section 3(37)
of ERISA within the last six years, and none of the Acquired Companies has any
outstanding liability with respect to any such plan.
(j) Section 5.18(j) of the FAL Disclosure Schedule contains a true
and complete list of each FAL Benefit Plan, and any management, employment,
deferred compensation, severance (including any payment, right or benefit
resulting from a change in control), bonus, or other contract for
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personal services with any current or former officer, director or employee,
any consulting contract with any person who prior to entering this such
contract was a director or officer or owner of 5% or more of the stock of any
Acquired Company or family member of any such director, officer or
stockholder, or any plan, agreement, arrangement or understanding similar to
any of the foregoing. There are no outstanding options to purchase FAL
capital stock or other securities. FAL has provided to SUG a complete and
correct copy of each FAL Benefit Plan (or written summary of any unwritten
FAL Benefit Plan), and with respect to each FAL 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.
SECTION 5.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.19
of the FAL Disclosure Schedule or as specifically described in the FAL 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 FAL Material Adverse Effect:
(a) To the Knowledge of any Acquired Company, no Facility owned or
operated by any Acquired Company is currently, or was at any time, listed on the
National Priorities List promulgated under CERCLA, or on any comparable state
list, and no Acquired Company has received any written notification of potential
or actual liability or a written request for information from any Person under
or relating to CERCLA or any comparable Legal Requirement with respect to any
Acquired Company or the Facilities;
(b) To the Knowledge of any Acquired Company, each Acquired Company
and any Person for whose conduct any Acquired Company is reasonably likely to be
held responsible, is currently and at all times has been, in material compliance
with any Environmental Law. No Acquired Company has received any Order,
notice, or other communication from (i) any Governmental Body or private citizen
acting in the public interest, or (ii) the current or prior owner or operator of
any Facilities, of any violation or failure to comply with any Environmental
Law, or of any obligation to undertake or bear the cost of any environmental
cleanup, or with respect to any property or Facility at which Hazardous
Materials generated by any Acquired Company were transported for disposal;
(c) There are no pending or, to the Knowledge of any Acquired
Company, 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) FAL 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 FAL
Balance Sheet, except as specifically described in the FAL SEC Documents
delivered to SUG prior to the date of this Agreement, there has not been any FAL
Material Adverse Effect, and no events have occurred or
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circumstances exist that are, individually or in the aggregate, reasonably
likely to have a FAL Material Adverse Effect, except that any FAL Material
Adverse Effect that results from or relates to (a) general business or
economic conditions, (b) conditions generally affecting the industries in
which the Acquired Companies compete or (c) the announcement of the
transactions contemplated by this Agreement shall be disregarded.
SECTION 5.21 BROKERS. No Acquired Company is a party to, or in any way
obligated under any 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 REGULATORY PROCEEDINGS. Except as set forth in Section 5.22
of the FAL Disclosure Schedule, other than purchase gas adjustment provisions,
none of FAL 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 FAL Material
Adverse Effect.
SECTION 5.23 PROXY STATEMENT; REGISTRATION STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Acquired Companies
in either the FAL Proxy Statement or supplied or to be supplied by the Acquired
Companies to SUG for inclusion in the Registration Statement, will, in the case
of the Registration Statement, at the effective time of the Registration
Statement, at any time the Registration Statement is amended or supplemented, at
the date the FAL Proxy Statement is first mailed to FAL's stockholders, at any
time the FAL Proxy Statement is amended or supplemented, at the time of the FAL
Meeting and at the Effective Time, and in the case of the FAL Proxy Statement,
at the date the FAL Proxy Statement is first mailed to FAL's stockholders, at
any time the FAL Proxy Statement is amended or supplemented and at the time of
the FAL Meeting (giving effect to any documents incorporated by reference
therein), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The FAL Proxy Statement will comply as to form and in substance in
all material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder.
SECTION 5.24 VOTE REQUIRED. Other than the approval of the Merger by the
holders of two thirds of the outstanding shares of FAL Common Stock entitled to
vote on the question (the "FAL Stockholders' 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 Merger.
SECTION 5.25 OPINION OF FINANCIAL ADVISOR. FAL has provided SUG a copy
of the opinion of Legg Mason Wood Walker, Incorporated, dated as of the date
hereof, with respect to the Merger Consideration to be received by the holders
of FAL Common Stock pursuant to the transactions contemplated by this Agreement.
SECTION 5.26 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE V, FAL MAKES NO
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OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND FAL HEREBY
DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER BY FAL, ANY
SUBSIDIARY OF FAL, 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 FAL, ANY SUBSIDIARY OF FAL, 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 FAL. FAL 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, or (iii) as otherwise expressly consented to in
writing by SUG which consent shall not be unreasonably withheld or delayed,
prior to the Closing, FAL will cause each Acquired Company to:
(1) Not make or permit any material change in the general nature
of its business;
(2) Maintain its Ordinary Course of Business in accordance with
prudent business judgment and consistent with past practice and
policy, and maintain its assets in good operating repair, order and
condition, reasonable wear and tear excepted, subject to retirements
in the Ordinary Course of Business;
(3) Preserve the Acquired Company as an ongoing business and use
reasonable efforts to maintain the goodwill associated with the
Acquired Company;
(4) Preserve all of the Acquired Companies' franchises, tariffs,
certificates of public convenience and necessity, licenses,
authorizations and other governmental rights and permits;
(5) Not enter into any material transaction or Material
Contract;
(6) Not purchase, sell, lease, dispose of or otherwise transfer
or make any contract for the purchase, sale, lease, disposition or
transfer of, or subject to lien, any of the assets of the Acquired
Company other than in the Ordinary Course of Business;
(7) Not hire any new employee unless such employee is a bona
fide replacement for a presently-filled position with the Acquired
Company as of the date hereof;
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(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;
(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 FAL
Disclosure Schedule that presently are in effect unless equivalent
coverage is obtained;
(11) Except as disclosed or specifically contemplated in this
Agreement or in Section 6.1(a)(11) of the FAL Disclosure Schedule, and
with respect to budgeted expenditures known and specifically disclosed
in writing to SUG, subject to adjustments in the Ordinary Course of
Business and other deviations (which in the aggregate shall not exceed
5% on an annualized basis during the period from the date of this
Agreement until the Closing Date), not make any capital expenditure or
capital expenditure commitment;
(12) Not make any changes in financial policies or practices, or
strategic or operating policies or practices, in each case which
involve any Acquired Company;
(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 FAL
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;
(15) Except in the Ordinary Course of Business or as required by
the terms of any existing Contract, FAL 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 Person other than to any
officer, director, stockholder or employee in the Ordinary Course of
Business;
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(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;
(19) Not amend any of its Organizational Documents; and
(20) Subject to Section 6.1(l), not issue or assume any note,
debenture or other evidence of indebtedness which by its terms does
not mature within one year from the date of execution or issuance
thereof, unless otherwise redeemable or subject to prepayment at any
time at the option of the Acquired Company on not more than thirty
(30) days notice without penalty for such redemption or prepayment.
(b) CUSTOMER NOTIFICATIONS. At any time and from time to time
reasonably requested by SUG prior to the Closing Date, each Acquired Company
will permit SUG at FAL'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 FAL 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, and shall disclose, and make available to SUG and its
Representatives all books, papers and records to the extent that they
relate to the ownership, operation, obligations and liabilities of or
pertaining to the Acquired Companies, their businesses, assets and
liabilities. Without limiting the application of the Confidentiality
Agreement dated October 4, 1999 between FAL and SUG (the
"Confidentiality Agreement"), all documents or information furnished
by the Acquired Companies hereunder shall be subject to the
Confidentiality Agreement.
(2) FAL 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
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prepared in connection therewith, consistent with any applicable
Legal Requirement or Contract.
(3) As promptly as practicable after SUG's request, FAL 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. FAL will use its
reasonable best efforts 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 approvals of those Governmental
Bodies and the consents of those third parties listed in Section 5.4 and Section
5.5 of the FAL Disclosure Schedule and as required by the HSR Act.
(e) DIVIDENDS. FAL shall not, nor shall it permit any of its
Subsidiaries to: (i) declare or pay any dividends on or make other distributions
in respect of any of its or their capital stock other than (A) dividends by a
wholly-owned Subsidiary to FAL or another wholly-owned Subsidiary, or (B)
regular quarterly dividends on FAL Common Stock with usual record and payment
dates that do not exceed the current rate of $0.96 per fiscal year; (ii) split,
combine or reclassify any of its 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 its 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 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.
(f) ISSUANCE OF SECURITIES. FAL shall not, nor shall it permit any
of its Subsidiaries to, issue, agree to issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
sale, award, pledge, disposal or other encumbrance of, any shares of its or
their capital stock of any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such shares
or convertible or exchangeable securities, other than as provided for in the FAL
Benefit Plans, and its dividend reinvestment plan in effect as of the date
hereof.
(g) ACCOUNTING. FAL shall not, nor shall it permit any of its
Subsidiaries to, make any changes in their accounting methods, principles or
practices except as required by law, rule, regulation or GAAP.
(h) NO SHOPPING.
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(1) FAL shall not, and shall not authorize or permit any of its
(or any of its Subsidiaries') officers, directors, agents, financial
advisors, attorneys, accountants or other Representatives to, directly
or indirectly, solicit, initiate or encourage submission of proposals
or offers from any Person relating to, or that could reasonably be
expected to lead to, a Business Combination or participate in any
negotiations or discussions 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 FAL Stockholders' Approval, FAL
may, in response to an unsolicited written proposal from a third party
with respect to a Business Combination that FAL'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 FAL'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 FAL's stockholders
a position with respect to another Business Combination proposal, or
amend or withdraw such position, pursuant to Rule 14d-9 and 14e-2
under the Exchange Act, or make such disclosure to FAL's stockholders
which in the good faith judgment of FAL's Board of Directors is
required by applicable law, based on the advice of its outside
counsel. Prior to furnishing any non-public information to, entering
into negotiations with or accepting a Superior Proposal from such
third party, FAL 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. FAL
will immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or
negotiations with any parties conducted heretofore by FAL or any of
its representatives with respect to any Business Combination.
(2) Except as expressly permitted by this Section 6.1(h),
neither the FAL 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 FAL 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 FAL Stockholders' Approval
has been obtained, in response to an unsolicited Business Combination
proposal from a third party, if FAL'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 FAL's Board of Directors under applicable law,
FAL's Board of Directors may
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(i) withdraw or modify its approval or recommendation of the Merger
or this Agreement, approve or recommend a Business Combination or
cause FAL to enter into a Business Combination and (ii) negotiate
with a third party with respect to such Business Combination
proposal and, subject to FAL 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, FAL shall give SUG at least five (5) day's notice
thereof, and shall cause its Representatives to, negotiate with SUG
to make such adjustments in the terms and conditions of this
Agreement as would enable FAL to proceed with the transactions
contemplated herein on such adjusted terms; PROVIDED, FURTHER, that
if FAL and SUG are unable to reach an agreement on such adjustments
within five (5) days after such notice from FAL, FAL may enter into
such definitive agreement, subject to the provisions of Article VIII.
(3) FAL shall notify SUG orally and in writing of any such
inquiries, offers or proposals (including, without limitation, the
material terms and conditions of any such offer or proposal and the
identity of the Person making it), within one business day of the
receipt thereof, shall use all reasonable efforts to keep SUG informed
of the status and details of any such inquiry, offer or proposal and
shall give SUG two (2) days advance notice of the first delivery of
non-public information to such Person. If any such inquiry, offer or
proposal is in writing, FAL shall promptly deliver to SUG a copy of
such inquiry, offer or proposal.
(4) For purposes of this Agreement, (i) "Business Combination"
means (other than the transactions contemplated or permitted by this
Agreement) (A) a merger, consolidation or other business combination,
share exchange, sale of shares of capital stock, tender offer or
exchange offer or similar transaction involving FAL 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, FAL 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 FAL or any of its Subsidiaries, or (C) the acquisition in any
manner, directly or indirectly, of any material portion of the
business or assets (other than immaterial or insubstantial assets or
inventory in the Ordinary Course of Business) of FAL 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 FAL that FAL's Board of Directors
determines, after consulting with FAL'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; FAL PROXY STATEMENT. Subject to Section
6.1(h), FAL shall use its reasonable best efforts to solicit from its
stockholders proxies in favor of the Merger and shall take all other action
necessary or, in the reasonable opinion of SUG, advisable to secure the FAL
Stockholders' Approval.
(j) FAL STOCKHOLDERS' APPROVAL.
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(1) Subject to the provisions of Section 6.1(h) and Section
6.1(j)(2), FAL 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 stockholders (including all
adjournments thereof, the "FAL Meeting") for the purpose of securing
the FAL Stockholders' Approval, (ii) distribute to its stockholders
the FAL 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
stockholders the approval and adoption 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 FAL Meeting for the purpose of securing the FAL
Stockholders' Approval, including any adjournments thereof, will be
held on such date or dates as FAL and SUG mutually determine.
(k) RULE 145 LETTERS. FAL shall promptly identify to SUG all
officers and directors of any Acquired Company and any other persons who are
"affiliates" within the meaning of such term as used in Rule 145 under the
Securities Act ("Rule 145 Affiliates"), and FAL shall use its reasonable efforts
to provide to SUG undertakings from such persons ("Rule 145 Letters") to the
effect that no disposition of shares of SUG Common Stock received in the Merger
will be made by such persons except within the limits and in accordance with the
applicable provisions of said Rule 145, as amended from time to time, or except
in a transaction which, in the opinion of legal counsel satisfactory to SUG, is
exempt from registration under the Securities Act.
(l) FINANCING ACTIVITIES. FAL 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 that may be required prior to or because of the Merger or that
SUG may request that the Acquired Companies effect prior to the Merger, 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 as in effect on the date of this
Agreement, any of the Acquired Companies' indebtedness outstanding on the
Closing Date; PROVIDED, HOWEVER, that no Acquired Company shall be required to
consummate prior to the Effective Time any such refinancing, repurchase,
redemption or repayment requested by SUG.
(m) FAL DISCLOSURE SCHEDULE. On the date hereof, FAL has delivered
to SUG the FAL Disclosure Schedule, accompanied by a certificate signed by an
executive officer of FAL stating the FAL Disclosure Schedule is being delivered
pursuant to this Section 6.1(m). The FAL Disclosure Schedule constitutes an
integral part of this Agreement and modifies the representations, warranties,
covenants or agreements of FAL contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer to the FAL
Disclosure Schedule.
(n) FAL BONDHOLDERS' CONSENT. FAL shall use its reasonable best
efforts to obtain consents from all holders of each series of First Mortgage
Bonds issued and outstanding under the Indenture of First Mortgage, dated as of
December 1, 1952, between FAL and State Street Bank and Trust Company,
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successor in interest to the First National Bank of Boston, successor by
merger to Old Colony Trust Company, as Trustee, as amended or supplemented
from time to time, to such amendments to such Indenture as requested by SUG.
SECTION 6.2 COVENANTS OF SUG. SUG agrees to observe and perform the
following covenants and agreements:
(a) GOVERNMENTAL APPROVALS; THIRD PARTY CONSENTS. SUG will use its
reasonable best efforts at SUG's sole expense to obtain all necessary consents,
approvals and waivers from any Person required 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 and the consents of those third parties listed in
Section 4.5 of the SUG Disclosure Schedule and as required by the HSR Act.
(b) EMPLOYEES; BENEFITS. With respect to the employees (excluding
unionized employees) listed in Section 5.17(a) of the FAL Disclosure Schedule
(or their successors employed pursuant to Section 6.1(a)(7) above) (the
"Employees"), except as otherwise specified herein, SUG agrees as follows:
(1) During the 12 months immediately following the Closing Date,
to make available to the Employees who continue their service with the
Surviving Corporation or any Subsidiary of the Surviving Corporation
employee benefit plans or arrangements that are no less favorable, in
the aggregate, than the FAL Benefit Plans listed in Section 5.18(j) of
the FAL Disclosure Schedule offered to the Employees immediately prior
to the date of this Agreement.
(2) For purposes of eligibility, vesting and benefit accrual
under all benefit plans provided to the Employees after the Closing
Date, SUG will recognize the tenure of employment, as recognized by
the Acquired Companies as of the Closing Date.
(3) All vacation time earned by the Employees prior to the
Closing Date must be taken by the end of the calendar year in which
the Closing Date occurs, except where the Employee is requested by FAL
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.
(c) BLUE SKY PERMITS. SUG shall use its reasonable best efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities laws or "blue sky" permits and approvals required to carry out
the transactions contemplated by the Agreement, and will pay all expenses
incident thereto.
(d) LISTING APPLICATION. Prior to the Closing, SUG shall cause the
shares of SUG Common Stock constituting the Stock Consideration to be listed on
the NYSE, subject to official notice of issuance thereof.
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(e) 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.
(f) SUG DISCLOSURE SCHEDULE. On the date hereof, SUG has delivered
to FAL 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(f). 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.
(g) CONDUCT OF THE BUSINESS PRIOR TO THE CLOSING DATE. Except (i) as
contemplated in this Agreement, (ii) in connection with the transactions
contemplated by the PEI Merger Agreement, (iii) as required by law or regulation
or (iv) as otherwise expressly consented to in writing by FAL which consent will
not be unreasonably withheld or delayed, prior to the Closing, SUG will:
(1) Not make or permit any material change in the general nature
of its business;
(2) Maintain its present operations in the Ordinary Course of
Business in accordance with prudent business judgment and consistent
with past practice and policy, and maintain its assets in good repair,
order and condition, reasonable wear and tear excepted, subject to
retirements in the Ordinary Course of Business;
(3) Preserve SUG as an ongoing business and use reasonable
efforts to maintain the goodwill associated with SUG; and
(4) Preserve all of SUG's franchises, tariffs, certificates of
public convenience and necessity, licenses, authorizations and other
governmental rights and permits.
(h) ACCESS TO SUG'S OFFICES, PROPERTIES AND RECORDS; UPDATING
INFORMATION.
(1) From and after the date hereof and until the Closing Date,
SUG and its Subsidiaries shall permit FAL and its Representatives to
have, on reasonable notice and at reasonable times, reasonable access
to such of the offices, properties and employees of SUG and its
Subsidiaries, and shall disclose, and make available to FAL and its
Representatives all books, papers and records to the extent that they
relate to the ownership, operation, obligations and liabilities of or
pertaining to SUG, its Subsidiaries and their respective businesses
and assets. Without limiting the application of the Confidentiality
Agreement, all documents or information furnished by SUG and its
Subsidiaries hereunder shall be subject to the Confidentiality
Agreement.
(2) SUG will notify FAL as promptly as practicable of any
significant change in the Ordinary Course of Business or operation of
SUG or any of its Subsidiaries and of any material complaints,
investigations or hearings (or communications indicating that the same
may be contemplated) by any Governmental Body, or the institution or
overt threat or
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settlement of any material Proceeding involving or affecting SUG or
any of its Subsidiaries or the transactions contemplated by this
Agreement, and shall use reasonable efforts to keep FAL fully
informed of such events and permit FAL's Representatives access to
all materials prepared in connection therewith consistent with any
applicable Legal Requirement or Contract.
SECTION 6.3 ADDITIONAL AGREEMENTS.
(a) THE REGISTRATION STATEMENT AND THE FAL PROXY STATEMENT. As soon
as practicable after the date hereof, FAL and SUG shall take such reasonable
steps as are necessary for the prompt preparation and filing with the SEC of (i)
the FAL Proxy Statement by FAL and (ii) the Registration Statement, which will
include certain information contained in the FAL Proxy Statement, by SUG. The
foregoing shall include without limitation: (i) obtaining and furnishing the
information required to be included therein, (ii) after consultation between FAL
and SUG, responding promptly to any comments made by the SEC with respect to the
FAL Proxy Statement and the Registration Statement and any amendments and
preliminary version thereof and (iii) causing the Registration Statement to
become effective, and the FAL Proxy Statement to be mailed to FAL's stockholders
at the earliest practicable date. FAL agrees, as to information with respect to
FAL, its officers, directors, stockholders and Subsidiaries contained in the
Registration Statement and the FAL Proxy Statement, and SUG agrees, as to
information with respect to SUG, its officers, directors, stockholders and
Subsidiaries contained in the Registration Statement and the FAL Proxy
Statement, that such information, in the case of the FAL Proxy Statement at the
time of the mailing of the FAL Proxy Statement and (as then amended or
supplemented) at the time of the FAL Meeting, or in the case of the Registration
Statement at the time of the mailing of the FAL Proxy Statement (as then amended
or supplemented), at the time of the FAL Meeting and at the effective time of
the Registration Statement, will not contain any untrue statement of material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. No representation, warranty, covenant or agreement is made by or on
behalf of FAL with respect to information supplied by any other Person for
inclusion in the FAL Proxy Statement or the Registration Statement. No
representation, warranty, covenant or agreement is made by or on behalf of SUG
with respect to information supplied by any other Person for inclusion in the
FAL Proxy Statement or the Registration Statement. No filing of, or amendment
or supplement to, the FAL Proxy Statement or the Registration Statement shall be
made by any party hereto without providing the other party with the opportunity
to review and comment thereon (except for any ongoing SEC reporting required of
SUG or FAL that will be incorporated by reference). If at any time prior to the
Effective Time any information relating to any party hereto or any of their
respective officers, directors, stockholders or Subsidiaries, should be
discovered by any party hereto which should be set forth in an amendment or
supplement to the FAL Proxy tatement or the Registration Statement so that the
FAL Proxy Statement or the Registration Statement would not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other party hereto and an appropriate amendment or supplement
describing such information shall be promptly prepared, filed with the SEC and,
to the extent required by law, disseminated to the stockholders of FAL, as may
be necessary.
(b) FURTHER ASSURANCES. Each of SUG and FAL agrees, and FAL agrees
to cause its Subsidiaries, to take all such reasonable and lawful action as may
be necessary or appropriate in order to
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effectuate the Merger in accordance with this Agreement as promptly as
possible. If, at any time after the Effective Time, any such further action
is necessary or desirable to carry out the purpose of this Agreement and to
vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Acquired
Companies, the officers and directors of the Surviving Corporation 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, FAL
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 PEI Merger Agreement and (ii) cause its independent accountants to
deliver to SUG and PEI the required consents in connection therewith.
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO SUG'S OBLIGATION TO EFFECT THE MERGER. The
obligation of SUG to effect the transactions contemplated by this Agreement
shall be subject to fulfillment at or prior to the Closing of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE.
FAL's representations and warranties in this Agreement shall have been accurate
in all material respects as of the date of this Agreement and shall be accurate
in all material respects as of the Closing Date as if made on the Closing Date;
PROVIDED, HOWEVER, that any such representation or warranty that is qualified by
any standard of materiality (including, but not limited to, FAL Material Adverse
Effect) shall have then been, and shall then be, accurate in all respects.
(b) COMPLIANCE WITH AGREEMENTS. The covenants, agreements and
conditions required by this Agreement to be performed and complied with by 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. FAL shall execute and deliver to SUG a certificate
of an authorized officer of FAL, dated the Closing Date, stating that the
conditions specified in Sections 7.1(a) and 7.1(b) of this Agreement applicable
to the Acquired Companies have been satisfied.
(d) GOVERNMENTAL APPROVALS. All approvals, consents, opinions or
rulings of all Governmental Bodies required in order to consummate the
transactions contemplated hereby shall have been obtained by Final Order in such
form as is, and with no conditions that are, individually or in the aggregate,
reasonably likely to have a FAL Material Adverse Effect or a material adverse
effect on the business, operations, properties, financial condition or results
of operations of the Surviving Corporation, or which would otherwise, in the
reasonable determination of SUG, be unduly burdensome to the Surviving
Corporation or any of its Affiliates. In addition, and without limitation of
the condition set forth in the immediately preceding sentence, the Massachusetts
Department of Telecommunications and Energy shall have resolved, by means of a
Final Order, the manner in which the Surviving Corporation as a whole and its
operating division in Massachusetts will be regulated under Chapter 164 of the
Massachusetts General Laws, and such resolution shall be acceptable to SUG in
its sole discretion. The applicable waiting period under the HSR Act with
respect to the transactions contemplated hereby shall have expired or have been
terminated.
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(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 FAL
Material Adverse Effect after the Closing. In addition, all consents and
approvals required, under the terms of any note, bond or indenture listed in
Section 5.4 of the FAL Disclosure Schedule to which any of the Acquired
Companies is a party, shall have been obtained.
(f) INJUNCTIONS. On the Closing Date, there shall be no Orders which
operate to restrain, enjoin or otherwise prevent the consummation of this
Agreement or the Merger.
(g) RESIGNATIONS. Each director of each Acquired Company shall
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 MBCL; 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) OPINION OF TAX COUNSEL. On the Closing Date, SUG shall have
received from Hughes Hubbard & Reed LLP, counsel to SUG, an opinion to the
effect that the Merger will constitute a "reorganization" within the meaning of
IRC Section 368(a)(1)(A), and that no gain or loss will be recognized by SUG or
FAL with respect to the Merger.
(i) FAL STOCKHOLDERS' APPROVAL. The FAL Stockholders' Approval shall
have been obtained.
(j) APPRAISAL RIGHTS. Demand for payment for shares and appraisal
thereof by stockholders of FAL in accordance with the MBCL with respect to the
Merger shall not equal or exceed 5 percent of the shares of FAL Common Stock
entitled to vote on the Merger.
(k) RULE 145 LETTERS. Each Rule 145 Affiliate shall have executed
and delivered to SUG a Rule 145 Letter, in form and substance reasonably
satisfactory to SUG and its counsel.
(l) REGISTRATION STATEMENT. The Registration Statement shall have
become effective, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
(m) LISTING OF SUG COMMON STOCK. The shares of SUG Common Stock
constituting the Stock Consideration shall have been authorized for listing,
upon official notice of issuance, on the NYSE.
(n) FAL BONDHOLDERS' CONSENT. All holders of each series of First
Mortgage Bonds issued and outstanding under the Indenture of First Mortgage,
dated as of December 1, 1952, between FAL and State Street Bank and Trust
Company, successor in interest to the First National Bank of Boston, successor
by merger to Old Colony Trust Company, as Trustee, as amended or supplemented
from time to time, shall have consented to such amendments to such Indenture as
requested by SUG.
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SECTION 7.2 CONDITIONS TO FAL'S OBLIGATIONS TO EFFECT THE MERGER. The
obligation of FAL to effect the transactions contemplated by this Agreement
shall be subject to fulfillment at or prior to the Closing of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE.
SUG's representations and warranties in this Agreement shall have been accurate
in all material respects as of the date of this Agreement and shall be accurate
in all material respects as of the Closing Date as if made on the Closing Date;
PROVIDED, HOWEVER, that any such representation or warranty that is qualified by
any standard of materiality (including, but not limited to, SUG Material Adverse
Effect) shall have then been, and shall then be, accurate in all respects.
(b) COMPLIANCE WITH AGREEMENTS. The covenants, agreements and
conditions required by this Agreement to be performed and complied with by SUG
shall have been performed and complied with in all material respects prior to or
at the Closing Date.
(c) CERTIFICATE. SUG shall execute and deliver to FAL a certificate
of an authorized officer of SUG, dated the Closing Date, stating that the
conditions specified in Sections 7.2(a) and 7.2(b) of this Agreement applicable
to SUG have been satisfied.
(d) GOVERNMENTAL APPROVALS. All approvals, consents, opinions or
rulings of all Governmental Bodies required in order to consummate the
transactions contemplated hereby shall have been obtained by Final Order in such
form as is, and with no conditions that are, individually or in the aggregate,
reasonably likely to have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Surviving
Corporation. The applicable waiting period under the HSR Act with respect to the
transactions contemplated hereby shall have expired or have been terminated.
(e) INJUNCTIONS. On the Closing Date, there shall be no Orders which
operate to restrain, enjoin or otherwise prevent the consummation of this
Agreement or the Merger.
(f) OPINION OF COUNSEL. On the Closing Date, FAL shall have received
from Rich, May, Bilodeau & Flaherty, P.C., counsel to FAL, an opinion to the
effect that the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of IRC Section 368(a), and that no gain or
loss will be recognized for federal income tax purposes by the stockholders of
FAL who receive SUG Common Stock in the Merger upon their receipt of the Merger
Consideration, except that any realized gain will be recognized to the extent of
the amount of cash received (including cash in lieu of the fractional shares).
(g) FAL STOCKHOLDERS' APPROVAL. The FAL Stockholders' Approval shall
have been obtained.
(h) REGISTRATION STATEMENT. The Registration Statement shall have
become effective, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
(i) LISTING OF SUG COMMON STOCK. The shares of SUG Common Stock
constituting the Stock Consideration shall have been authorized for listing,
upon official notice of issuance, on the NYSE.
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ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION RIGHTS. This Agreement may be terminated in
its entirety at any time prior to the Closing:
(a) By the mutual written consent of SUG and FAL;
(b) By FAL, 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 Merger in accordance with
this Agreement;
(c) By FAL, by written notice to SUG, if there is a breach of any
representation, warranty, covenant or agreement of SUG, which breach cannot
be cured and would cause the conditions set forth in Section 7.2(a) or (b) to
be incapable of being satisfied;
(d) By SUG, by written notice to FAL, if there is a breach of any
representation, warranty, covenant or agreement of FAL, which breach cannot
be cured and would cause the conditions set forth in Section 7.1(a) or (b) to
be incapable of being satisfied;
(e) By FAL, 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 FAL shall have paid SUG the fee
described in Section 8.3(a) and FAL has substantially contemporaneously
entered into a definitive agreement with respect to the proposed Business
Combination;
(f) By FAL, by written notice to SUG, if the FAL Stockholders'
Approval is not obtained at the FAL Meeting or by SUG, by written notice to
FAL, if the FAL Stockholders' Approval is not obtained at the FAL Meeting;
PROVIDED, HOWEVER, that there has not been a material misrepresentation or a
material breach of covenant, warranty or agreement contained herein on the
part of the party asserting its right to terminate pursuant to this Section
8.1(f);
(g) By SUG, by written notice to FAL, if the Board of Directors of
FAL 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 FAL to enter into a
definitive agreement related to any Business Combination or (iv) resolves to
take any of the actions specified in clause (i), (ii) and (iii) above;
(h) By SUG, by written notice to FAL, 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
FAL; or
(i) By FAL, by written notice to SUG, if the Average Trading Price
of the SUG Common Stock as of the Closing is lower than $15.00.
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(j) By either party in writing at any time after 5:00 p.m.,
Eastern Time, on October 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(j) will not be available to
any party that is in material breach of its representations, warranties,
covenants or agreements contained herein; and PROVIDED, FURTHER, that if on
the Initial Termination Date (i) the conditions to closing set forth in
Sections 7.1(d) and 7.2(d) shall not have been fulfilled or (ii) any approval
or authorization of any Governmental Body required in connection with the
consummation of the Merger 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 February 28, 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, stockholders, 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 FAL shall pay to SUG promptly (but not
later than five business days after notice is received from FAL) an amount
equal to $1.5 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
FAL 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), FAL 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 OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION AND INSURANCE. For a period of six years
after the Effective Time, the Surviving Corporation will indemnify and hold
harmless the present and former officers and directors of FAL and its
Subsidiaries (the "Indemnified Parties") in respect of acts or omissions
occurring prior to the Effective Time to the extent provided under FAL's
articles of organization and bylaws in effect on the date
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hereof; PROVIDED, HOWEVER, that if any claim or claims are asserted or made
within such six-year period, all rights to indemnification in respect of such
claims shall continue until the final disposition of any and all such claims.
For six years after the Effective Time, the Surviving Corporation will use
its reasonable best efforts to provide officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the Effective
Time covering each such person currently covered by FAL's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date
hereof; PROVIDED, 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, the Surviving Corporation will be obligated to
obtain a policy with the best coverage available, in the reasonable judgment
of the Board of Directors of the Surviving Corporation for a cost not
exceeding such amount.
(b) SUCCESSORS. In the event the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other
Person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then and in either such case, proper
provisions must be made so that the successors and assigns of the Surviving
Corporation will assume the obligations set forth in this Section 9.1.
(c) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted
by law, from and after the Effective Time, all rights to indemnification as
of the date hereof in favor of the employees, agents, directors and officers
of any Acquired Company with respect to their activities as such prior to the
Effective Time, as provided in their respective Organizational Documents in
effect on the date hereof, or otherwise in effect on the date hereof, will
survive the Merger and will continue in full force and effect except for
amendments to make changes permitted by law that would enhance the rights of
past or present officers and directors to indemnification or advancement of
expenses in respect of acts or omissions occurring prior to the Effective
Time for a period of not less than six years from the Effective Time (or, in
the case of matters occurring prior to the Effective Time which have not been
resolved prior to the sixth anniversary of the Effective Time, until such
matters are finally resolved).
SECTION 9.2 REPRESENTATIONS AND WARRANTIES. Each and every
representation and warranty of either party shall expire at, and be
terminated and extinguished with, the Effective Time.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 EXPENSES. Each of the parties will pay all costs and
expenses of its performance of and compliance with this Agreement, except (i)
as provided in Section 8.3 and as expressly provided otherwise herein, (ii)
FAL shall pay all fees and expenses of counsel for FAL, (iii) SUG will pay
all real estate transfer taxes and real estate recording fees, if any,
including expenses of counsel associated with real estate title, transfer and
recording issues in connection with the Merger, and all filing and
application fees paid to Governmental Bodies in connection with the Merger
and (iv) SUG and FAL will each pay half of the combined costs of printing and
mailing to the FAL stockholders the prospectus that is a part of the
Registration Statement and the FAL Proxy Statement.
SECTION 10.2 NOTICES. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been given upon
receipt if either (a) personally delivered, (b) sent by
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prepaid first class mail, and registered or certified and a return receipt
requested or (c) by facsimile telecopier with completed transmission
acknowledged:
if to SUG, to: Southern Union Company
504 Lavaca Street, Suite 800
Austin, Texas 78701
Attention: Peter H. Kelley
President and Chief Operating Officer
Telecopier: (512) 477-3879
with a copy to: Pennsylvania Enterprises, Inc. One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Thomas F. Karam
President and Chief Executive Officer
Telecopier: (570) 829-8900
and
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attention: Garett J. Albert
Telecopier: (212) 422-4726
if to FAL, to: Fall River Gas Company 155 North Main Street
Fall River, Massachusetts 02722
Attention: Bradford J. Faxon
President and Chief Executive Officer
Telecopier: (508) 675-7811
with a copy to: Rich, May, Bilodeau & Flaherty, P.C.
176 Federal Street
Boston, Massachusetts 02110
Attention: Eric J. Krathwohl
Telecopier: (617) 556-3889
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 Merger are subject to the DGCL 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 and the jurisdiction of the federal courts of the District of
Massachusetts in the county of Suffolk and the city of Boston 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 or the
Commonwealth of Massachusetts, agrees to appoint agents in the State of New
York and the Commonwealth of Massachusetts as such party's agents 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 or the Commonwealth of Massachusetts,
respectively, and to notify promptly each other party hereto of the name and
address of each such agent, (iii) waives any objection to the laying of venue
of any such proceeding in the federal courts of
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the Southern District of New York in the county of New York and the borough
of Manhattan or the federal courts of the District of Massachusetts in the
county of Suffolk and the city of Boston, 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 or the District of Massachusetts
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 MERGER, (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
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 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
hereto 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 FAL and SUG hereby waive the
application in connection with the interpretation and construction of this
Agreement of any rule of law to the effect that ambiguous or conflicting
terms or provisions contained in this Agreement shall be interpreted or
construed against the party whose attorney prepared the executed draft or any
earlier draft of this Agreement.
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<PAGE>
SECTION 10.9 PUBLICITY; ORGANIZATIONAL AND OPERATIONAL ANNOUNCEMENTS.
No party hereto shall issue, make or cause the publication of any press
release or other announcement with respect to this Agreement or the
transactions contemplated hereby, or otherwise make any disclosures relating
thereto, without the consent of the other party, such consent not to be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that such consent shall
not be required where such release or announcement is required by applicable
law or the rules or regulations of a securities exchange, in which event the
party so required to issue such release or announcement shall endeavor,
wherever possible, to furnish an advance copy of the proposed release to the
other party.
SECTION 10.10 WAIVER. Except as otherwise expressly provided in this
Agreement, neither the failure nor any delay on the part of any party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise or waiver of any such
right, power or privilege preclude any other or further exercise thereof, or
the exercise of any other right, power or privilege available to each party
at law or in equity.
SECTION 10.11 PARTIES IN INTEREST. This Agreement (including the
documents and instruments referred to herein) is not intended to confer upon
any Person, other than the parties hereto and their successors and permitted
assigns, any rights or remedies hereunder, except that the parties hereto
agree and acknowledge that the agreements and covenants contained in Section
9.1 are intended for the direct and irrevocable benefit of the Indemnified
Parties described therein and their respective heirs or legal representatives
(each such director or Indemnified Party, a "Third Party Beneficiary"), and
that each such Third Party Beneficiary, although not a party to this
Agreement, shall be and is a direct and irrevocable third party beneficiary
of such agreements and covenants and shall have the right to enforce such
agreements and covenants against the Surviving Corporation in all respects
fully and to the same extent as if such Third Party Beneficiary were a party
hereto.
SECTION 10.12 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur to a party in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that any
party shall be entitled to an injunction or injunctions to prevent breaches
of this agreement by any other party and to enforce specifically, to the
fullest extent available, the terms and provisions hereof, including each
party's obligation to close, in any court of the United States or any state
having jurisdiction, this being in addition to any other right or remedy to
which any party is entitled at law or in equity.
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.
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<PAGE>
SECTION 10.16 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SOUTHERN UNION COMPANY
By: /s/ RONALD J. ENDRES
-------------------------------------------
Name: Ronald J. Endres
Title: Executive Vice President
FALL RIVER GAS COMPANY
By: /s/ BRADFORD J. FAXON
-------------------------------------------
Name: Bradford J. Faxon
Title: President and Chief Executive Officer
By: /s/ PETER H. THANAS
-------------------------------------------
Name: Peter H. Thanas
Title: Senior Vice President and Treasurer
[SEAL]
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<PAGE>
APPENDIX B
[LEGG MASON WOOD WALKER, INCORPORATED LETTERHEAD]
October 4, 1999
The Board of Directors
Fall River Gas Company
155 North Main Street
Fall River, Massachusetts 02720
Attention: Bradford J. Faxon
Members of the Board of Directors:
We are advised that Fall River Gas Company (collectively, "Fall River"
or the "Company") has entered into an Agreement of Merger (the "Agreement")
with Southern Union Company ("Southern Union"), pursuant to which Fall River
will merge into Southern Union and each outstanding share of Fall River
common stock will be converted into the right to receive $23.50 in cash or in
value of common stock of Southern Union on terms and conditions as more fully
set forth in the Agreement (the transaction is referred to herein as the
"Transaction").
You have requested our opinion, as investment bankers, as to the
fairness to the shareholders of the Company, from a financial point of view,
of the consideration to be received by the shareholders of the Company in the
Transaction.
For purposes of rendering this opinion, we have, among other things:
(i) reviewed the form of the definitive Agreement and certain related
documents;
(ii) reviewed the audited consolidated financial statements of Fall
River for the twelve month periods ended September 30, 1998, 1997,
1996 and 1995;
(iii) reviewed the unaudited financial statements of Fall River for the
nine month period ended June 30, 1999;
(iv) reviewed the audited consolidated financial statements of Southern
Union for the twelve month periods ended June 30, 1999, 1998, 1997,
1996 and 1995;
(v) reviewed certain publicly available information concerning Fall
River and Southern Union;
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(vi) reviewed forecast financial statements of Fall River furnished to
us by the senior management of Fall River;
(vii) reviewed and analyzed certain publicly available financial and
stock market data with respect to operating statistics relating to
selected public companies that we deemed relevant to our inquiry;
(viii) reviewed the reported prices and trading activity of the
publicly-traded securities of Fall River and Southern Union;
(ix) analyzed certain publicly available information concerning the
terms of selected merger and acquisition transactions that we
considered relevant to our inquiry;
(x) held meetings and discussions with certain officers and employees
of Fall River and Southern Union concerning the operations,
financial condition and future prospects of Fall River and
Southern Union; and
(xi) conducted such other financial studies, analyses and investigations
and considered such other information as we deemed necessary or
appropriate for purposes of our opinion.
In connection with our review, we have assumed and relied upon the
accuracy and completeness of all financial and other information supplied to
us by Southern Union and Fall River or publicly available, and we have not
independently verified such information. We have further relied upon the
assurances of management of Southern Union and Fall River that they are
unaware of any facts that would make such information incomplete or
misleading. We also have relied upon the managements of Southern Union and
Fall River, as to the reasonableness and achievability of the financial
projections (and the assumptions and bases therein) provided to us or
prepared for Fall River and Southern Union, and we have assumed that such
projections have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to the future
operating performance of Fall River and Southern Union, including without
limitation the tax benefits, cost savings and operating synergy to be enjoyed
by Southern Union after the Transaction. Neither Southern Union nor Fall
River publicly discloses internal management projections of the type provided
to Legg Mason in connection with Legg Mason's review of the Transaction.
Such projections were not prepared with the expectation of public disclosure.
The projections were based on numerous variables and assumptions that are
inherently uncertain, including without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results
could vary significantly from those set forth in such projections.
We have not been requested to make, and have not made, an independent
appraisal or evaluation of the assets, properties or liabilities of Fall
River and we have not been furnished with any such appraisal or evaluation.
We have not reviewed any of the books and records of Fall River or assumed
any responsibility for conducting a physical inspection of the properties or
facilities of Fall River. Further, this opinion is based upon prevailing
market conditions and other circumstances and conditions existing on the date
hereof. We have assumed that the
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Transaction will be consummated on the terms and conditions described in the
form of the Agreement reviewed by us. It is understood that subsequent
developments may affect the conclusions reached in this opinion and that we
do not have any obligation to update, revise or reaffirm this opinion.
It is understood that this letter is directed to the Company's Board of
Directors. The opinion expressed herein is provided for the use of the
Company's Board of Directors in its evaluation of the proposed Transaction
and does not constitute a recommendation to any shareholder of the Company
either of the Transaction or as to how such shareholder should vote on or
otherwise respond to the Transaction. In addition, this letter does not
constitute a recommendation of the Transaction over any other alternative
transaction which may be available to the Company and does not address the
underlying business decision of the Board of Directors of the Company to
proceed with or effect the Transaction. This letter is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus
or proxy statement, or in any other document used in connection with the
offering or sale of securities, nor shall this letter be used for any other
purposes, without the prior written consent of Legg Mason Wood Walker,
Incorporated; provided that this Opinion may be included in its entirety in
any filing made by the Company with the Securities and Exchange Commission
with respect to the Transaction.
Legg Mason will receive a fee for providing this Opinion to the Board of
Directors of Fall River. Legg Mason has previously provided a fairness
opinion to a company that has agreed to be acquired by Southern Union.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the consideration to be received by the shareholders of
Fall River in the Transaction is fair to such shareholders from a financial
point of view.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ ALEXSANDER M. STEWART
----------------------------------------
Alexsander M. Stewart
Managing Director
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APPENDIX C
VOTING AGREEMENT
VOTING AGREEMENT, dated this 4th day of October, 1999, by and
between SOUTHERN UNION COMPANY, a Delaware corporation ("SUG"), and The
Jarabek Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon,
Raymond H. Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H.
Bilodeau (each a "Stockholder" and collectively the "Stockholders").
RECITALS:
WHEREAS, the Stockholders currently beneficially own (as such term
is used under the Securities Exchange Act of 1934, as amended, and the rules
and regulations issued thereunder) the shares of common stock, par value $.83
per share ("Shares"), of Fall River Gas Company, a Massachusetts corporation
("FAL") shown on Schedule A.
WHEREAS, as a condition of entering into the Agreement of Merger,
made as of the date hereof, by and between SUG and FAL (the "Merger
Agreement"), SUG has requested that the Stockholders agree, and the
Stockholders have agreed (i) to enter into a voting agreement and (ii) to
give SUG an irrevocable proxy, coupled with an interest, to vote the Shares
held by the Stockholders, in each case as more fully set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereby agree as follows:
1. AGREEMENT TO VOTE SHARES. Each Stockholder agrees during the
term of this Agreement to vote, or cause to be voted, the Shares shown
opposite the Stockholder's name on Schedule A hereto and any other Shares
acquired after the date hereof, in person or by proxy, in favor of the
Merger, the adoption and approval of the Merger Agreement and the approval of
the transactions contemplated by the Merger Agreement at every meeting of the
stockholders of FAL at which such matters are considered and at every
adjournment thereof.
2. GRANT OF IRREVOCABLE PROXY. Each Stockholder hereby grants to
SUG an irrevocable proxy, which proxy is coupled with an interest because of
the consideration recited herein, to exercise, at any time and from time to
time, all rights and powers of the Stockholder with respect to the Shares
shown opposite the Stockholder's name on Schedule A hereto to vote, give
approvals, and receive and waive notices of meetings for the purpose of
securing the approval and adoption by the stockholders of FAL of the Merger
Agreement and the consummation of the transactions contemplated thereby and
to prevent any action that would prevent or hinder in any material respect
such approval or consummation. By giving this proxy each Stockholder hereby
revokes any other proxy granted by the Stockholder to vote any of the Shares
in a manner inconsistent with the foregoing grant. The power and authority
hereby conferred shall not be terminated by any act of the Stockholder or by
operation of law, by the dissolution of, by lack of appropriate power or
authority, or by the occurrence of any other event or events and shall be
binding upon all its successors and assigns. If after the execution of this
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Agreement the Stockholder shall dissolve, cease to have appropriate power or
authority, or if any other such event or events shall occur, SUG is
nevertheless authorized and directed to vote the Shares in accordance with
the terms of this Agreement as if such dissolution, lack of appropriate power
or authority or other event or events had not occurred and regardless of
notice thereof.
3. NO OTHER GRANT OF PROXY. Each Stockholder will not, directly
or indirectly, grant any proxies or powers of attorney with respect to the
Shares shown opposite the Stockholder's name on Schedule A hereto or acquired
after the date hereof to any person in connection with its vote, consent or
other approval sought, in favor of the Merger (as defined in the Merger
Agreement), the adoption and approval of the Merger Agreement and the
approval of the transactions contemplated by the Merger Agreement, other than
as set forth in Sections 1 and 2 hereof.
4. TRANSFERS. Each Stockholder will not, nor will such
Stockholder permit any entity under such Stockholder's control to, sell,
transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or consent to any Transfer of, any Shares or any
interest therein or enter into any contract, option or other agreement or
arrangement (including any profit sharing or other derivative arrangement)
with respect to the Transfer of, any Shares or any interest therein to any
person, unless prior to any such Transfer the transferee of such Shares
agrees to be subject to the provisions of this Agreement.
5. NO SOLICITATION. Until the Merger is consummated or the Merger
Agreement is terminated in accordance with its terms, each Stockholder shall
not, nor shall it permit any investment banker, attorney or other advisor or
representative of such Stockholder to, directly or indirectly through another
person, solicit, initiate, encourage or otherwise facilitate any takeover
proposal.
6. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
Stockholder as to such Stockholder hereby represents and warrants to, and
covenants with, SUG as follows:
(a) The Stockholder beneficially owns with power to vote the number
of Shares shown opposite the Stockholder's name on Schedule A free and clear
of any and all claims, liens, charges, encumbrances, covenants, conditions,
restrictions, voting trust arrangements, options and adverse claims or rights
whatsoever, except as granted hereby or as would have no adverse effect on
this Agreement and/or the proxy granted hereby. The Stockholder does not own
of record or beneficially any shares of capital stock of FAL or other
securities representing or convertible into shares of capital stock of FAL
except as set forth in the preceding sentence, Shares purchased after the
date hereof which shall become subject to this Agreement and the proxy
granted hereby, and Shares which any of them may have the right to purchase
upon exercise of options or warrants;
(b) The Stockholder has the full right, power and authority to
enter into this Agreement and to grant an irrevocable proxy to SUG with
respect to the Shares; there are no options, warrants, calls, commitments or
agreements of any nature whatsoever pursuant to which any person will have
the right to purchase or otherwise acquire the Shares owned by the
Stockholder except as would, if exercised, require such purchaser or acquiror
to abide by this
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Agreement and the proxy granted hereby with respect thereto; except as
provided in this Agreement, the Stockholder has not granted or agreed to
grant any proxy or entered into any voting trust, vote pooling or other
agreement with respect to the right to vote or give consents or approval of
any kind as to the Shares which proxy, trust, pooling or other agreement
remains in effect as of the date hereof and is in conflict with this
Agreement or the proxy granted hereby;
(c) The Stockholder is not a party to, subject to or bound by any
agreement or judgment, order, writ, prohibition, injunction or decree of any
court or other governmental body that would prevent the execution, delivery
or performance of this Agreement by the Stockholder or the exercise of proxy
rights by SUG with respect to the Shares;
(d) This Agreement has been duly and validly executed and delivered
by the Stockholder and constitutes a legal, valid and binding obligation of
the Stockholder, enforceable in accordance with its terms, subject only to
(i) the effect of bankruptcy, insolvency, reorganization or moratorium laws
or other laws generally affecting the enforceability of creditors' rights and
(ii) general equitable principles which may limit the right to obtain
specific performance or other equitable remedies; and
(e) The Stockholder will take all commercially reasonable action
necessary in order that its representations and warranties set forth in this
Agreement shall remain true and correct.
7. STOCKHOLDERS' COVENANTS. Each Stockholder shall not enter into
any voting trust agreement, give any proxy or other right to vote the Shares
or take any action that would limit the rights of any holder of the Shares to
exercise fully the right to vote such Shares that would be in conflict with
this Agreement or the proxy granted hereby.
8. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
9. ASSIGNMENT. This Agreement shall not be assigned or delegated
by any party hereto, except that SUG may transfer its rights hereunder to any
wholly-owned subsidiary of SUG, and except that any assignment of any of the
Shares by any Stockholder shall require that such Shares remain subject to
this Agreement and the proxy granted hereby. This Agreement shall be binding
upon and inure to the benefit of SUG and its successors and assigns and shall
be binding upon and inure to the benefit of the Stockholders and their
permitted successors and any permitted assigns.
10. SPECIFIC PERFORMANCE. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable. In
addition to any other legal or equitable remedies to which SUG would be
entitled, in the event of a breach or a threatened breach of this Agreement
by any Stockholder, SUG shall have the right to obtain equitable relief,
including
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(but not limited to) an injunction or order of specific performance of the
terms hereof from a court of competent jurisdiction.
11. AMENDMENTS. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by all of the parties hereto.
12. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally, by cable, telegram or telex, or mailed by a party
hereto by registered or certified mail (return receipt requested) or by a
nationally recognized overnight mail deliver service, to the other party at
the following addresses (or such other address for a party as shall be
specified by like notice):
if to SUG:
Southern Union Company
504 Lavaca Street, Suite 800
Austin, Texas 78701
Attention: Peter H. Kelley
President and Chief Operating Officer
Fax Number: (512) 477-3879
with a copy to:
Pennsylvania Enterprises, Inc.
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attn: Thomas F. Karam
President and Chief Executive Officer
Fax Number: (570) 829-8900
and:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attn: Garett J. Albert, Esq.
Fax Number: (212) 422-4726
if to any Stockholder, to such Stockholder:
c/o Fall River Gas Company
155 North Main Street
Fall River, Massachusetts 02722
Fax Number: (508) 675-7811
with a copy to:
Rich, May, Bilodeau & Flaherty, P.C.
176 Federal Street
Boston, Massachusetts 02110
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Attn: Eric J. Krathwohl, Esq.
Fax Number: (617) 556-3889
Any party may change its address for notice by notice so given.
13. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
15. TERM. This Agreement shall terminate, and the proxy granted
herein shall cease to be irrevocable, upon the consummation of the Merger in
accordance with and as defined in the Merger Agreement or such other
expiration or termination of the Merger Agreement in accordance with its
terms, and thereafter this Agreement shall be of no further force or effect
and there shall be no liability on the part of any party with respect thereto
except nothing herein will relieve any party from liability for any prior
breach hereof.
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IN WITNESS WHEREOF, SUG has caused this Agreement to be duly
executed, and each Stockholder has duly executed this Agreement, on the day
and year first above written.
SOUTHERN UNION COMPANY
By: /s/ RONALD J. ENDRES
-------------------------------------
Name: Ronald J. Endres
Title: Executive Vice President
THE JARABEK FAMILY LIMITED PARTNERSHIP
/s/ BARBARA N. JARABEK
----------------------------------------
Barbara N. Jarabek, General Partner
/s/ RONALD J. FERRIS
----------------------------------------
Ronald J. Ferris
/s/ BRADFORD J. FAXON
----------------------------------------
Bradford J. Faxon
/s/ RAYMOND H. FAXON
----------------------------------------
Raymond H. Faxon
/s/ CINDY L.J. AUDETTE
----------------------------------------
Cindy L.J. Audette
/s/ GILBERT C. OLIVEIRA, JR.
----------------------------------------
Gilbert C. Oliveira, Jr.
/s/ THOMAS H. BILODEAU
----------------------------------------
Thomas H. Bilodeau
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Stockholder Number of Shares
----------- ----------------
<S> <C>
The Jarabek Family Limited Partnership 295,710
Ronald J. Ferris 145,059
Bradford J. Faxon 40,306
Raymond H. Faxon 57,370
Cindy L.J. Audette 13,190
Gilbert C. Oliveira, Jr. 12,539
Thomas H. Bilodeau 9,006
</TABLE>
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APPENDIX D
FORM OF VOTING AGREEMENT AND IRREVOCABLE PROXY
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger among Southern
Union Company ("Southern Union"), and Fall River Gas Company ("Fall River"),
dated as of October 4,1999 (as amended, supplemented or otherwise modified
from time to time, the "Merger Agreement").
In connection therewith, the undersigned agrees, upon each and every
oral or written request or direction by Fall River, and in accordance with
such request or direction, (a) to vote each of the shares of common stock
(par value $.83 1/3 per share) of Fall River beneficially owned by the
undersigned (the "Shares") entitled to vote as of the record date for the
Special Meeting of Shareholders of Fall River called for the purpose of
voting on the Merger Agreement, either in person or by proxy, in favor of the
approval of the Merger Agreement and the transactions contemplated thereby
and (b) to vote the Shares, either in person or by proxy, on any other matter
that is not inconsistent with the Merger Agreement and the transactions
contemplated thereby submitted to Fall River's shareholders for approval in
the same proportion as the votes cast by the shareholders of Fall River other
than Southern Union. The undersigned irrevocably appoints each of Bradford J.
Faxon and Peter H. Thanas attorney-in-fact and proxy of the undersigned, with
full power of substitution, to vote the Shares on its behalf pursuant to the
preceding sentence. This appointment is effective upon execution of this
proxy and shall be valid until (A) in the case of clause (a) of the second
preceding sentence, the earlier to occur of (i) the termination of the Merger
Agreement in accordance with its terms or (ii) the
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consummation of the transactions contemplated by the Merger Agreement and (B)
in the case of clause (b) of the second preceding sentence, the earliest to
occur of (i) February 28, 2001, (ii) the sale of the Shares to one or more
parties unaffiliated with Southern Union in open market transactions or (iii)
the consummation of the transactions contemplated by the Merger Agreement.
This proxy is irrevocable and shall be deemed to be coupled with an interest.
The execution of this proxy shall revoke all prior proxies or written
consents given by the undersigned at any time with respect to the Shares and
no subsequent proxies or written consents may be given (and if given will be
deemed not to be effective) by the undersigned with respect to the Shares.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to execute this proxy, and has, or will have,
good and unencumbered title to the Shares, free and clear of all liens,
restrictions, charges and encumbrances, and not subject to any adverse claim,
in any such case that would preclude the effectiveness of this proxy. The
undersigned will, upon request, execute and deliver any additional documents
and take such further actions necessary or desirable to carry out the
purposes of the proxy. All authority conferred or agreed to be conferred in
this proxy shall be binding upon the successors, assigns, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned.
SOUTHERN UNION COMPANY
By: /s/ PETER H. KELLEY
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Peter H. Kelley
President and Chief Operating Officer
DATED: April 25, 2000
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PROXY FALL RIVER GAS COMPANY PROXY
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 29, 2000
The undersigned, having received the Notice of the Special Meeting of
Stockholders and Proxy Statement of Fall River Gas Company (the "Company"),
dated July 12, 2000, hereby appoints Cindy L. J. Audette, Bradford J.Faxon,
Raymond H. Faxon and Donald R. Patnode, and any of them, as proxy or proxies
of the undersigned, to vote the shares of the common stock of the Company
owned by the undersigned, to vote the shares of the common stock of the
company owned by the undersigned, at the Special Meeting of Stockholders of
the Company to be held at the offices of the Company in Fall River,
Massachusetts on August 29, 2000, at 10:00 A.M. local time and at any
adjournment(s) thereof, with all powers the undersigned would possess if
personally present at said meeting with full power of substitution or
revocation. The following purposes for which this proxy may be exercised are
set forth in the Notice of the Special Meeting of Stockholders and are more
fully set forth in the Proxy Statement.
1. FOR / / AGAINST / / ABSTAIN / / The proposal to approve and adopt
the Agreement of Merger between Southern Union Company and Fall River Gas
Company.
2. FOR / / AGAINST / / ABSTAIN / / To act upon such other matters as
may come before the meeting.
The undersigned ratifies and confirms all that said proxy(ies) may do by
virtue hereof. The proxies are authorized to vote in their discretion with
respect to matters not known or determined at the date of the Proxy
Statement. A majority of said proxies as shall be present and acting at the
meeting shall have and may exercise all of the powers of proxies hereunder,
or if only one be present and acting, then that one shall have and may
exercise all of said powers.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 AND 2 IN THE
ABSENCE OF A SPECIFICATION, THIS PROXY WILL BE VOTED FOR THE PROPOSALS
NUMBERED 1 AND 2.
Date _______________________, 2000
__________________________________
Signature
__________________________________
Signature
Stockholders should sign here exactly
as the name or names are printed.
When signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as such.
Joint owners should each sign personally.
IMPORTANT
PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
