<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1994
REGISTRATION NO. 33-56113
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
PANHANDLE EASTERN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
4922
(Primary Standard Industrial
Classification Code Number)
74-2150460
(I.R.S. Employer
Identification Number)
5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
(713) 627-5400
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
ROBERT W. REED
SECRETARY
PANHANDLE EASTERN CORPORATION
5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
(713) 627-5400
(Name, address, including zip code, and
telephone number, including area
code, of agent for service)
Copies to:
JEFFERY A. SMISEK
VINSON & ELKINS L.L.P.
1001 FANNIN, SUITE 2300
HOUSTON, TEXAS 77002-6760
(713) 758-2222
JOSEPH W. MORRISEY, JR.
HOLME ROBERTS & OWEN LLC
1700 LINCOLN, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon the Effective Time of the Merger described in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PANHANDLE EASTERN CORPORATION
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF THE REGISTRATION STATEMENT
(FORM S-4) AND PROSPECTUS PURSUANT TO ITEM 501(B)
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
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<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus......................................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover Page of Prospectus;
Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information................................................ Outside Front Cover Page of Prospectus;
Summary
4. Terms of the Transaction..................................... Outside Front Cover Page of Prospectus;
Summary; The Special Meetings; The Merger;
Certain Terms of the Merger Agreement;
Stock Option Agreement; Irrevocable
Proxies; Description of Panhandle Capital
Stock; Comparative Rights of Panhandle and
ANGC Stockholders
5. Pro Forma Financial Information.............................. Unaudited Pro Forma Condensed Financial
Information
6. Material Contacts with the Company Being
Acquired................................................... The Merger; Certain Terms of the Merger
Agreement; Stock Option Agreement;
Irrevocable Proxies; Description of
Panhandle Capital Stock
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters.......................... *
8. Interests of Named Experts and Counsel....................... *
9. Disclosure of Commission Position on Indemnification For
Securities Act Liabilities................................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.................. *
11. Incorporation of Certain Information by Reference............ Incorporation of Certain Documents by
Reference; Description of Panhandle
Capital Stock; Outside Front Cover Page of
Prospectus; Summary; The Special Meetings;
The Merger; Certain Terms of the Merger
Agreement
12. Incorporation with Respect to S-2 or S-3 Registrants......... *
13. Incorporation of Certain Information by Reference............ *
14. Information with Respect to Registrants other than S-3 or S-2
Registrants................................................ *
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Companies.................... Incorporation of Certain Documents by
Reference; Outside Front Cover Page of
Prospectus; Summary; The Special Meetings;
The Merger; Certain Terms of the Merger
Agreement
16. Information with Respect to S-2 or S-3 Companies............. *
17. Information with Respect to Companies other than S-3 or S-2
Companies.................................................. *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are
to be Solicited............................................ Outside Front Cover Page of Prospectus;
Summary; The Special Meetings; The Merger;
Certain Terms of the Merger Agreement;
Principal Stockholders of Panhandle and
ANGC; Stockholders' Proposals
19. Information if Proxies, Consents or Authorizations are not to
be Solicited in an Exchange Offer.......................... *
</TABLE>
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* Not applicable or answer is negative.
<PAGE> 3
PANHANDLE EASTERN CORPORATION
5400 WESTHEIMER COURT, P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
NOVEMBER 15, 1994
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Panhandle Eastern Corporation at the Sheraton Grand Hotel, 2525 West Loop South,
Houston, Texas, on Thursday, December 15, 1994, at 10:00 a.m., local time.
At the Special Meeting, stockholders will be asked to approve the issuance
of Panhandle Common Stock in connection with the proposed merger of a subsidiary
of Panhandle with and into Associated Natural Gas Corporation, pursuant to the
Agreement and Plan of Merger dated October 9, 1994, among Panhandle, ANGC and
Panhandle Acquisition Two, Inc., a wholly-owned subsidiary of Panhandle. The
Merger Agreement provides that, upon consummation of the merger, each issued and
outstanding share of common stock of ANGC would be converted into the right to
receive between 1.5725 and 1.8750 shares of Panhandle Common Stock, depending on
the average of the closing prices of Panhandle Common Stock on the New York
Stock Exchange during a specified period ending prior to the meeting of ANGC's
stockholders to be held to vote on the Merger Agreement. The Merger Agreement
and the proposed merger are discussed in more detail in the accompanying Joint
Proxy Statement/Prospectus. Please review and consider the enclosed materials
carefully.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE ISSUANCE OF THE PANHANDLE COMMON
STOCK IN THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
PANHANDLE AND RECOMMENDS THAT YOU VOTE IN FAVOR OF SUCH ISSUANCE. In addition,
the Board of Directors has received the opinion of Merrill Lynch, Pierce, Fenner
& Smith Incorporated, financial advisor to Panhandle, that, as of October 8,
1994, the exchange ratio in the merger was fair to the stockholders of Panhandle
from a financial point of view. A copy of the opinion is included in the
accompanying Joint Proxy Statement/Prospectus as Appendix II thereto.
If you have any questions prior to the Special Meeting or need further
assistance, please call Corporate Investor Communications, Inc., who will be
assisting in connection with the Special Meeting, at 1-(800) 346-7885.
Whether or not you plan to be at the Special Meeting, please be sure to
sign, date and return the enclosed proxy or voting instruction card in the
enclosed envelope as promptly as possible so that your shares may be represented
at the Special Meeting and voted in accordance with your wishes. Your vote is
important regardless of the number of shares you own.
Sincerely,
/s/ DENNIS R. HENDRIX
--------------------------------------
DENNIS R. HENDRIX,
Chairman and Chief Executive Officer
<PAGE> 4
ASSOCIATED NATURAL GAS CORPORATION
370 17TH STREET, SUITE 900
DENVER, COLORADO 80202
NOVEMBER 15, 1994
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders to be
held at 9:00 a.m., local time, on Thursday, December 15, 1994 at the Brown
Palace Hotel, 321 17th Street, Denver, Colorado.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated October 9,
1994, providing for the merger of a wholly-owned subsidiary of Panhandle Eastern
Corporation with and into Associated Natural Gas Corporation. Under the terms of
the Merger Agreement, each outstanding share of common stock of ANGC would be
converted into the right to receive between 1.5725 and 1.8750 shares of common
stock of Panhandle Eastern Corporation, depending on the average of the closing
prices of the Panhandle common stock on the New York Stock Exchange during a
specified period ending prior to the Special Meeting. The Merger Agreement and
the proposed merger are discussed in more detail in the accompanying Joint Proxy
Statement/Prospectus.
The Board of Directors of ANGC has retained the investment banking firm of
Dillon, Read & Co. Inc. to advise it with respect to the fairness of the
consideration to be received by the ANGC stockholders in the merger. Dillon,
Read & Co. Inc. has advised the Board that, in its opinion, the consideration to
be received by the holders of ANGC common stock in the merger is fair, from a
financial point of view, to such holders. A copy of the opinion of Dillon, Read
& Co. Inc. is included in the enclosed Joint Proxy Statement/Prospectus as
Appendix III thereto.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF ANGC AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The Merger Agreement and financial and other information concerning the
business of Panhandle Eastern Corporation and ANGC are included in the enclosed
Joint Proxy Statement/Prospectus. Please review the Joint Proxy
Statement/Prospectus carefully.
If you have any questions prior to the Special Meeting or need further
assistance, please call Corporate Investor Communications, Inc., who will be
assisting in connection with the Special Meeting, at
1-(800) 346-7885.
The affirmative vote of the holders of a majority of the outstanding shares
of ANGC Common Stock is required to approve and adopt the Merger Agreement, so
failure to vote will have the same effect as a vote against the Merger
Agreement. Accordingly, we urge you to complete, sign and date the enclosed
proxy or voting instruction card and return it in the enclosed return envelope,
whether or not you plan to attend the meeting. Your vote is important.
Sincerely,
[Sig.]
/s/ CORTLANDT S. DIETLER
------------------------------------------
CORTLANDT S. DIETLER
Chairman and Chief Executive Officer
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PANHANDLE EASTERN CORPORATION
5400 WESTHEIMER COURT, P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1994
To the Stockholders of Panhandle Eastern Corporation:
A Special Meeting of Stockholders of Panhandle Eastern Corporation, a
Delaware corporation ("Panhandle"), will be held on Thursday, December 15, 1994
at 10:00 a.m., local time, at the Sheraton Grand Hotel, 2525 West Loop South,
Houston, Texas, for the following purposes:
1. To consider and vote upon a proposal for the issuance and
reservation for issuance of up to 30,413,568 shares of common stock, $1.00
par value, of Panhandle ("Panhandle Common Stock") in connection with the
Agreement and Plan of Merger dated October 9, 1994 among Panhandle,
Associated Natural Gas Corporation ("ANGC") and Panhandle Acquisition Two,
Inc. ("Merger Sub"), pursuant to which, among other things, Merger Sub
would merge with and into ANGC and each issued and outstanding share of
ANGC common stock, $.05 par value per share, would be converted in the
merger into the right to receive between 1.5725 and 1.8750 shares of
Panhandle Common Stock, depending on the average of the closing prices of
Panhandle Common Stock on the New York Stock Exchange during a fifteen
consecutive trading day period ending on (but excluding) the third trading
day prior to the meeting of ANGC's stockholders to be held to vote on the
Merger Agreement, all as more fully set forth in the accompanying Joint
Proxy Statement/Prospectus and in the Merger Agreement, a copy of which is
included as Appendix I thereto; 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 November 11, 1994
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment thereof. Only holders of record of
shares of Panhandle Common Stock at the close of business on the record date are
entitled to notice of and to vote at the meeting. A complete list of such
stockholders will be available for examination at the offices of Panhandle in
Houston, Texas during normal business hours by any Panhandle stockholder, for
any purpose germane to the Special Meeting, for a period of 10 days prior to the
meeting.
STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED. If a stockholder who has returned a proxy
attends the meeting in person, such stockholder may revoke the proxy and vote in
person on all matters submitted at the meeting.
By Order of the Board of Directors
/s/ ROBERT W. REED
------------------------------------
ROBERT W. REED
Secretary
Houston, Texas
November 15, 1994
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ASSOCIATED NATURAL GAS CORPORATION
370 17TH STREET, SUITE 900
DENVER, COLORADO 80202
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1994
To the Stockholders of Associated Natural Gas Corporation:
A Special Meeting of Stockholders of Associated Natural Gas Corporation, a
Delaware corporation ("ANGC"), will be held on Thursday, December 15, 1994 at
9:00 a.m., local time, at the Brown Palace Hotel, 321 17th Street, Denver,
Colorado, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated October 9, 1994 (the "Merger
Agreement"), relating to the merger of a wholly-owned subsidiary of
Panhandle Eastern Corporation with and into ANGC pursuant to which each
outstanding share of ANGC common stock, $.05 par value per share, would be
converted into the right to receive between 1.5725 and 1.8750 shares of
common stock, $1.00 par value per share, of Panhandle Eastern Corporation,
depending on the average of the closing prices of the Panhandle common
stock on the New York Stock Exchange during a fifteen consecutive trading
day period ending on (but excluding) the third trading day prior to the
Special Meeting, all as more fully set forth in the accompanying Joint
Proxy Statement/Prospectus and in the Merger Agreement, a copy of which is
included as Appendix I thereto; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on November 11, 1994
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment thereof. Only holders of record of
shares of ANGC Common Stock at the close of business on the record date are
entitled to notice of and to vote at the meeting. A complete list of such
stockholders will be available for examination at the offices of ANGC in Denver,
Colorado during normal business hours by any ANGC stockholder, for any purpose
germane to the Special Meeting, for a period of 10 days prior to the meeting.
Stockholders of ANGC are not entitled to any appraisal or dissenter's rights
under the Delaware General Corporation Law in respect of the merger.
Your vote is important. The affirmative vote of the holders of a majority
of the outstanding shares of ANGC Common Stock is required for approval and
adoption of the Merger Agreement. Even if you plan to attend the meeting in
person, we request that you sign and return the enclosed proxy or voting
instruction card and thus ensure that your shares will be represented at the
meeting if you are unable to attend. If you do attend the meeting and wish to
vote in person, you may withdraw your proxy and vote in person.
By Order of the Board of
Directors
[Sig.]
/s/ ERIK B. CARLSON
----------------------------------------
ERIK B. CARLSON
Secretary
Denver, Colorado
November 15, 1994
<PAGE> 7
PANHANDLE EASTERN CORPORATION
ASSOCIATED NATURAL GAS CORPORATION
JOINT PROXY STATEMENT/PROSPECTUS
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This Joint Proxy Statement/Prospectus relates to the proposed merger of
Panhandle Acquisition Two, Inc., a Delaware corporation ("Merger Sub"), which is
a wholly-owned subsidiary of Panhandle Eastern Corporation, a Delaware
corporation ("Panhandle"), with and into Associated Natural Gas Corporation, a
Delaware corporation ("ANGC"), pursuant to the Agreement and Plan of Merger
dated October 9, 1994 among Panhandle, Merger Sub and ANGC (the "Merger
Agreement"). The merger contemplated by the Merger Agreement is referred to
herein as the "Merger."
As a result of the Merger, (i) each share of common stock, $.05 par value
per share, of ANGC ("ANGC Common Stock") outstanding immediately prior to the
effective time of the Merger (other than ANGC Common Stock held directly or
indirectly by Panhandle or ANGC) will be converted into the right to receive
between 1.5725 and 1.8750 shares of common stock, $1.00 par value per share, of
Panhandle ("Panhandle Common Stock"), depending on the average of the closing
prices of the Panhandle Common Stock on the New York Stock Exchange during a
fifteen consecutive trading day period ending on (but excluding) the third
trading day prior to the ANGC special meeting described herein, and an equal
number of associated rights to purchase one one-hundredth of a share of
Participating Preferred Stock, $1.00 par value, of Panhandle, and (ii) ANGC will
become a wholly-owned subsidiary of Panhandle.
This Joint Proxy Statement/Prospectus is being furnished to holders of
Panhandle Common Stock and ANGC Common Stock in connection with the solicitation
of proxies by the respective Boards of Directors of Panhandle and ANGC for use
at special meetings of stockholders of each company to be held on December 15,
1994. This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Panhandle and ANGC on or about
November 15, 1994.
At the ANGC special meeting, holders of ANGC Common Stock will be asked to
approve and adopt the Merger Agreement. At the Panhandle special meeting,
holders of Panhandle Common Stock will be asked to approve the issuance and
reservation for issuance of up to 30,413,568 shares of Panhandle Common Stock
pursuant to the Merger Agreement.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Panhandle with respect to up to 30,413,568 shares of Panhandle Common Stock to
be issued pursuant to the Merger Agreement in exchange for currently outstanding
shares of ANGC Common Stock and additional shares of ANGC Common Stock which may
become outstanding prior to the Merger pursuant to the exercise of outstanding
options to purchase ANGC Common Stock ("ANGC Options") or upon conversion of
ANGC's 9% Convertible Senior Subordinated Notes (the "ANGC Convertible Notes").
It is a condition to consummation of the Merger that the shares of Panhandle
Common Stock issuable pursuant to the Merger be approved for listing on the New
York Stock Exchange ("NYSE"), subject to official notice of issuance.
On November 10, 1994, the closing prices of Panhandle Common Stock and ANGC
Common Stock, as reported on the New York Stock Exchange Composite Tape, were
$23 and $38 1/8, respectively.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOVEMBER 15, 1994
<PAGE> 8
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PANHANDLE OR
ANGC. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PANHANDLE
OR ANGC SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. PANHANDLE AND
ANGC EACH UNDERTAKE TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE),
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO,
IN THE CASE OF DOCUMENTS RELATING TO PANHANDLE, ROBERT W. REED, SECRETARY,
PANHANDLE EASTERN CORPORATION, 5400 WESTHEIMER COURT, P.O. BOX 1642, HOUSTON,
TEXAS 77251-1642 (TELEPHONE (713) 627-5400), AND, IN THE CASE OF DOCUMENTS
RELATING TO ANGC, ERIK B. CARLSON, GENERAL COUNSEL AND SECRETARY, ASSOCIATED
NATURAL GAS CORPORATION, 370 17TH STREET, SUITE 900, DENVER, COLORADO 80202
(TELEPHONE (303) 595-3331). IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO
THE APPLICABLE STOCKHOLDERS MEETING, REQUESTS SHOULD BE RECEIVED BY DECEMBER 9,
1994.
AVAILABLE INFORMATION
Panhandle and ANGC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Panhandle and ANGC can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511. Copies of
such material can be obtained by mail from the Public Reference Branch of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information concerning
Panhandle and ANGC may be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005, and, with respect to Panhandle, at the offices of the
Pacific Stock Exchange, 301 Pine Street, San Francisco, California.
Panhandle has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Panhandle Common Stock to be issued
pursuant to the Merger Agreement. The information contained herein with respect
to Panhandle and its affiliates, including Merger Sub, has been provided by
Panhandle, and the information contained herein with respect to ANGC and its
affiliates has been provided by ANGC. This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which were omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
2
<PAGE> 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. Panhandle's Annual Report on Form 10-K for its fiscal year ended
December 31, 1993.
2. Panhandle's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1994, June 30, 1994 and September 30, 1994.
3. Panhandle's Current Reports on Form 8-K dated January 21, 1994,
October 10, 1994 and November 14, 1994.
4. Panhandle's Form 8-B dated January 11, 1981 and Panhandle's Form
8-A dated March 12, 1986.
5. ANGC's Annual Report on Form 10-K for its fiscal year ended
September 30, 1993.
6. ANGC's Quarterly Reports on Form 10-Q for the periods ended
December 31, 1993, March 31, 1994 and June 30, 1994 (as amended by Form
10-Q/A dated October 20, 1994).
7. ANGC's Current Reports on Form 8-K dated January 13, 1994, February
25, 1994, April 5, 1994, July 15, 1994 and October 10, 1994.
8. ANGC's Form 8-A dated August 3, 1988, as amended by Form 8
amendments dated August 10, 1988, September 8, 1988, September 21, 1988,
October 7, 1988, November 3, 1989 and November 9, 1994.
All documents filed by Panhandle or ANGC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the special meetings of the
stockholders of each company shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
3
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information................... 2
Incorporation of Certain Documents By
Reference............................. 3
Summary................................. 5
The Companies......................... 5
The Special Meetings.................. 5
The Merger and the Merger Agreement... 6
Stock Option.......................... 10
Irrevocable Proxies................... 10
Certain Federal Income Tax
Consequences........................ 10
Anticipated Accounting Treatment...... 10
No Appraisal Rights................... 10
Exchange of ANGC Common Stock
Certificates........................ 11
Interests of Certain Persons in the
Merger.............................. 11
Comparative Rights of ANGC and
Panhandle Stockholders.............. 11
Market Price and Dividend Data........ 12
Panhandle Selected Historical
Consolidated Financial and Operating
Information......................... 13
ANGC Selected Historical Consolidated
Financial and Operating
Information......................... 14
Selected Pro Forma Financial
Information......................... 15
Comparative Per Share Data............ 16
The Companies........................... 17
Panhandle and Merger Sub.............. 17
ANGC.................................. 17
The Special Meetings.................... 17
Time, Date, Place and Purpose of
Special Meetings.................... 17
Record Date and Outstanding Shares.... 18
Voting and Revocation of Proxies...... 18
Vote Required......................... 18
Solicitation of Proxies............... 19
Other Matters......................... 19
The Merger.............................. 19
General Description of the Merger..... 19
Background............................ 20
Certain Information Provided.......... 21
Panhandle's Reasons for the Merger;
Recommendation of Board of Directors
of Panhandle........................ 22
ANGC's Reasons for the Merger;
Recommendation of Board of Directors
of ANGC............................. 23
Opinions of Financial Advisors........ 24
Interests of Certain Persons in the
Merger.............................. 33
Certain Federal Income Tax
Consequences........................ 34
Accounting Treatment.................. 35
Governmental and Regulatory
Approvals........................... 35
Restrictions on Resales by
Affiliates.......................... 35
Rights of Dissenting Stockholders..... 36
Certain Terms of the
Merger Agreement.................... 36
Effective Time of the Merger.......... 36
Manner and Basis of Converting
Shares.............................. 36
ANGC Options.......................... 37
Conditions to the Merger.............. 37
Representations and Warranties........ 39
Certain Covenants; Conduct of Business
Prior to the Merger................. 39
No Solicitation....................... 40
Certain Post-Merger Matters........... 41
Termination or Amendment of the Merger
Agreement........................... 41
Expenses and Termination Fee.......... 42
Certain Benefit Plans and Severance... 43
Indemnification....................... 43
Stock Option Agreement.................. 43
Irrevocable Proxies..................... 44
Market Prices of Common Stock and
Dividend Information.................. 45
Unaudited Pro Forma Condensed Financial
Information........................... 46
Principal Stockholders of Panhandle
and ANGC.............................. 54
Panhandle............................. 54
ANGC.................................. 55
Description of Panhandle Capital
Stock................................. 56
General............................... 56
Panhandle Common Stock................ 56
Preferred Stock....................... 57
Rights................................ 57
Restrictions on Dividends............. 58
Comparative Rights of Panhandle and ANGC
Stockholders.......................... 58
Number and Classification of Board of
Directors........................... 58
Power to Call Special Meetings........ 58
Stockholder Vote Required for Certain
Transactions........................ 58
Action by Written Consent............. 58
Amendments of Bylaws.................. 59
Certain Litigation...................... 59
Independent Public Accountants.......... 59
Legal Matters........................... 59
Experts................................. 59
Stockholders' Proposals................. 60
Associated Natural Gas Corporation and
Subsidiaries Index to Financial
Statements............................ F-1
Appendices:
I -- Merger Agreement.................. AI-1
II -- Merrill Lynch Fairness Opinion... AII-1
III -- Dillon Read Fairness Opinion..... AIII-1
</TABLE>
4
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus and the
Appendices hereto. Stockholders are urged to carefully read this Joint Proxy
Statement/Prospectus and the Appendices hereto in their entirety. As used in
this Joint Proxy Statement/Prospectus, unless otherwise required by the context,
the term "Panhandle" means Panhandle Eastern Corporation and its consolidated
subsidiaries and the term "ANGC" means Associated Natural Gas Corporation and
its consolidated subsidiaries. Capitalized terms used herein without definition
are, unless otherwise indicated, defined in the Merger Agreement and used herein
with such meanings.
THE COMPANIES
Panhandle and Merger Sub. Panhandle is a holding company whose subsidiaries
are engaged primarily in the transportation of natural gas in interstate
commerce and related services. Merger Sub is a wholly-owned subsidiary of
Panhandle incorporated on July 27, 1994. The principal executive offices of
Panhandle, a Delaware corporation, are located at 5400 Westheimer Court, P.O.
Box 1642, Houston, Texas 77251-1642, and its telephone number at such offices is
(713) 627-5400.
ANGC. ANGC is a holding company whose subsidiaries are engaged in the
business of purchasing, gathering, processing and transporting natural gas,
natural gas liquids ("NGLs") and crude oil and marketing those products to
industrial end-users, local distribution companies, liquid petroleum gas
wholesalers and retailers and refiners. The principal executive offices of ANGC,
a Delaware corporation, are located at 370 17th Street, Suite 900, Denver,
Colorado 80202, and its telephone number at such offices is (303) 595-3331.
THE SPECIAL MEETINGS
DATE, TIME AND PLACE
Panhandle. The Special Meeting of Stockholders of Panhandle (the "Panhandle
Special Meeting") will be held on Thursday, December 15, 1994, at the Sheraton
Grand Hotel, 2525 West Loop South, Houston, Texas, commencing at 10:00 a.m.
local time.
ANGC. The Special Meeting of Stockholders of ANGC (the "ANGC Special
Meeting") will be held on Thursday, December 15, 1994, at the Brown Palace
Hotel, 321 17th Street, Denver, Colorado, commencing at 9:00 a.m. local time.
PURPOSES OF THE SPECIAL MEETINGS
Panhandle. The purpose of the Panhandle Special Meeting is to consider and
vote upon (i) a proposal to approve, as required by the rules of the NYSE, the
issuance and reservation for issuance of up to 30,413,568 shares of Panhandle
Common Stock pursuant to the Merger Agreement, and (ii) such other matters as
may properly be brought before the Panhandle Special Meeting.
ANGC. The purpose of the ANGC Special Meeting is to consider and vote upon
(i) a proposal to approve and adopt the Merger Agreement, and (ii) such other
matters as may properly be brought before the ANGC Special Meeting.
RECORD DATES; SHARES ENTITLED TO VOTE
Panhandle. Only holders of record of shares of Panhandle Common Stock at
the close of business on November 11, 1994 (the "Record Date") are entitled to
notice of and to vote at the Panhandle Special Meeting. On such date, there were
120,714,811 shares of Panhandle Common Stock outstanding, each of which will be
entitled to one vote on each matter to be acted upon at the Panhandle Special
Meeting.
5
<PAGE> 12
ANGC. Only holders of record of shares of ANGC Common Stock at the close of
business on the Record Date are entitled to notice of and to vote at the ANGC
Special Meeting. On such date, there were 15,117,514 shares of ANGC Common Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon at the ANGC Special Meeting.
QUORUM; VOTE REQUIRED
Panhandle. The presence, in person or by proxy, at the Panhandle Special
Meeting of the holders of a majority of the shares of Panhandle Common Stock
outstanding and entitled to vote at the Panhandle Special Meeting is necessary
to constitute a quorum at the meeting. Under the rules of the NYSE, the
affirmative vote of the holders of a majority of the outstanding shares of
Panhandle Common Stock present and entitled to vote thereon at the Panhandle
Special Meeting is required to approve the issuance and reservation for issuance
of up to 30,413,568 shares of Panhandle Common Stock pursuant to the Merger
Agreement, provided that the total vote cast thereon represents over 50% of the
total number of shares of Panhandle Common Stock entitled to vote on the
proposal.
ANGC. The presence, in person or by proxy, at the ANGC Special Meeting of
the holders of a majority of the shares of ANGC Common Stock outstanding and
entitled to vote at the ANGC Special Meeting is necessary to constitute a quorum
at the meeting. The affirmative vote of the holders of a majority of the shares
of ANGC Common Stock outstanding and entitled to vote thereon at the ANGC
Special Meeting is required to approve and adopt the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
Panhandle. As of the Record Date for the Panhandle Special Meeting, the
directors and executive officers of Panhandle owned less than 1% of the
outstanding shares of Panhandle Common Stock entitled to vote at such meeting.
Each of such directors and executive officers has advised Panhandle that he or
she plans to vote or direct the vote of all such shares of Panhandle Common
Stock entitled to vote in favor of the proposal to approve the issuance and
reservation for issuance of Panhandle Common Stock pursuant to the Merger
Agreement.
ANGC. As of the Record Date for the ANGC Special Meeting, the directors and
executive officers of ANGC owned approximately 11.9% of the outstanding shares
of ANGC Common Stock entitled to vote at such meeting. Each of such directors
and certain executive officers and key employees of ANGC have granted to
Panhandle irrevocable proxies with respect to an aggregate of 1,469,483 shares
of ANGC Common Stock owned by them as of the Record Date (constituting
approximately 9.7% of the outstanding ANGC Common Stock entitled to vote at the
ANGC Special Meeting) permitting Panhandle to vote such shares in favor of the
proposal to approve and adopt the Merger Agreement, and Panhandle intends to
vote such shares, pursuant to such irrevocable proxies, in favor of the proposal
to approve and adopt the Merger Agreement. See "Irrevocable Proxies."
THE MERGER AND THE MERGER AGREEMENT
Terms of the Merger. At the Effective Time (as hereinafter defined), Merger
Sub will merge with and into ANGC, with ANGC being the surviving corporation and
a wholly-owned subsidiary of Panhandle (the "Surviving Corporation"). In the
Merger, each outstanding share of ANGC Common Stock (other than shares held
directly or indirectly by Panhandle or ANGC) will be converted into the right to
receive between 1.5725 and 1.8750 shares of Panhandle Common Stock (determined
as described below, the "Exchange Ratio"), determined by dividing $39.00 by the
Average Daily Price (as hereinafter defined) of the Panhandle Common Stock
during the fifteen consecutive trading days ending on (but excluding) the third
trading day prior to the ANGC Special Meeting. If the Average Daily Price of the
Panhandle Common Stock is less than $20.80, the Exchange Ratio will be 1.8750,
and if the Average Daily Price of the Panhandle Common Stock is greater than
$24.80, the Exchange Ratio will be 1.5725. Any resulting fractional shares will
be settled in cash. The full text of the Merger Agreement is attached to this
Joint Proxy Statement/Prospectus as Appendix I.
6
<PAGE> 13
Based on the number of shares of Panhandle Common Stock and ANGC Common
Stock outstanding as of the Record Date for the Panhandle Special Meeting and
the ANGC Special Meeting, between 23,772,290 and 28,345,338 shares of Panhandle
Common Stock will be issuable pursuant to the Merger Agreement (assuming no
exercise prior to the Effective Time of the ANGC Options and no conversion prior
to the Effective Time of the ANGC Convertible Notes), representing between
approximately 16.5% and 19.0% of the total Panhandle Common Stock to be
outstanding after such issuance.
Recommendations of the Boards of Directors. THE BOARD OF DIRECTORS OF
PANHANDLE HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, THE STOCKHOLDERS OF PANHANDLE AND RECOMMENDS THAT THE STOCKHOLDERS OF
PANHANDLE APPROVE THE ISSUANCE AND RESERVATION FOR ISSUANCE OF PANHANDLE COMMON
STOCK PURSUANT TO THE TERMS OF THE MERGER AGREEMENT. See "The
Merger -- Background" and "Panhandle's Reasons for the Merger; Recommendation of
Board of Directors of Panhandle."
THE BOARD OF DIRECTORS OF ANGC HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF ANGC AND RECOMMENDS THAT THE
STOCKHOLDERS OF ANGC APPROVE AND ADOPT THE MERGER AGREEMENT. See "The
Merger -- Background" and "ANGC's Reasons for the Merger; Recommendation of the
Board of Directors of ANGC." In considering the recommendation of the ANGC Board
with respect to the Merger, ANGC stockholders should be aware that certain
officers and directors of ANGC have certain interests respecting the Merger,
apart from their interests as stockholders of ANGC. See "The Merger -- Interests
of Certain Persons in the Merger."
OPINIONS OF FINANCIAL ADVISORS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has
delivered its written opinion dated October 8, 1994 to the Board of Directors of
Panhandle that, as of such date, the Exchange Ratio was fair to the holders of
Panhandle Common Stock from a financial point of view.
Dillon, Read & Co. Inc. ("Dillon Read") has delivered its written opinion
dated October 9, 1994 to the Board of Directors of ANGC that, as of such date,
the consideration to be received by the holders of ANGC Common Stock pursuant to
the Merger Agreement is fair, from a financial point of view, to the holders of
ANGC Common Stock.
For information regarding the opinions of Merrill Lynch and Dillon Read,
including the assumptions made, matters considered and limits of such opinions,
see "The Merger -- Opinions of Financial Advisors." Stockholders are urged to
read in their entirety the opinions of Merrill Lynch and Dillon Read, attached
as Appendices II and III, respectively, to this Joint Proxy
Statement/Prospectus.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware (the "Effective Time"),
unless the certificate of merger specifies a later Effective Time. Assuming all
conditions to the Merger contained in the Merger Agreement are satisfied or
waived prior thereto, it is anticipated that the Effective Time of the Merger
will occur as soon as practicable following the Special Meetings.
CERTAIN CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of Panhandle and ANGC to consummate the Merger
are subject to the satisfaction of certain conditions, including the following:
(i) approval by the stockholders of Panhandle of the issuance of Panhandle
Common Stock pursuant to the Merger Agreement, and approval and adoption of the
Merger Agreement by the stockholders of ANGC; (ii) expiration or termination of
the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"); (iii) the absence of any order making
the Merger illegal or otherwise prohibiting consummation of the Merger; (iv)
Panhandle and ANGC having been advised in writing by KPMG Peat Marwick LLP that
the Merger should be treated for financial accounting purposes as a "pooling of
interests"; (v) the accuracy of the representations and warranties of each party
and compliance with all agreements and covenants by each party;
7
<PAGE> 14
(vi) the absence of certain regulatory conditions; (vii) the receipt of certain
tax opinions; (viii) the effectiveness of the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part; (ix) the approval for listing
on the NYSE of the Panhandle Common Stock to be issued in the Merger; (x) the
absence of certain material adverse changes; and (xi) the execution of
employment agreements by certain employees of ANGC.
Panhandle and ANGC anticipate that all of the conditions to the
consummation of the Merger (other than obtaining the required approvals of the
stockholders of Panhandle and ANGC) will be satisfied prior to or at the time of
the Panhandle Special Meeting and the ANGC Special Meeting. Either Panhandle or
ANGC may extend the time for performance of any of the obligations of the other
party or may waive compliance with those obligations at its discretion. See
"Certain Terms of the Merger Agreement -- Conditions to the Merger."
GOVERNMENTAL APPROVALS
On October 18, 1994, Panhandle and ANGC each filed a notification and
report, together with requests for early termination of the waiting period,
under the HSR Act with the Federal Trade Commission and the Antitrust Division
of the Department of Justice in respect of the Merger. Expiration or early
termination of the applicable waiting period under the HSR Act is a condition to
the obligations of Panhandle and ANGC to consummate the Merger. The waiting
period will expire on November 17, 1994 unless a request for additional
information is received before such date. See "The Merger -- Governmental and
Regulatory Approvals." Neither Panhandle nor ANGC is aware of any other
governmental or regulatory approval required for consummation of the Merger,
other than compliance with applicable securities laws.
NO SOLICITATION
The Merger Agreement provides that ANGC will not initiate, solicit or
encourage any inquiries or the making of any proposal relating to any Competing
Transaction (as defined below), or enter into discussions or negotiations with
any person in furtherance of a Competing Transaction, or agree to endorse a
Competing Transaction; provided, however, that ANGC may furnish information or
enter into discussions or negotiations with respect to an unsolicited bona fide
proposal in writing to acquire ANGC pursuant to a merger, consolidation, share
exchange, business combination or similar transaction or to acquire a
substantial portion of the assets of ANGC if, and only to the extent that, the
Board of Directors of ANGC, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for such Board to comply with its fiduciary duties to stockholders
under applicable law. Further, the Board of Directors of ANGC may determine not
to solicit proxies in favor of the approval and adoption of the Merger Agreement
if such Board determines in good faith after consultation with and based upon
the advice of independent legal counsel that other action is necessary due to
applicable fiduciary duties of the directors of ANGC. A "Competing Transaction"
is defined to mean any of the following (other than the transactions
contemplated by the Merger Agreement) involving ANGC or any of its subsidiaries:
(i) any merger, consolidation, share exchange, business combination or similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 20% or more of the assets of ANGC and its subsidiaries, taken as
a whole; (iii) any tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of ANGC or the filing of a registration
statement under the Securities Act in connection therewith; (iv) any person
having acquired beneficial ownership of, or any group (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) having been formed which beneficially owns or has the
right to acquire beneficial ownership of, 20% or more of the outstanding shares
of capital stock of ANGC; or (v) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. See "Certain Terms of the Merger Agreement -- No Solicitation."
TERMINATION OF THE MERGER AGREEMENT
By Either Party. The Merger Agreement may be terminated prior to the
Effective Time (i) by mutual consent of Panhandle and ANGC, or (ii) by either
party if (a) the Merger has not been consummated on or
8
<PAGE> 15
before March 31, 1995 (or June 30, 1995, if the Merger shall not have been
consummated as a result of either party having failed by March 31, 1995 to
receive all required regulatory approvals or consents with respect to the
Merger), (b) any court or governmental order shall have prohibited consummation
of the Merger or (c) the required approvals of the stockholders of Panhandle or
ANGC are not received at the applicable meeting of stockholders.
By Panhandle. Panhandle may terminate the Merger Agreement (i) upon a
breach of any representation, warranty, covenant or agreement on the part of
ANGC set forth in the Merger Agreement, or if any such representation or
warranty shall have become untrue, in either case such that Panhandle's
conditions to closing of the Merger would be incapable of being satisfied by
March 31, 1995 (or as otherwise extended as described above) , or (ii) if the
Board of Directors of ANGC withdraws, modifies or changes its recommendation of
the Merger in a manner adverse to Panhandle or recommends to the stockholders of
ANGC any Competing Transaction, or resolves to do so, or (iii) if a tender or
exchange offer for 20% or more of the outstanding shares of capital stock of
ANGC is commenced, and the Board of Directors of ANGC does not recommend that
stockholders not tender their shares into such offer, or (iv) if any person
(other than Panhandle or its affiliates) acquires beneficial ownership of, or
any group shall have been formed which beneficially owns, 20% or more of the
outstanding capital stock of ANGC.
By ANGC. ANGC may terminate the Merger Agreement (i) upon a breach of any
representation, warranty, covenant or agreement on the part of Panhandle set
forth in the Merger Agreement, or if any such representation or warranty shall
have become untrue, in either case such that ANGC's conditions to closing of the
Merger would be incapable of being satisfied by March 31, 1995 (or as otherwise
extended as described above), or (ii) if the Board of Directors of ANGC fails to
make or withdraws its recommendation of the Merger Agreement if there exists at
such time a Competing Transaction, or recommends to ANGC's stockholders approval
or acceptance of a Competing Transaction, in each case only if, after
consultation with and based upon the advice of independent legal counsel, ANGC's
Board of Directors determines in good faith that such action is necessary for
such Board to comply with its fiduciary duties to stockholders under applicable
law.
See "Certain Terms of the Merger Agreement -- Termination or Amendment of
the Merger Agreement."
TERMINATION FEE
If the Merger Agreement is terminated pursuant to certain of the reasons
described above, and if as a result of such termination a Trigger Event (as
described under the caption "Stock Option Agreement") has occurred, ANGC will
pay to Panhandle an amount equal to $20,000,000, which amount is inclusive of
all of Panhandle's expenses in connection with the transactions contemplated by
the Merger Agreement. In addition, under those circumstances, the Stock Option
granted by ANGC to Panhandle would become exercisable. See "-- Stock Option" and
"Stock Option Agreement."
ASSUMPTION OF ANGC OPTIONS
As of the Effective Time, Panhandle will assume each ANGC Option that
remains unexercised in whole or in part. Accordingly, each ANGC Option will be
deemed to remain outstanding as an option to purchase, in place of the shares of
ANGC Common Stock previously subject thereto, that number of shares of Panhandle
Common Stock equal to the product of the number of shares of ANGC Common Stock
subject to the ANGC Option multiplied by the Exchange Ratio. The exercise price
per share of Panhandle Common Stock will be equal to the previous exercise price
per share under the ANGC Option divided by the Exchange Ratio. See "Certain
Terms of the Merger Agreement -- ANGC Options."
EMPLOYEE BENEFITS AND SEVERANCE
The Merger Agreement provides that, for at least 50 weeks after the
Effective Time, Panhandle will keep in effect certain employee benefit plans of
ANGC (or benefit plans providing reasonably comparable benefits). The Merger
Agreement also provides that any employee of ANGC whose employment is
9
<PAGE> 16
terminated by ANGC during the 50 week period after the Effective Time will be
entitled to certain severance payments (which severance payments are similar to
severance arrangements which Panhandle has used in the past). See "Certain Terms
of the Merger Agreement -- Certain Benefit Plans and Severance."
INDEMNIFICATION
The Merger Agreement also provides that, for a period of five years after
the Effective time, Panhandle (i) will not amend certain indemnification and
liability limitation provisions of ANGC's charter and bylaws in a manner that
would adversely affect the rights of individuals who were officers or directors
of ANGC, (ii) will guarantee the performance by ANGC of its obligations under
the indemnification provisions of ANGC's bylaws, subject to certain limitations,
and (iii) will cause to be maintained in effect ANGC's current directors' and
officers' liability insurance, subject to certain limitations. See "Certain
Terms of the Merger Agreement -- Indemnification."
STOCK OPTION
Panhandle and ANGC have entered into a Stock Option Agreement in connection
with, and as consideration for, Panhandle's and Merger Sub's execution of the
Merger Agreement. Under the Stock Option Agreement, ANGC has granted to
Panhandle an irrevocable option to purchase up to 3,007,948 shares of ANGC
Common Stock for an exercise price of $39.00 per share (subject to adjustment so
that the excess of the Closing Price (as defined therein) of ANGC Common Stock
over such exercise price will not exceed $3.50 per share), which option is
exercisable under certain circumstances after termination of the Merger
Agreement. See "Certain Terms of the Merger Agreement -- Termination or
Amendment of the Merger Agreement" and "Stock Option Agreement."
IRREVOCABLE PROXIES
In consideration for Panhandle's and Merger Sub's execution of the Merger
Agreement, each of the directors and certain executive officers and key
employees of ANGC executed an irrevocable proxy appointing Panhandle as his
proxy to vote any shares of ANGC Common Stock owned by such person in favor of
the Merger and adoption of the Merger Agreement, and against any business
combination proposal or other matter that may interfere with or be inconsistent
with the Merger or Merger Agreement (including any Competing Transaction), at
any meeting of stockholders of ANGC (or consent in lieu thereof) and any
adjournment or adjournments thereof. The proxies currently cover an aggregate of
1,469,483 shares of ANGC Common Stock, or approximately 9.7% of the shares
entitled to vote at the ANGC Special Meeting. The proxies will terminate
automatically on the earliest to occur of (i) the Effective Time, (ii)
termination of the Merger Agreement, and (iii) June 30, 1995. See "Irrevocable
Proxies."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and should,
therefore, constitute a non-taxable transaction for holders of ANGC Common
Stock, except to the extent of cash received, if any, in lieu of fractional
shares of Panhandle Common Stock. For a discussion of these and other federal
income tax considerations in connection with the Merger, see "The
Merger -- Certain Federal Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests" for
financial accounting purposes. See "The Merger -- Accounting Treatment."
NO APPRAISAL RIGHTS
Under Delaware law, neither Panhandle's nor ANGC's stockholders will be
entitled to any appraisal or dissenter's rights in connection with the Merger.
See "The Merger -- Rights of Dissenting Stockholders."
10
<PAGE> 17
EXCHANGE OF ANGC COMMON STOCK CERTIFICATES
Promptly after consummation of the Merger, Panhandle will mail a letter of
transmittal with instructions to each holder of record of ANGC Common Stock
immediately before the Effective Time for use in exchanging certificates
formerly representing shares of ANGC Common Stock for certificates representing
shares of Panhandle Common Stock and cash in lieu of any fractional shares.
Certificates should not be surrendered by the holders of ANGC Common Stock until
they have received the letter of transmittal from Panhandle. See "Certain Terms
of the Merger Agreement -- Manner and Basis of Converting Shares."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ANGC's Board of Directors and management have certain
interests respecting the Merger separate from their interests as holders of ANGC
Common Stock, including those referred to above under "-- Assumption of ANGC
Options; -- Employee Benefits and Severance and -- Indemnification." In
addition, certain members of ANGC's Board of Directors and management have
entered into employment agreements with ANGC which will become effective at the
Effective Time. See "The Merger -- Interests of Certain Persons in the Merger."
COMPARATIVE RIGHTS OF ANGC AND PANHANDLE STOCKHOLDERS
Rights of stockholders of ANGC are currently governed by Delaware law, the
Amended and Restated Certificate of Incorporation of ANGC (the "ANGC Charter")
and ANGC's Bylaws. Upon consummation of the Merger, ANGC stockholders will
become stockholders of Panhandle and their rights as stockholders of Panhandle
will be governed by Delaware law, the Restated Certificate of Incorporation of
Panhandle (the "Panhandle Charter") and Panhandle's Bylaws. There are various
differences between the rights of ANGC stockholders and the rights of Panhandle
stockholders. See "Comparative Rights of Panhandle and ANGC Stockholders" and
"Description of Panhandle Capital Stock."
11
<PAGE> 18
MARKET PRICE AND DIVIDEND DATA
The Panhandle Common Stock is traded on the NYSE and the Pacific Stock
Exchange under the symbol "PEL" and the ANGC Common Stock is traded on the NYSE
under the symbol "NGA." The following table sets forth, for the periods
indicated, the range of high and low per share sale prices for Panhandle Common
Stock and ANGC Common Stock as reported on the NYSE Composite Tape, and the cash
dividends paid on each share of Panhandle Common Stock and ANGC Common Stock.
<TABLE>
<CAPTION>
PANHANDLE ANGC
--------------------------- ---------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------ ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1992*
First Quarter........................... $15 7/8 $13 1/2 $0.20 $30 $18 1/8 $ 0.03
Second Quarter.......................... 17 1/4 12 7/8 0.20 24 3/4 19 1/4 0.03
Third Quarter........................... 19 3/8 15 3/4 0.20 30 7/8 22 1/2 0.03
Fourth Quarter.......................... 19 3/4 16 1/4 0.20 30 5/8 27 5/8 0.03
1993*
First Quarter........................... $23 3/4 $16 3/4 $0.20 $34 3/4 $25 1/2 $ 0.03
Second Quarter.......................... 25 19 3/4 0.20 37 32 1/4 0.03
Third Quarter........................... 27 1/4 23 0.20 41 32 0.03
Fourth Quarter.......................... 26 20 3/8 0.20 39 1/2 28 1/2 0.03
1994*
First Quarter........................... $25 1/2 $20 5/8 $0.21 $36 3/8 $31 1/4 $ 0.03
Second Quarter.......................... 22 1/4 18 1/4 0.21 37 31 7/8 0.03
Third Quarter........................... 23 1/2 19 1/2 0.21 35 15/16 28 1/4 0.03
Fourth Quarter (through November 10).... 23 5/8 21 5/8 -- 38 3/8 30 3/8 --
</TABLE>
- ---------------
* Calendar quarters. Panhandle's fiscal year ends on December 31, and ANGC's
fiscal year ends on September 30.
On October 7, 1994, the last trading day prior to the announcement by
Panhandle and ANGC that they had executed the Merger Agreement, the closing per
share sale prices of Panhandle Common Stock and ANGC Common Stock, as reported
on the NYSE Composite Tape, were $22 5/8 and $34 1/4, respectively. See the
cover page of this Joint Proxy Statement/Prospectus for a recent closing price
of Panhandle Common Stock and ANGC Common Stock.
Following the Merger, Panhandle Common Stock will continue to be traded on
the NYSE and the Pacific Stock Exchange. Following the Merger, ANGC Common Stock
will cease to be traded on the NYSE, and there will be no further market for
such stock.
See "Market Prices of Common Stock and Dividend Information" respecting
Panhandle's post-Merger dividend policy.
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<PAGE> 19
PANHANDLE
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The selected historical consolidated financial information of Panhandle and
subsidiaries shown below for the five annual periods ended December 31, 1993 has
been derived from the Panhandle audited consolidated financial statements, and
for the nine-month periods ended September 30, 1994 and 1993 has been derived
from Panhandle's unaudited consolidated financial statements that include, in
the opinion of Panhandle's management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the information for such
periods. This information should be read in conjunction with the consolidated
financial statements and related notes and the audit report, which refers to
changes in the method of accounting for income taxes and postretirement benefits
other than pensions, included in Panhandle's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 ("Panhandle's 10-K Report"), and Panhandle's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994,
incorporated by reference in this Joint Proxy Statement/Prospectus. Certain
amounts have been reclassified to conform to the current reporting presentation.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEARS ENDED DECEMBER 31
------------------- ---------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989(1)
-------- -------- -------- -------- -------- -------- --------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND GAS VOLUMES)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues................... $1,804.6 $1,925.9 $2,513.2 $2,756.3(2) $2,673.7 $3,261.7 $2,781.0
Costs and expenses
Gas purchased...................... 615.7 718.2 918.6 1,033.5 1,116.1 1,657.1 1,451.4
Operating and maintenance.......... 379.7 401.7 621.2(3) 551.7 540.7 637.1 510.0
Depreciation and amortization...... 167.3 169.6 227.2 237.0 251.3 274.1 203.3
LNG facilities write-down.......... -- -- -- -- -- 310.0 --
Other costs and expenses........... 233.2 229.2 306.3 321.6 333.0 355.0 232.2
-------- -------- -------- -------- -------- -------- --------
Operating income..................... $ 408.7 $ 407.2 $ 439.9 $ 612.5 $ 432.6 $ 28.4 $ 384.1
-------- -------- -------- -------- -------- -------- --------
Interest expense..................... $ 166.7 $ 212.7 $ 269.3 $ 294.8(2) $ 336.0 $ 357.5 $ 362.9
Income (loss) from continuing
operations......................... $ 157.2 $ 129.5 $ 148.1(3)(4) $ 187.1(2) $ 85.8 $ (249.7) $ 69.5
Net income (loss).................... $ 157.2 $ 129.5 $ 148.1(3)(4) $ 187.1(2) $ 85.8 $ (285.5)(5) $ 29.2
Average common shares outstanding.... 120.4 113.4 115.0 108.2 98.9 88.9 71.9
Earnings (losses) per common share
Continuing operations.............. $ 1.31 $ 1.14 $ 1.29 $ 1.73 $ 0.87 $ (2.81) $ 0.97
Total.............................. 1.31 1.14 1.29 1.73 0.87 (3.21) 0.41
Dividends per common share........... 0.63 0.60 0.80 0.80 0.80 1.40 2.00
BALANCE SHEET DATA (END OF PERIOD):
Net plant, property and equipment.... $4,496.3 $4,315.0 $4,343.3 $4,303.7 $4,202.8 $4,236.8 $4,205.1
Total assets......................... $6,776.8 $6,665.1 $6,927.3 $7,179.1 $7,049.6 $7,323.3 $6,265.6
-------- -------- -------- -------- -------- -------- --------
Long-term debt due within one year... $ 125.0 $ 103.5 $ 62.5 $ 191.5 $ 224.7 $ 258.0 $ 216.2
Short-term debt...................... -- 69.8 18.4 39.5 -- -- 71.3
Long-term debt....................... 1,926.0 1,987.7 1,922.5 2,478.6 2,251.6 2,470.1 2,785.6
Common stockholders' equity.......... 1,764.0 1,659.5 1,665.6 1,370.5 1,266.5 1,070.5(5) 1,415.1
-------- -------- -------- -------- -------- -------- --------
Total capitalization............... $3,815.0 $3,820.5 $3,669.0 $4,080.1 $3,742.8 $3,798.6 $4,488.2
CAPITAL EXPENDITURES................... $ 329.7 $ 207.3 $ 298.7 $ 263.2 $ 236.7 $ 400.3 $ 311.2
NATURAL GAS PIPELINE VOLUMES, BCF(6):
Market-area transports............... 1,655 1,416 1,970 1,768 1,454 1,302 949
Sales................................ -- 123 123 263 347 551 509
Supply-area transports............... 213 241 307 347 329 329 331
-------- -------- -------- -------- -------- -------- --------
Total.............................. 1,868 1,780 2,400 2,378 2,130 2,182 1,789
-------- -------- -------- -------- -------- -------- -------
</TABLE>
- ---------------
(1) Includes Texas Eastern Corporation's operating activity since April 27,
1989.
(2) Includes benefits for the liquefied natural gas (LNG) project settlement of
$88.6 million in operating revenues and $17.5 million reduced interest
expense ($57.7 million after tax) described in Note 2 of the Notes to
Consolidated Financial Statements included in Panhandle's 10-K Report.
(3) Includes a $100 million charge ($60.2 million after tax) reflecting Texas
Eastern Transmission Corporation's settlement of Order 636 implementation
and other issues, as described in Note 2 of the Notes to Consolidated
Financial Statements included in Panhandle's 10-K Report.
(4) Includes a benefit of $48.2 million ($28.7 million after tax) resulting from
the sale of certain interests in Northern Border Partners, L.P. described in
Note 6 of the Notes to Consolidated Financial Statements included in
Panhandle's 10-K Report.
(5) Includes a $60.7 million decrease for the cumulative effect of a change in
accounting for income tax. See Note 1 of the Notes to Consolidated Financial
Statements included in Panhandle's 10-K Report.
(6) Billion cubic feet at 14.73 pounds per square inch atmospheric pressure.
13
<PAGE> 20
ANGC
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The selected historical consolidated financial information of ANGC and
subsidiaries shown below for the three annual periods ended September 30, 1993
has been derived from ANGC's audited consolidated financial statements. These
financial statements, along with the financial information for the periods ended
September 30, 1990 and 1989, have been restated to give retroactive effect to
the merger with Grand Valley Gas Company ("Grand Valley") that was effective
July 1, 1994. The financial information for the nine-month periods ended June
30, 1994 and 1993 has been derived from ANGC's unaudited consolidated financial
statements that include, in the opinion of ANGC's management, all adjustments
(consisting of normal recurring adjustments and adjustments to give effect to
the merger with Grand Valley) necessary to present fairly the information for
such periods. This information should be read in conjunction with ANGC's
consolidated financial statements and related notes included elsewhere in this
Joint Proxy Statement/Prospectus and ANGC's Quarterly Report on Form 10-Q, as
amended, for the quarter ended June 30, 1994, incorporated by reference in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30 YEARS ENDED SEPTEMBER 30
------------------ ---------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- ------ ------ ------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND PRODUCT VOLUMES)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues.................................. $1,612.1 $1,316.4 $1,788.8 $1,125.0 $735.8 $491.8 $387.2
Costs and expenses
Gas purchased..................................... 1,496.2 1,216.3 1,657.0 1,025.4 657.0 435.9 347.9
Operating and maintenance......................... 33.0 25.9 34.2 25.4 21.2 15.9 11.6
Depreciation and amortization..................... 22.8 17.4 23.6 21.9 17.5 11.2 8.8
Other costs and expenses.......................... 22.3 16.5 22.1 16.3 12.1 8.6 7.5
-------- -------- -------- ------- ------ ------ ------
Operating income.................................... $ 37.8 $ 40.3 $ 51.9 $ 36.0 $ 28.0 $ 20.2 $ 11.4
-------- -------- -------- ------- ------ ------ ------
Interest expense.................................... $ 12.2 $ 10.1 $ 13.2 $ 12.4 $ 8.6 $ 5.3 $ 5.9
Net income.......................................... $ 14.8 $ 18.7 $ 23.5 $ 14.9 $ 13.6 $ 10.7 $ 4.3
Average common shares outstanding................... 15.0 14.6 14.6 14.1 12.6 10.6 7.1
Earnings per common share........................... $ 0.99 $ 1.28 $ 1.61 $ 1.06 $ 1.08 $ 1.01 $ 0.60
Dividends per common share.......................... $ 0.08 $ 0.08 $ 0.11 $ 0.11 $ 0.11 $ 0.08 $ --
BALANCE SHEET DATA (END OF PERIOD):
Net plant, property and equipment................... $ 449.0 $ 342.6 $ 353.4 $ 302.7 $231.4 $141.3 $105.8
Total assets........................................ $ 779.6 $ 612.4 $ 675.6 $ 533.0 $386.9 $224.0 $145.0
-------- -------- -------- ------- ------ ------ ------
Long-term debt due within one year.................. $ 4.1 $ 4.0 $ 4.0 $ 4.8 $ -- $ 0.1 $ 0.1
Short-term debt..................................... -- -- -- 2.2 -- -- --
Long-term debt...................................... 239.1 155.0 163.0 137.0 120.8 49.1 47.7
Stockholders' equity................................ 240.2 207.5 213.8 186.3 139.8 98.0 32.8
-------- -------- -------- ------- ------ ------ ------
Total capitalization.............................. $ 483.4 $ 366.5 $ 380.8 $ 330.3 $260.6 $147.2 $ 80.6
-------- -------- -------- ------- ------ ------ ------
CAPITAL EXPENDITURES.................................. $ 108.4 $ 52.8 $ 71.9 $ 97.3 $106.9 $ 46.9 $ 14.0
NATURAL GAS SALES VOLUMES,
MILLION CUBIC FEET/DAY:
System.............................................. 850 682 689 564 424 324 295
Off-system.......................................... 1,488 1,023 1,096 819 502 341 305
-------- -------- -------- ------- ------ ------ ------
Total............................................. 2,338 1,705 1,785 1,383 926 665 600
-------- -------- -------- ------- ------ ------ ------
NGLS SALES, THOUSAND BARRELS/DAY...................... 38 24 26 22 18 16 15
-------- -------- -------- ------- ------ ------ ------
CRUDE OIL SALES, THOUSAND BARRELS/DAY................. 75 53 61 26 16 -- --
-------- -------- -------- ------- ------ ------ ------
</TABLE>
14
<PAGE> 21
SELECTED PRO FORMA FINANCIAL INFORMATION
The following unaudited selected pro forma financial information is based
on adjustments to the historical consolidated balance sheets and related
consolidated statements of income of Panhandle and ANGC to give effect to the
Merger using the pooling of interests method of accounting for business
combinations, and assumes an Exchange Ratio of 1.7105.
ANGC's consolidated financial statements are based on a fiscal year end of
September 30 as compared with Panhandle's fiscal year end of December 31. As a
result, the unaudited pro forma financial information combines different
calendar periods. The unaudited pro forma condensed balance sheets as of
September 30, 1994 and December 31, 1993, 1992 and 1991 assume that the Merger
occurred as of those dates and reflect the combination of the historical balance
sheets of Panhandle as of those dates with the historical balance sheets of ANGC
as of June 30, 1994 and September 30, 1993, 1992 and 1991, respectively. The
historical balance sheets of ANGC have been restated to reflect ANGC's merger
with Grand Valley that was effective July 1, 1994 and was accounted for as a
pooling of interests.
The unaudited pro forma condensed statements of income for the nine months
ended September 30, 1994 and for the years ended December 31, 1993, 1992 and
1991 assume that the Merger occurred as of January 1, 1991, and combine the
historical results of operations of Panhandle for those periods with the
historical results of operations of ANGC for the nine months ended June 30, 1994
and the years ended September 30, 1993, 1992 and 1991, respectively. The
historical results of operations for ANGC have been restated to reflect ANGC's
merger with Grand Valley that was effective July 1, 1994 and was accounted for
as a pooling of interests.
This pro forma information should be read in conjunction with the unaudited
pro forma condensed financial information and notes thereto included elsewhere
in this Joint Proxy Statement/Prospectus. The unaudited pro forma income
statement data are not necessarily indicative of the operating results that
would have occurred had the Merger occurred on January 1, 1991, nor are they
necessarily indicative of future operating results of the combined companies.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31
SEPTEMBER 30, ---------------------------------------
1994 1993 1992 1991
------------- -------- -------- --------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues.................... $ 3,416.7 $4,302.0 $3,881.3(1) $3,409.5
Costs and expenses
Gas purchased...................... 2,111.9 2,575.6 2,058.9 1,773.1
Operating and maintenance.......... 412.7 655.4(2) 577.1 561.9
Depreciation and amortization...... 190.1 250.8 258.9 268.8
Other costs and expenses........... 255.5 328.4 337.9 345.1
--------- -------- -------- --------
Operating income...................... $ 446.5 $ 491.8 $ 648.5 $ 460.6
--------- -------- -------- --------
Interest expense...................... $ 178.9 $ 282.5 $ 307.2(1) $ 344.6
Net income............................ $ 172.0 $ 171.6(2)(3) $ 202.0(1) $ 99.4
Average common shares outstanding..... 146.1 140.0 132.3 120.5
Earnings per common share............. $ 1.18 $ 1.23 $ 1.53 $ 0.82
Dividends per common share(4)......... $ 0.63 $ 0.80 $ 0.80 $ 0.80
BALANCE SHEET DATA (END OF PERIOD):
Net plant, property and equipment..... $ 4,945.3 $4,696.7 $4,606.4 $4,434.2
Total assets.......................... $ 7,556.4 $7,602.9 $7,712.1 $7,436.5
--------- -------- -------- --------
Long-term debt due within one year.... $ 129.1 $ 66.5 $ 196.3 $ 224.7
Short-term debt....................... -- 18.4 41.7 --
Long-term debt........................ 2,165.1 2,085.5 2,615.6 2,372.4
Common stockholders' equity........... 2,004.2 1,879.4 1,556.8 1,406.3
--------- -------- -------- --------
Total capitalization............... $ 4,298.4 $4,049.8 $4,410.4 $4,003.4
--------- -------- -------- --------
</TABLE>
- ---------------
(1) Includes benefits for the LNG project settlement of $88.6 million in
operating revenues and $17.5 million reduced interest expense ($57.7 million
after tax) described in Note 2 of the Notes to Consolidated Financial
Statements included in Panhandle's 10-K Report.
(2) Includes a $100 million charge ($60.2 million after tax) reflecting Texas
Eastern Transmission Corporation's settlement of Order 636 implementation
and other issues, as described in Note 2 of the Notes to Consolidated
Financial Statements included in Panhandle's 10-K Report.
(3) Includes a benefit of $48.2 million ($28.7 million after tax) resulting from
the sale of certain interests in Northern Border Partners, L.P. described in
Note 6 of the Notes to Consolidated Financial Statements included in
Panhandle's 10-K Report.
(4) Assumes dividend payments consistent with Panhandle's historical dividend
level.
15
<PAGE> 22
COMPARATIVE PER SHARE DATA
Set forth below are the net income, cash dividends and book value per
common share data of Panhandle and ANGC on an historical basis, a pro forma
basis for Panhandle, and an equivalent pro forma basis for ANGC. The Panhandle
pro forma data was derived by combining historical consolidated financial
information of Panhandle and ANGC, giving effect to the Merger under the pooling
of interests method of accounting for business combinations. Panhandle's pro
forma dividends per common share assume dividend payments are consistent with
Panhandle's historical dividend level. The equivalent pro forma data for ANGC
was calculated by multiplying the Panhandle pro forma per common share data by
an Exchange Ratio of 1.7105 (the Exchange Ratio resulting from an Average Daily
Price of the Panhandle Common Stock of $22.80, which is the midpoint of the
price range of $20.80 and $24.80 for Panhandle Common Stock used to determine
the maximum and minimum Exchange Ratios of 1.8750 and 1.5725, respectively), as
well as by the minimum and maximum Exchange Ratios of 1.5725 and 1.8750.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Panhandle and ANGC incorporated by reference and included elsewhere in
this Joint Proxy Statement/Prospectus and the unaudited pro forma condensed
financial information and notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.
PANHANDLE
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEARS ENDED DECEMBER 31
SEPTEMBER 30, --------------------------------
1994 1993 1992 1991
------ ------ ------ ------
<S> <C> <C> <C> <C>
HISTORICAL PER COMMON SHARE DATA:
Net income.................................. $ 1.31 $ 1.29 $ 1.73 $ 0.87
Dividends................................... 0.63 0.80 0.80 0.80
Book value.................................. 14.61 13.88 12.65 11.71
PRO FORMA PER COMMON SHARE DATA:
Net income.................................. $ 1.18 $ 1.23 $ 1.53 $ 0.82
Dividends................................... 0.63 0.80 0.80 0.80
Book value.................................. 13.68 12.95 11.68 10.78
</TABLE>
ANGC
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEARS ENDED SEPTEMBER 30
JUNE 30, --------------------------------
1994 1993 1992 1991
------ ------ ------ ------
<S> <C> <C> <C> <C>
HISTORICAL PER COMMON SHARE DATA:
Net income.................................. $ 0.99 $ 1.61 $ 1.06 $ 1.08
Dividends................................... 0.08 0.11 0.11 0.11
Book value.................................. 15.91 14.52 12.77 10.78
EQUIVALENT PRO FORMA PER COMMON SHARE DATA:
Midpoint -- Exchange Ratio of 1.7105
Net income............................... $ 2.02 $ 2.10 $ 2.62 $ 1.40
Dividends................................ 1.08 1.37 1.37 1.37
Book value............................... 23.40 22.15 19.98 18.44
Minimum -- Exchange Ratio of 1.5725
Net income............................... $ 1.88 $ 1.96 $ 2.44 $ 1.32
Dividends................................ 0.99 1.26 1.26 1.26
Book value............................... 21.83 20.65 18.65 17.19
Maximum -- Exchange Ratio of 1.8750
Net income............................... $ 2.17 $ 2.26 $ 2.81 $ 1.52
Dividends................................ 1.18 1.50 1.50 1.50
Book value............................... 25.22 23.88 21.51 19.89
</TABLE>
16
<PAGE> 23
THE COMPANIES
PANHANDLE AND MERGER SUB
Panhandle Eastern Corporation is a holding company whose subsidiaries are
engaged primarily in the transportation of natural gas in interstate commerce
and related services. The principal interstate pipeline operating subsidiaries
of Panhandle are Texas Eastern Transmission Corporation ("TETCO"), Algonquin Gas
Transmission Company ("Algonquin"), Panhandle Eastern Pipe Line Company ("PEPL")
and Trunkline Gas Company ("Trunkline"). Subsidiaries 1 Source Corporation ("1
Source") and Centana Energy Corporation ("Centana") pursue emerging
opportunities in the natural gas market and producing areas, respectively. 1
Source provides customized transportation management services. In addition to
gathering and processing natural gas, Centana owns and operates an intrastate
pipeline system, markets hydrocarbon liquids and is a leading producer of
helium. Panhandle also owns subsidiaries engaged in the importation of liquefied
natural gas ("LNG") from Algeria, as well as in the transportation, storage and
regasification of LNG. In addition, Panhandle owns subsidiaries engaged in the
non-regulated marketing of natural gas nationwide and an investment in a
cogeneration venture. Through subsidiaries, Panhandle also owns interests in a
joint venture that owns and operates a chemical-grade methanol plant and an MTBE
plant in Saudi Arabia, in a master limited partnership engaged in the
transportation of natural gas in interstate commerce and related services, and
in a master limited partnership engaged in the transportation and storage of
petroleum products.
Panhandle Acquisition Two, Inc. is a wholly-owned subsidiary of Panhandle
incorporated on July 27, 1994 and has conducted no business prior to entering
into the Merger Agreement.
ANGC
ANGC is a holding company whose subsidiaries are engaged in the business of
purchasing, gathering, processing and transporting natural gas, NGLs and crude
oil and marketing those products to industrial end users, local distribution
companies, liquid petroleum gas wholesalers and retailers and refiners. ANGC was
formed in 1986 as a successor to Natural Gas Associates, a partnership, and owns
and operates natural gas gathering, processing/fractionation and transportation
facilities and crude oil and NGL facilities situated in major oil and natural
gas-producing basins in the Rocky Mountain, Mid-Continent and Gulf Coast regions
of the United States. These facilities connect over 8,000 producing wells to
approximately 9,000 miles of its pipelines. ANGC's marketing operations extend
from the west coasts of the United States and Canada through the Rocky Mountain
and Midwest regions of the United States and in the United Kingdom. ANGC is one
of the largest independent gatherers, transporters and marketers of natural gas,
NGLs and crude oil in the United States, marketing and trading approximately 2.3
billion cubic feet of natural gas, 38,000 barrels of NGLs and 75,000 barrels of
crude oil on a daily basis. ANGC's natural gas marketing services include supply
and market aggregation, dispatching, balancing, transportation, marketing,
customized transportation and supply services, storage and contract negotiation
and administration.
THE SPECIAL MEETINGS
TIME, DATE, PLACE AND PURPOSE OF SPECIAL MEETINGS
The Panhandle Special Meeting will be held at 10:00 a.m., local time, on
December 15, 1994, at the Sheraton Grand Hotel, 2525 West Loop South, Houston,
Texas, for the purpose of approving the issuance and reservation for issuance of
up to 30,413,568 shares of Panhandle Common Stock (the "Panhandle Issuance of
Common Stock") pursuant to the Merger Agreement, as required by the rules of the
NYSE. The ANGC Special Meeting will be held at 9:00 a.m., local time, on
December 15, 1994, at the Brown Palace Hotel, 321 17th Street, Denver, Colorado
for the purpose of approving and adopting the Merger Agreement, as required
under Delaware law.
17
<PAGE> 24
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Panhandle Common Stock outstanding at the close
of business on the Record Date (November 11, 1994), are entitled to notice of,
and to vote at, the Panhandle Special Meeting. Only holders of record of ANGC
Common Stock at the close of business on the Record Date are entitled to notice
of, and to vote at, the ANGC Special Meeting.
On the Record Date, there were approximately 31,350 holders of record of
Panhandle Common Stock, with 120,714,811 shares of Panhandle Common Stock issued
and outstanding. Each share of Panhandle Common Stock entitles the holder
thereof to one vote on each matter submitted for stockholder approval. See
"Principal Stockholders of Panhandle and ANGC -- Panhandle" for information
regarding persons known to the management of Panhandle to be the beneficial
owners of more than 5% of the outstanding Panhandle Common Stock.
There were approximately 725 holders of record of ANGC Common Stock on the
Record Date, with 15,117,514 shares of ANGC Common Stock issued and outstanding.
Each share of ANGC Common Stock entitles the holder thereof to one vote on each
matter submitted for stockholder approval. See "Principal Stockholders of
Panhandle and ANGC -- ANGC" for information regarding persons known to the
management of ANGC to be the beneficial owners of more than 5% of the
outstanding ANGC Common Stock.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Panhandle Special Meeting and the ANGC Special Meeting, as applicable, in
accordance with the instructions contained therein. If a holder of Panhandle
Common Stock executes and returns a proxy and does not specify otherwise, the
shares represented by such proxy will be voted "for" approval of the Panhandle
Issuance of Common Stock in accordance with the recommendation of the Board of
Directors of Panhandle. If a holder of ANGC Common Stock executes and returns a
proxy and does not specify otherwise, the shares represented by such proxy will
be voted "for" approval and adoption of the Merger Agreement in accordance with
the recommendation of the Board of Directors of ANGC. A stockholder of Panhandle
or a stockholder of ANGC who has executed and returned a proxy may revoke it at
any time before it is voted at the appropriate Special Meeting by (i) executing
and returning a proxy bearing a later date, (ii) filing written notice of such
revocation with the Secretary of Panhandle or ANGC, as appropriate, stating that
the proxy is revoked or (iii) attending the appropriate Special Meeting and
voting in person.
VOTE REQUIRED
Panhandle. Panhandle's Bylaws provide that the presence at the Panhandle
Special Meeting, in person or by proxy, of the holders of a majority of the
outstanding shares of Panhandle Common Stock entitled to vote thereat will
constitute a quorum for the transaction of business. The Panhandle Issuance of
Common Stock does not, under state law, require stockholder approval. However,
the rules of the NYSE require, as a prerequisite to the listing on the NYSE of
the shares of Panhandle Common Stock that are issued pursuant to the Merger
Agreement, that such issuance be approved by a majority of the votes cast on the
proposal, provided that the total vote cast on the proposal represents over 50%
of the shares of Panhandle Common Stock entitled to vote on the proposal.
Abstentions, but not broker non-votes, will be included in the total vote and,
assuming that holders of over 50% of the shares of Panhandle Common Stock
entitled to vote on the proposal cast votes in favor of or against the proposal
or abstain, broker non-votes will have no effect upon the outcome of the vote.
Abstentions will have the same effect as votes against the proposal.
ANGC. The presence at the ANGC Special Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of ANGC Common Stock
entitled to vote thereat will constitute a quorum for the transaction of
business, and approval and adoption of the Merger Agreement requires the
affirmative vote of a majority of the issued and outstanding ANGC Common Stock
entitled to vote thereon. On the Record Date, there were 15,117,514 shares of
ANGC Common Stock outstanding and entitled to vote at the ANGC Special Meeting.
In determining whether the Merger Agreement has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect as
a vote against the Merger
18
<PAGE> 25
Agreement. On the Record Date, the directors and executive officers of ANGC held
approximately 11.9% of the outstanding shares of ANGC Common Stock. The
directors and certain executive officers and key employees of ANGC, holding an
aggregate of 1,469,483 shares of ANGC Common Stock as of the Record Date (or
approximately 9.7% of the outstanding shares at such date), have granted to
Panhandle irrevocable proxies to vote such shares in favor of approval and
adoption of the Merger Agreement, and against any business combination proposal
or other matter that may interfere or be inconsistent with the Merger or the
Merger Agreement (including, without limitation, a Competing Transaction). Such
irrevocable proxies are not subject to the continued support of the Board of
Directors of ANGC in recommending approval and adoption of the Merger Agreement
(although such irrevocable proxies would terminate upon a termination of the
Merger Agreement). See "Irrevocable Proxies."
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of each of Panhandle and ANGC may solicit proxies from their respective
stockholders by personal interview, telephone, telegram or otherwise. Panhandle
and ANGC will each bear the costs of the solicitation of proxies from their
respective stockholders, except that Panhandle and ANGC will each pay one-half
of the cost of printing this Joint Proxy Statement/Prospectus. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
who hold of record voting securities of Panhandle or ANGC for the forwarding of
solicitation materials to the beneficial owners thereof. Panhandle and ANGC will
reimburse such brokers, custodians, nominees and fiduciaries for the reasonable
out-of-pocket expenses incurred by them in connection therewith. ANGC has
engaged the services of Corporate Investor Communications, Inc. to distribute
proxy solicitation materials to brokers, banks and other nominees and to assist
in the solicitation of proxies from ANGC stockholders for a fee of $3,500 plus
reasonable out-of-pocket expenses. Panhandle has also engaged the services of
Corporate Investor Communications, Inc. to distribute proxy solicitation
materials to brokers, banks and other nominees and to assist in the solicitation
of proxies from Panhandle stockholders for a fee of $9,500, plus reasonable
out-of-pocket expenses.
OTHER MATTERS
At the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Panhandle and ANGC do not know of any business to be presented at
their respective Special Meetings other than as set forth in the notices
accompanying this Joint Proxy Statement/Prospectus. If any other matters should
properly come before the respective Special Meetings, it is intended that the
shares represented by proxies will be voted with respect to such matters in
accordance with the judgment of the persons voting such proxies.
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Merger Sub will
merge with and into ANGC with ANGC becoming the Surviving Corporation, and each
outstanding share of ANGC Common Stock (other than shares of ANGC Common Stock
held in the treasury of ANGC or owned by Panhandle or by any direct or indirect
wholly-owned subsidiary of Panhandle or of ANGC, all of which will be canceled),
will be converted into between 1.5725 and 1.8750 shares of Panhandle Common
Stock, determined by dividing $39.00 by the Average Daily Price of the Panhandle
Common Stock during the fifteen consecutive trading days ending on (but
excluding) the third trading day prior to the ANGC Special Meeting. If the
Average Daily Price of the Panhandle Common Stock is less than $20.80, the
Exchange Ratio will be 1.8750, and if the Average Daily Price of the Panhandle
Common Stock is greater than $24.80, the Exchange Ratio will be 1.5725. Any
resulting fractional shares will be settled in cash.
Based on the number of shares of Panhandle Common Stock and ANGC Common
Stock outstanding as of the Record Date, between 23,772,290 and 28,345,338
shares of Panhandle Common Stock will be issuable pursuant to the Merger
Agreement (assuming no exercise prior to the Effective Time of the ANGC Options
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and no conversion prior to the Effective Time of the ANGC Convertible Notes),
representing between approximately 16.5% and 19.0% of the total Panhandle Common
Stock to be outstanding after such issuance.
BACKGROUND
On May 13, 1993, during general discussions with respect to the nature of
the post-Order 636 natural gas industry, representatives of Panhandle and ANGC
had informal discussions regarding a possible combination of the two companies'
non-jurisdictional gathering, processing and marketing activities. From November
1993 until January 1994, the parties continued these discussions. As a result of
a number of factors, however, the parties chose not to pursue the discussions at
that time.
On August 10, 1994, in response to ongoing consolidation activities in the
natural gas industry, a representative of Dillon Read met with officers of ANGC
and, jointly with ANGC, identified certain companies (including Panhandle) that
they considered might be interested in pursuing a business combination with
ANGC. Subsequent to that date, at the request of ANGC management, Dillon Read
contacted seven companies (other than Panhandle) that were determined to be
appropriate candidates for discussions concerning a possible business
combination.
Also, during the summer of 1994, Panhandle had resumed its study of a
possible business combination with ANGC. On August 11, 1994, a representative of
Panhandle informed a representative of ANGC that Panhandle was interested in
revisiting the possibility of a business combination. On August 18, 1994, an
officer of Panhandle met with an officer of ANGC in Denver to discuss the
possibility of a business combination and to express Panhandle's interest in
pursuing further discussions with ANGC. On August 23 and 24, 1994, Panhandle and
ANGC management met in Houston to discuss the synergies that could result from a
possible business combination. During the remainder of August, there were
several additional conversations between representatives of Panhandle and ANGC
with respect to a possible business combination.
The Board of Directors of ANGC was kept generally informed of various
discussions concerning possible business combinations, and was briefed on the
status of those discussions at its regularly scheduled quarterly meeting on
September 6, 1994.
On September 8, 1994, Panhandle and ANGC entered into a Confidentiality
Agreement that included a two year standstill provision. Pursuant to the
Confidentiality Agreement, the two companies began exchanging confidential
information to determine the advisability of a combination of the two companies.
On September 9, 1994, an officer from Panhandle met with an officer of ANGC to
further discuss a possible business combination and the process necessary to
determine the desirability of such a combination.
On September 12 and 13, 1994, several representatives of each company met
and engaged in extensive discussions regarding the business operations of both
companies. Numerous conversations regarding the businesses of the two companies,
as well as a possible business combination, occurred during the remainder of the
month of September.
On September 28, 1994, Panhandle's Board of Directors met to receive and
consider presentations by Panhandle management and its advisors concerning a
business combination between Panhandle and ANGC. The Board authorized continued
discussions with ANGC and a due diligence investigation of ANGC. On September 28
and 29, 1994, an officer of Panhandle met with officers of ANGC in Denver to
discuss various business issues relating to the possible combination and to
present ANGC with preliminary drafts of a merger agreement, stock option
agreement and irrevocable proxy that set forth the basic structure of a business
combination, but did not include certain material business terms related to the
combination.
For various reasons, including price, only two of the seven companies
(other than Panhandle) contacted by Dillon Read expressed sufficient interest in
a business combination with ANGC to merit further discussions and due diligence.
During the last two weeks of September and the first week of October, 1994,
those two companies conducted due diligence with respect to ANGC at its
headquarters in Denver, Colorado.
From October 3 through October 7, 1994, representatives of Panhandle and
its advisors conducted due diligence with respect to ANGC. On October 4, 1994,
representatives of Panhandle, ANGC and their respective advisors met to discuss
business and legal issues related to the combination. Conversations between
representatives of each party continued on October 5, 1994.
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On October 6, 1994, ANGC's Board of Directors met and discussed the
possibility of a business combination either with Panhandle, or with one of the
two other companies that had conducted due diligence with respect to ANGC.
ANGC's Board of Directors decided not to pursue a transaction with either of the
two other companies because such companies' expressions of interest were
unacceptable for various reasons, including price and uncertainty with respect
to timing. ANGC's Board of Directors reviewed the material terms of the business
combination that representatives of Panhandle and ANGC had discussed to that
point, including the material terms of the draft Merger Agreement and Stock
Option Agreement, and the Board requested ANGC management to negotiate further
certain of such terms with Panhandle. Dillon Read made a presentation to the
Board on a valuation of ANGC using various methods. See "-- Opinions of
Financial Advisors -- ANGC." ANGC's legal counsel also made a presentation to
the Board concerning the Board's fiduciary duties to ANGC's stockholders in
connection with a business combination.
On October 7, 1994, representatives of ANGC and its advisors met with
representatives of Panhandle and its advisors in Houston. The parties negotiated
the terms of the Merger Agreement, the Stock Option Agreement and other
transaction documents, discussed the details of the proposed business
combination and, late that day, agreed to present to their respective Boards of
Directors the terms relating to a business combination, including a draft Merger
Agreement and Stock Option Agreement. Also during October 7, 1994,
representatives of ANGC and their advisors conducted due diligence with respect
to Panhandle at Panhandle's headquarters in Houston. During the afternoon and
evening of October 7, the parties completed the schedules to the Merger
Agreement.
On October 8, 1994, Panhandle's Board of Directors met. After reviewing the
results of Panhandle's due diligence with respect to ANGC, reviewing the
material terms of the Merger Agreement, the Stock Option Agreement and other
transaction documents and receiving Merrill Lynch's oral opinion that, as of
such date, the Exchange Ratio was fair to Panhandle's stockholders from a
financial point of view, Panhandle's Board authorized the execution and delivery
of the Merger Agreement, the Stock Option Agreement and other transaction
documents. After the meeting, an officer of Panhandle communicated the results
of the meeting to an officer of ANGC.
On October 9, 1994, ANGC's Board of Directors met. After reviewing the
results of ANGC's due diligence investigation of Panhandle, reviewing the
material terms of the Merger Agreement, the Stock Option Agreement and the other
transaction documents and receiving Dillon Read's oral opinion that, as of such
date, the consideration to be received by the holders of ANGC Common Stock in
the Merger was fair, from a financial point of view, to the stockholders of
ANGC, ANGC's Board authorized the execution and delivery of the Merger
Agreement, the Stock Option Agreement and the other transaction documents.
On the evening of October 9, 1994, the Merger Agreement, the Stock Option
Agreement and other transaction documents were executed and delivered. Before
the commencement of trading on October 10, 1994, Panhandle and ANGC each issued
a press release announcing the entering into of the definitive agreements.
CERTAIN INFORMATION PROVIDED
In connection with the discussions between Panhandle and ANGC described
above, Panhandle provided to ANGC certain preliminary financial forecasts with
respect to Panhandle's operating results, cash flows and financing activities,
capitalization and capital expenditures for 1994 and 1995, and the assumptions
on which such preliminary financial forecasts were based. Such preliminary
financial forecasts were developed for internal use only, were not prepared with
the intent that they would be publicly distributed, were based on numerous
assumptions (many of which are beyond the control of Panhandle) and are not
necessarily indicative of future results. Such preliminary financial forecasts
contained forecasted earnings per share data which did not materially differ
from Panhandle's previously announced expectations that its 1994 earnings per
share, exclusive of the effect of the Merger, would be at the high end of
financial analyst estimates of $1.65 to $1.75, and that, although Panhandle
expects there to be minor dilution to 1995 earnings per share as a result of the
Merger, it expects that its earlier stated goal of 1995 earnings per share of
$2.00 is still achievable.
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In connection with the discussions between Panhandle and ANGC described
above, ANGC provided to Panhandle certain internal operating budgets relating to
ANGC's 1994 and 1995 fiscal years, and the assumptions on which such budgets
were based. These internal operating budgets contained, among other things,
balance sheets, income statements, statements of cash flow and certain ratio and
margin data. Such internal operating budgets were prepared by ANGC for internal
use only, were not prepared with the intent that they would be publicly
distributed, were based on numerous assumptions (many of which are beyond the
control of ANGC) and are not necessarily indicative of future results. The
internal operating budgets set forth operating income of $47.2 million and net
income of $17.7 million for fiscal 1994 and operating income of $67.2 million
and net income of $30.8 million for fiscal 1995.
PANHANDLE'S REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS OF
PANHANDLE
The natural gas business has undergone fundamental change in recent years
as a result of new regulation and legislation, volatile natural gas and other
energy prices, the entry of a number of new parties in all segments of the
natural gas business and a greater level of competition in general. Such changes
have caused interstate natural gas pipeline companies to change the conduct of
their traditional business and have led many companies to seek opportunities in
a variety of functionally related but non-jurisdictional areas such as natural
gas gathering, processing and marketing. These non-jurisdictional activities can
be as important to producers and natural gas users as interstate natural gas
transmission services. As a result, companies with large interstate pipeline
systems, such as Panhandle, have logical business reasons to pursue
opportunities with companies engaged in natural gas gathering, processing and
marketing, such as ANGC.
Panhandle established as a corporate objective increasing its financial
investment in such non-jurisdictional businesses as natural gas gathering,
processing, purchasing and marketing natural gas and related products. Panhandle
believes such businesses will enable it to offer producers and natural gas users
a wider array of services and to realize attractive returns on its investment.
The Merger is a significant step in Panhandle's achievement of its objectives.
Panhandle also believes that the Merger will combine two geographically distinct
natural gas systems with complementary natural gas supply basins, service
territories, and target marketing areas. The natural gas and related products
marketing expertise of ANGC should permit Panhandle to compete more effectively
in the post-Order 636 natural gas industry. The natural gas gathering,
processing and marketing businesses of ANGC will complement Panhandle's
traditional pipeline business and the developing business of Centana and 1
Source.
The combined company will be a major participant in the natural gas
gathering, processing, transportation and marketing sector and initially will
market, sell and transport an aggregate of over 9.8 billion cubic feet of
natural gas per day. The combined company will also have over 35,000 total miles
of transmission and gathering pipeline that serve direct markets and also
interconnect with other major pipelines, and will be the nation's third largest
independent natural gas marketing company, the fourth largest natural gas
gathering company and one of the top 15 NGLs producers in the United States. The
combined company will offer natural gas producers and shippers greater access to
natural gas markets and natural gas buyers access to more supply areas
throughout the United States and major supply areas of Canada than either
company currently offers. Moreover, Panhandle believes that the Merger will
combine significant growth opportunities with the financial resources to realize
those opportunities.
Also, the combined company's diversity of operations in all facets of the
natural gas value stream should allow it to moderate the potential risks of any
one sector of the industry. The combined company should attain enhanced revenue
benefits and economies of scale in operations, and should be able to reduce
overall administrative overhead costs, making it a more competitive service
provider from the natural gas wellhead to the burnertip. Panhandle's
stockholders should benefit from the Merger as a result of the combined
company's strong financial position, undiminished dividend payments and enhanced
prospects for future growth.
For the foregoing reasons, the Board of Directors of Panhandle believes
that the Exchange Ratio and the other terms of the Merger Agreement are fair to,
and in the best interests of, Panhandle and the stockholders of Panhandle. In
reaching its conclusion, Panhandle's Board considered the judgment and advice of
Panhandle's management, the prior financial performance and future operating
prospects of ANGC, the
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reasonableness of achieving prospective cost savings and future incremental
revenues from the combined operation, the financial flexibility offered by the
combination, the terms of the Merger Agreement, the opinion of Merrill Lynch
described below, and the risks associated with achieving expected results. At
the special meeting held on October 8, 1994, all members of the Board of
Panhandle expressed support for the Merger and all members voting at the meeting
approved the Merger Agreement and recommended that the stockholders of Panhandle
vote "for" approval of the Panhandle Issuance of Common Stock.
In analyzing the Merger Agreement, the Panhandle Board of Directors was
assisted and advised by Merrill Lynch and, at the October 8, 1994 special
meeting, the Board received an oral opinion from Merrill Lynch (which was
subsequently confirmed in writing) that, as of such date, the Exchange Ratio in
the Merger was fair to the stockholders of Panhandle from a financial point of
view. See "-- Opinions of Financial Advisors -- Panhandle" as to Panhandle's
agreement to compensate and indemnify Merrill Lynch.
ANGC'S REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS OF ANGC
ANGC believes that structural changes in the natural gas industry,
especially the adoption of Order 636, are leading to the development of a North
American natural gas market that has become and will continue to be highly
competitive, and that industry consolidation is inevitable. Order 636 required
interstate natural gas pipelines like Panhandle to unbundle their services of
natural gas gathering, processing, storage, transportation and marketing with
the result that customers could choose and pay for only those individual
services offered by the pipeline which they desired to use. Management of ANGC
believes that Panhandle constitutes an attractive company with which to merge
for several reasons.
The asset and customer base of Panhandle should allow ANGC to continue to
expand its service-oriented business into new geographic areas, to connect
additional natural gas supplies and to obtain greater diversity of markets. ANGC
also believes the combined financial strength of ANGC and Panhandle should
enable ANGC to be even more competitive in major asset acquisitions in order to
continue to expand its asset base of natural gas gathering, processing and
storage facilities. In turn, this will permit ANGC to better serve its expanding
base of customers and provide more advanced and efficient transportation and
marketing networks, trading activities and information management systems.
The non-jurisdictional pipeline and storage facility assets of the combined
entity should provide it with enhanced access to a variety of new markets,
particularly in the Midwest and East Coast. The more comprehensive and
geographically diverse market presence of the combined entity should also allow
ANGC to enhance the value derived from its supply and marketing businesses and
to assure its customers firm gas supplies at competitive prices. This, in turn,
will permit producers and other shippers utilizing the assets of the combined
entity greater opportunities to move their natural gas production to a national
market.
In addition to the foregoing reasons, the Board of Directors of ANGC
considered the following factors in approving the Merger Agreement with
Panhandle:
(a) The premium over the market price of ANGC Common Stock represented
by the merger consideration;
(b) The enhanced growth prospects and related financing opportunities
of the combined company;
(c) The opinion of Dillon Read that the consideration to be received
by the holders of ANGC Common Stock pursuant to the Merger Agreement is
fair, from a financial point of view, to the stockholders of ANGC;
(d) The opportunity for stockholders of ANGC to maintain a continuing
equity interest in the combined operations of ANGC and Panhandle;
(e) The increase in market capitalization and liquidity for ANGC
stockholders afforded by the combination of ANGC and Panhandle; and
(f) The expectation that the Merger will be a tax-free reorganization
to ANGC stockholders for United States Federal income tax purposes.
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All of the members of the Board were present at the special meeting held on
October 9, 1994 at which the Board of Directors of ANGC approved the Merger
Agreement and recommended that the stockholders of ANGC vote "for" the adoption
and approval of the Merger Agreement. Donald H. Anderson, Harold R. Logan, Jr.
and Michael J. Quigley, directors of ANGC, abstained from voting with respect to
the Merger Agreement, since each of them was contemplated to enter into an
employment agreement with ANGC effective as of the Effective Time. See
"-- Interests of Certain Persons in the Merger." All the other directors voted
in favor of the adoption and approval of the Merger Agreement. Prior to reaching
its conclusion as to the fairness of the Merger, the Board of Directors of ANGC
considered the matters described under "-- Interests of Certain Persons in the
Merger." See "-- Interests of Certain Persons in the Merger."
In analyzing the Merger Agreement, the ANGC Board of Directors was assisted
and advised by Dillon Read and, at the October 9, 1994 special meeting, the
Board received an oral opinion from Dillon Read (which was subsequently
confirmed in writing) that the consideration to be received by holders of ANGC
Common Stock in the Merger is fair, from a financial point of view, to the
stockholders of ANGC. See "-- Opinions of Financial Advisors -- ANGC" as to
ANGC's agreement to compensate and indemnify Dillon Read.
OPINIONS OF FINANCIAL ADVISORS
Panhandle
At its meeting on October 8, 1994 to consider the Merger Agreement and the
other transactions contemplated thereby, Panhandle's Board of Directors received
the oral opinion of Merrill Lynch that, as of such date, the Exchange Ratio was
fair to the holders of Panhandle Common Stock from a financial point of view.
Such opinion was subsequently confirmed in writing to the Board of Directors of
Panhandle. Merrill Lynch's opinion related only to the consideration to be paid
by or on behalf of Panhandle in connection with the Merger and does not
constitute a recommendation to any stockholder of Panhandle as to how such
stockholder should vote at the Panhandle Special Meeting. The full text of
Merrill Lynch's written opinion, which sets forth the assumptions made,
procedures followed and matters considered in connection with such opinion, is
attached as Appendix II to this Joint Proxy Statement/Prospectus. Stockholders
of Panhandle are urged to read the opinion in its entirety.
In connection with rendering its opinion, Merrill Lynch, among other
things: (i) reviewed ANGC's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended September 30, 1993, its Forms 10-Q
and the related unaudited financial information for the quarterly periods ending
December 31, 1993, March 31, 1994 and June 30, 1994 and its Form 8-K dated July
1, 1994; (ii) reviewed Panhandle's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993 and its
Forms 10-Q and the related unaudited financial information for the quarterly
periods ending March 31, 1994, and June 30, 1994; (iii) reviewed certain
information, including financial forecasts relating to the business, earnings,
cash flow, assets and prospects of ANGC and of Panhandle, furnished to Merrill
Lynch by ANGC and Panhandle, respectively; (iv) conducted discussions with
members of senior management of ANGC and Panhandle concerning the respective
businesses and prospects of ANGC and Panhandle; (v) reviewed the historical
market prices and trading activity for the shares of common stock of each of
ANGC and Panhandle and compared them with similar characteristics of the common
stock of certain publicly traded companies which Merrill Lynch deemed to be
reasonably similar to ANGC and Panhandle, respectively; (vi) compared the
results of operations of ANGC and Panhandle with those of certain companies
which Merrill Lynch deemed to be reasonably similar to ANGC and Panhandle,
respectively; (vii) compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the financial terms of certain other
mergers and acquisitions which Merrill Lynch deemed to be relevant; (viii)
considered the pro forma effect of the Merger on Panhandle's capitalization
ratios and earnings and cash flow per share; (ix) reviewed a draft of the Merger
Agreement dated October 8, 1994; and (x) reviewed such other financial studies
and analyses and performed such other investigations and took into account such
other matters as Merrill Lynch deemed necessary, including its assessment of
general economic, market and monetary conditions.
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In connection with orally advising the Panhandle Board of Directors of its
opinion on October 8, 1994, confirming its opinion in writing and making its
presentations to the Panhandle Board of Directors, Merrill Lynch performed a
variety of financial and comparative analyses, including those described below.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances. Consequently, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
Merrill Lynch did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Merrill Lynch believes
that its analyses must be considered as a whole and that considering any
portions of such analyses or such factors without considering all analyses and
factors could create an incomplete or incorrect view of the process Merrill
Lynch undertook with respect to rendering its opinion. In its analysis, Merrill
Lynch made numerous assumptions with respect to general business, economic and
regulatory conditions, industry performance and other matters, many of which are
beyond Panhandle's and ANGC's control. Any estimates contained in these analyses
are not necessarily indicative of actual values or predictions of future results
or values, which may be significantly more or less favorable than as set forth
therein.
The following summary does not purport to be a complete description of the
presentations made, or opinion rendered, to the Panhandle Board of Directors or
of the analyses performed by Merrill Lynch in connection with the Merger.
Discounted Cash Flow Analysis. Utilizing a discounted cash flow analysis,
Merrill Lynch, in conjunction with Panhandle, estimated the present value of the
future unlevered free cash flows that ANGC could be expected to generate during
the period from January 1, 1995 to December 31, 2029 based upon information
provided to Merrill Lynch by ANGC and Panhandle and certain other assumptions.
With respect to the information provided by ANGC and Panhandle, Merrill
Lynch assumed that such information was reasonably prepared based upon the best
available estimates and judgments of each respective management. In conjunction
with Panhandle, Merrill Lynch utilized the information provided and various
assumptions regarding volumes, margins, operating expenses and inflation to
project financial results for ANGC through the year 2029. Combination benefits
to be realized from the Merger of $13.5 million were assumed. Merrill Lynch
expressed no view with respect to, and did not independently verify, whether
such combination benefits are reasonable or achievable. The estimated future
unlevered free cash flows were discounted at after-tax discount rates of 9.0%
and 10.0%, producing a reference valuation for the ANGC Common Stock of
approximately $605 million to $705 million (or between approximately $37.91 and
$44.17 per share of ANGC Common Stock), net of long-term indebtedness.
Analyses of Selected Comparable Acquisitions. Merrill Lynch also reviewed
publicly available information relating to certain acquisition transactions
which took place between March 1989 and September 1994 in respect of companies
with primarily U.S. operations in the natural gas gathering, processing and
marketing industries.
Merrill Lynch examined the multiples of the total consideration paid and
indebtedness assumed in each of the transactions to, among other measures, such
acquired companies' respective earnings before interest, taxes and depreciation,
earnings before interest and taxes and total assets. The transactions that
Merrill Lynch deemed to be most comparable to the Merger were Red Cedar
Gathering Co.'s acquisition of WestGas Gathering, Inc., The Williams Companies,
Inc.'s acquisition of San Juan/Permian (Public Service of New Mexico) and K N
Energy, Inc.'s acquisition of American Oil and Gas Corporation (the "Comparable
Mergers"). Merrill Lynch also examined 17 other comparable merger and
acquisition transactions in the natural gas industry. An analysis of the total
consideration paid in the Comparable Mergers as a multiple of expected earnings
before interest, taxes and depreciation, earnings before interest and taxes and
total assets yielded an average of 8.7x, 13.0x and 1.2x, respectively, compared
to a value in the Merger of 7.5x, 11.2x and 1.0x, respectively. Merrill Lynch
also reviewed certain recent stock acquisitions in a variety of industries from
October 1990 through October 8, 1994 and examined the premiums paid for the
targets' equity over the targets' equity market value prior to announcement of
the transactions. Such analysis indicated premiums over the targets' stock
prices one day, one week and four weeks before the announcement of each
respective
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acquisition of 41.1%, 45.1% and 50.3%, respectively, compared to premiums over
ANGC's stock price for similar periods before the announcement of the Merger of
13.9%, 23.3% and 16.9%, respectively. Merrill Lynch believes that the relative
difference in premium between the comparable transactions and the Merger may
largely be due to changes in market conditions and inherent differences between
the operations of ANGC and the selected companies.
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were so diverse and due to the inherent differences
between the operations of Panhandle, ANGC and the selected companies, Merrill
Lynch believes that a purely quantitative comparable transaction analysis would
not be dispositive in the context of the proposed Merger. Merrill Lynch further
believes that an appropriate use of a comparable transaction analysis in this
instance would involve qualitative judgments concerning the difference between
the characteristics of these transactions and the Merger that would affect the
acquisition value of the acquired companies and businesses and ANGC, which
judgments are reflected in Merrill Lynch's opinion.
Analyses of Selected Publicly Traded Comparable Companies. Merrill Lynch
compared selected historical stock, financial and operating ratios for each of
Panhandle and ANGC to the respective corresponding data and ratios of certain
similar publicly traded companies. With respect to Panhandle, Merrill Lynch made
such comparisons to The Coastal Corporation, Consolidated Natural Gas Company,
El Paso Natural Gas Company, Enron Corp., Sonat Inc., TransCanada PipeLines
Limited, Transco Energy Co. and The Williams Companies, Inc. With respect to
ANGC, Merrill Lynch made such comparisons to Aquila Gas Pipeline Corporation, K
N Energy, Inc., Trident NGL, Inc., Tejas Gas Corporation and Western Gas
Resources, Inc.
With respect to Panhandle, an analysis of the ratio of the market value of
the common stock of the comparable companies at October 7, 1994 to their
respective estimated net earnings to common for 1994 yielded a range of 10.8x to
16.8x with an average of 14.2x, and for 1995 yielded a range of 10.1x to 15.2x
with an average of 12.6x, which compares with a valuation for Panhandle of 13.8x
and 12.4x for 1994 and 1995, respectively. An analysis of the ratio of market
capitalization (defined as market value of common equity, plus debt, plus
liquidation value of preferred, less cash) (the "Market Capitalization") to
earnings before interest and taxes of the comparable companies for 1994 yielded
a range of 8.6x to 13.0x with an average of 10.6x, and for 1995 yielded a range
of 8.1x to 11.4x with an average of 9.8x, which compares with a valuation for
Panhandle of 11.3x and 10.1x for 1994 and 1995, respectively. An analysis of the
ratio of Market Capitalization to earnings before interest, taxes and
depreciation of the comparable companies for 1994 yielded a range of 5.5x to
7.6x with an average of 6.8x, and for 1995 yielded a range of 5.4x to 7.3x with
an average of 6.5x, which compares with a valuation for Panhandle of 7.2x and
6.7x for 1994 and 1995, respectively. An analysis of the ratio of Market
Capitalization to total assets of the comparable companies as of June 30, 1994
yielded a range of 0.7x to 1.1x with an average of 0.9x, which compares with a
ratio of 0.7x for Panhandle.
With respect to ANGC, an analysis of the ratio of the market value of the
common stock of the comparable companies at October 7, 1994 to their respective
estimated net earnings to common for 1994 yielded a range of 15.2x to 39.4x with
an average of 25.1x, and for 1995 yielded a range of 10.5x to 18.0x with an
average of 14.5x, which compares with a valuation for ANGC of 28.1x and 18.6x
for 1994 and 1995, respectively. An analysis of the ratio of Market
Capitalization to earnings before interest and taxes of the comparable companies
for 1994 yielded a range of 10.8x to 22.4x with an average of 15.2x, and for
1995 yielded a range of 8.1x to 14.4x with an average of 11.4x, which compares
with a valuation for ANGC of 15.0x and 11.3x for 1994 and 1995, respectively. An
analysis of the ratio of Market Capitalization to earnings before interest,
taxes and depreciation of the comparable companies for 1994 yielded a range of
7.2x to 9.7x with an average of 8.6x, and for 1995 yielded a range of 5.9x to
7.9x with an average of 7.3x, which compares with a valuation for ANGC of 9.2x
and 7.5x for 1994 and 1995, respectively. An analysis of the ratio of Market
Capitalization to total assets of the comparable companies as of June 30, 1994
yielded a range of 0.9x to 1.0x with an average of 0.9x, which compares with a
ratio of 1.0x for ANGC.
Because of the inherent differences between the operations of Panhandle,
ANGC and the selected comparable companies, Merrill Lynch believes that a purely
quantitative comparable company analysis would
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not be dispositive in the context of the proposed Merger. Merrill Lynch believes
that an appropriate use of a comparable company analysis in this instance would
involve qualitative judgments concerning differences between the financial and
operating characteristics of Panhandle, ANGC and the selected companies, which
judgments are reflected in Merrill Lynch's opinion.
Purchase Price Analysis and Stock Trading History. Merrill Lynch performed
an analysis which indicated that, pursuant to the terms of the Merger Agreement,
holders of ANGC Common Stock would own between approximately 16.5% and 19.0% of
the outstanding shares of Panhandle Common Stock following the Merger. Merrill
Lynch also examined the history of trading prices and volume for the Panhandle
Common Stock and the ANGC Common Stock and various historical ratios between
such common stocks.
Pro Forma Merger Analysis. Merrill Lynch analyzed certain pro forma effects
which could result from the Merger. This analysis indicated that the pro forma
net income per share of the combined company would be dilutive in 1994 and 1995
as compared to the comparable stand-alone projections for Panhandle. Merrill
Lynch also analyzed the effects of the Merger on the balance sheet of the
combined company. The combined company's estimated debt-to-debt-plus common
equity ratio as of December 31, 1994 would be 54.9% as compared to 55.5% for
Panhandle on a stand-alone basis.
In connection with rendering its opinion, Merrill Lynch relied, without
independent verification, upon the accuracy and completeness of all of the
financial and other information made available to it by ANGC or Panhandle. With
respect to forecasted financial information furnished to Merrill Lynch by
Panhandle and ANGC, Merrill Lynch assumed such information to have been
reasonably prepared and to reflect the best currently available estimates and
judgments of the managements of Panhandle and ANGC as to the expected future
financial performance of Panhandle and ANGC, respectively, and combined. In
rendering its opinion, Merrill Lynch did not make or receive an independent
evaluation or appraisal of the assets or liabilities of Panhandle or ANGC, nor
did it independently verify any of the publicly available information relating
to Panhandle or ANGC. The opinion of Merrill Lynch is necessarily based upon
market, economic, regulatory and other conditions as they existed on, and could
be evaluated as of, the date of such opinion. In rendering its opinion, Merrill
Lynch relied upon Panhandle as to certain accounting aspects of the Merger and
assumed that the Merger will be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
that the Merger and the exchange of shares contemplated thereby will be treated
for financial accounting purposes as a pooling of interests.
As described above, Merrill Lynch's opinion and presentations to the
Panhandle Board of Directors were one of the many factors taken into
consideration by such Board of Directors in making its determination to approve
the issuance of the shares of Panhandle Common Stock pursuant to the Merger
Agreement.
Merrill Lynch is an internationally recognized investment banking firm
which, as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Panhandle selected Merrill
Lynch to act as its financial advisor in connection with the Merger on the basis
of such firm's expertise.
Pursuant to the terms of an engagement letter dated September 27, 1994,
Panhandle has paid Merrill Lynch $500,000 for acting as financial advisor in
connection with the Merger. In addition, Panhandle has agreed to pay Merrill
Lynch a fee equal to 0.667% of the aggregate purchase price paid by Panhandle in
the Merger (against which such $500,000 payment will be credited). The term
"purchase price" means (i) the fair market value of the Panhandle Common Stock
to be issued by Panhandle in the Merger, as determined by Merrill Lynch and the
Board of Directors of Panhandle as of the Effective Time, plus (ii) any cash to
be paid by Panhandle in lieu of issuing fractional shares. Whether or not the
Merger is consummated, Panhandle has also agreed to reimburse Merrill Lynch for
its reasonable out-of-pocket expenses, including all reasonable fees and
disbursements of counsel, and to indemnify Merrill Lynch and certain related
persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
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Merrill Lynch has performed investment banking services for Panhandle from
time to time and has been compensated therefor. Such services have included,
among others, acting as manager of, or participating as a syndicate member in,
various securities transactions of Panhandle and its subsidiaries and providing
financial advisory services to Panhandle. In the ordinary course of Merrill
Lynch's business, it may actively trade the securities of Panhandle and ANGC for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities.
ANGC
Dillon Read has delivered an opinion to the ANGC Board of Directors that,
as of October 9, 1994, the consideration to be received by ANGC's stockholders
pursuant to the Merger Agreement is fair, from a financial point of view, to
ANGC's stockholders.
The full text of the opinion of Dillon Read, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Appendix III to this Joint Proxy Statement/Prospectus. ANGC's
stockholders are urged to read the opinion in its entirety for information with
respect to the procedures followed, assumptions made and matters considered by
Dillon Read in rendering such opinion. Dillon Read's opinion is directed only to
the consideration to be received by ANGC's stockholders pursuant to the Merger
Agreement and does not constitute a recommendation to any stockholder of ANGC
Common Stock as to how such stockholder should vote at the ANGC Special Meeting.
The summary of the opinion of Dillon Read set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In rendering its opinion, Dillon Read, among other things, reviewed the
Merger Agreement and certain business and financial information relating to ANGC
and its subsidiaries, including certain financial projections, estimates and
analyses provided to it by ANGC, and reviewed and discussed the businesses and
prospects of ANGC and its subsidiaries with representatives of ANGC's
management. Dillon Read also considered certain financial and stock market data
of ANGC and compared that information to similar data for other publicly-held
companies in businesses similar to those of ANGC.
In addition, Dillon Read reviewed certain publicly available business and
financial information relating to Panhandle, as well as certain financial
projections, estimates and analyses provided to it by Panhandle, and had
discussions regarding the business and prospects of Panhandle with
representatives of management of Panhandle. Dillon Read also considered certain
financial and stock market data of Panhandle and compared that information to
similar data for other publicly held companies in businesses similar to those of
Panhandle.
In arriving at its opinion, Dillon Read also considered the financial terms
of certain other mergers and acquisitions which it believed to be generally
comparable to the Merger and considered such other information, financial
studies and analyses, and financial, economic and market criteria as it deemed
relevant.
In connection with its review, Dillon Read did not independently verify any
of the publicly available information or non-public financial and other
information furnished by ANGC or Panhandle and relied on its being complete and
accurate in all material respects. Dillon Read did not make an independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of ANGC or Panhandle or any of their respective subsidiaries, nor was Dillon
Read furnished with any such evaluations or appraisals. With respect to the
financial projections, estimates and analyses provided to Dillon Read by ANGC
and Panhandle, Dillon Read assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and judgments of ANGC's
and Panhandle's respective managements as to the future financial performance of
each company. Furthermore, Dillon Read's opinion is based on economic, monetary
and market conditions existing on the date thereof. In addition, Dillon Read
relied on ANGC's determination that the Merger would constitute a tax-free
reorganization under the Internal Revenue Code.
The Exchange Ratio (as defined in the Merger Agreement) and amount of
consideration to be received by the holders of ANGC Common Stock pursuant to the
Merger Agreement was determined through negotiations between ANGC and Panhandle.
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In rendering its opinion, Dillon Read did not render any opinion as to the
value of the Panhandle Common Stock or make any recommendation to the
stockholders of ANGC with respect to the advisability of disposing of or
retaining shares of Panhandle Common Stock to be received pursuant to the
Merger.
In connection with rendering its opinion, Dillon Read performed a variety
of financial and comparative analyses, some of which were included in Dillon
Read's presentation made to the ANGC Board of Directors on October 6, 1994,
which is summarized below. The following summary does not purport to be a
complete description of the presentation by Dillon Read to the ANGC Board of
Directors or of the analyses performed by Dillon Read in this regard.
In connection with rendering its opinion, Dillon Read considered a variety
of valuation methods which are summarized below:
Stock Trading History: Dillon Read reviewed the performance of the per
share market prices of ANGC Common Stock and Panhandle Common Stock over the
period of approximately four years and nine months (January 1, 1990 - September
29, 1994). Dillon Read calculated the ratio of the per share market price of
ANGC Common Stock to the per share market price of Panhandle Common Stock over
the period. This analysis was utilized to provide historical perspective for the
manner in which the public trading market had valued ANGC and Panhandle in
absolute terms and relative to each other.
Comparable Company Trading Analysis: Using publicly available information,
Dillon Read compared, based upon market trading values as of September 29, 1994,
multiples of certain financial criteria, such as net income, projected net
income (as represented by the median earnings per share estimates for fiscal
years 1994 and 1995 reported by Institutional Brokers Estimate System or
"I/B/E/S" except for estimated fiscal year 1995 earnings for ANGC, which were
based on estimates provided to Dillon Read by the management of ANGC), EBIT
(earnings before interest and taxes), EBITDA (earnings before interest, taxes,
depreciation and amortization), Cash Flow from Operations (net income plus
depreciation, deferred taxes, and other non-cash expenses, but not including
changes in working capital accounts), revenues and the book value of common
equity of ANGC to certain other companies which, in Dillon Read's judgment, were
comparable to ANGC for the purpose of this analysis. The factors Dillon Read
considered in selecting companies for comparison included size, particularly
equity market capitalization, financial condition and scope of business
operations. For ANGC, the group of companies used in the comparison included,
Aquila Gas Pipeline Corporation, K N Energy, Inc., Tejas Gas Corporation, Tejas
Power Corporation, Trident NGL Holding, Inc., USX-Delhi Group, and Western Gas
Resources, Inc. In addition, Dillon Read used publicly available information,
based upon market trading values as of September 29, 1994, to compare certain
financial criteria (including multiples of projected net income and historic
latest twelve months EBITDA, dividend yields, estimated five year earnings per
share growth rates, and debt to book capitalization ratios), among a group of
potential acquiror companies, including Panhandle. For purposes of analysis,
this group was composed of a number of pipeline companies (including The Coastal
Corporation, Consolidated Natural Gas Company, El Paso Natural Gas Company,
Enron Corp., NOVA Corporation, Sonat Inc., Tenneco, Inc., and The Williams
Companies, Inc.), as well as other companies which were considered appropriate
(including Chevron Corporation, IPL Energy Inc. and USX-Marathon Group).
For the group of comparable gas gathering, transportation and marketing
companies, the range, median and mean for equity market value as a multiple of
each of the indicated statistics were as follows: (a) latest twelve months net
income -- 13.2x to 29.9x, with a median of 22.1x and a mean of 21.4x, which
compared to 23.2x for ANGC; (b) projected 1994 net income -- 15.7x to 91.7x,
with a median of 31.9x and a mean of 38.2x, which compared to 23.7x for ANGC;
(c) projected 1995 net income -- 10.8x to 23.3x, with a median of 16.5x and a
mean of 16.1x, which compared to 15.6x for ANGC; and (d) latest twelve months
Cash Flow from Operations -- 5.2x to 9.3x, with a median of 8.2x and a mean of
7.7x, which compared to 8.5x for ANGC. The range, median and mean for Net Market
Capitalization (defined as equity market value plus the book value of debt and
preferred stock less cash and cash equivalents) as a multiple of each of the
indicated statistics for the group of comparable companies were as follows: (a)
latest twelve months EBITDA -- 6.7x to 12.1x, with a median of 8.6x and a mean
of 8.9x, which compared to 8.8x for ANGC; and (b) latest twelve
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months EBIT -- 9.7x to 39.4x, with a median of 17.5x and a mean of 20.4x, which
compared to 13.8x for ANGC.
For the group of potential acquiror companies the range, median and mean
for equity market value as a multiple of 1995 estimated earnings per share were
as follows: 10.2x to 18.6x, with a median of 13.2x and a mean of 13.3x, which
included a figure of 12.4x for Panhandle. The range, median and mean for Net
Market Capitalization as a multiple of latest twelve months EBITDA were as
follows: 6.4x to 12.2x, with a median of 7.7x and a mean of 8.0x, which included
a figure of 7.2x for Panhandle. The range, median and mean for dividend yields
were as follows: 1.4% to 7.0%, with a median of 3.6% and a mean of 3.6%, which
included a figure of 3.7% for Panhandle. The range, median and mean for
estimated five year earnings per share growth rates were as follows: 8.0% to
24.0%, with a median of 10.0% and a mean of 11.9%, which included a figure of
8.0% for Panhandle. The range, median and mean for debt to book capitalization
were as follows: 36.6% to 83.8% with a median of 53.7% and a mean of 53.9%,
which included a figure of 52.9% for Panhandle.
Dillon Read also compared, based upon market trading values as of September
29, 1994, certain financial criteria (including multiples of historic net
income, projected net income and book value, as well as dividend yields), for
ANGC to the Standard & Poor's 400 Industrials and the Standard & Poor's 500
indices. For the Standard & Poor's 400 Industrials and the Standard & Poor's
500, the respective multiples of current market value to (i) latest twelve
months net income were 20.7x and 18.3x, which compared to 23.7x for ANGC; and
(ii) book value were 4.0x and 3.1x, which compared to 2.0x for ANGC. For the
Standard & Poor's 500, the multiple of current market value to 1995 net income
(represented by Dillon Read's internal estimate for the Standard & Poor's 500
for the 12 months coinciding with ANGC's 1995 fiscal year, assumed to end
September 30, 1995) was 13.3x, which compared to 15.6x to ANGC. Dividend yields
(annual dividend divided by market value) for the Standard & Poor's 400
Industrials and the Standard & Poor's 500 were 2.4% and 2.8%, respectively,
which compared to 0.4% for ANGC.
The comparable company trading analysis is a valuation method used by
Dillon Read to determine whether ANGC and Panhandle were reasonably valued by
the public trading market, at existing market prices, in relation to the public
trading market's valuation of similar companies. Dillon Read did not establish
any specific valuation or reference range for ANGC or Panhandle in connection
with this analysis.
No public company utilized as a comparison is identical to ANGC, Panhandle
or the business segment for which a comparison is being made. An analysis of the
results of such a comparison is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which ANGC and Panhandle
were being compared.
Premiums Paid Analysis: Dillon Read examined median percentage premiums
paid in all publicly disclosed stock-for-stock transactions with transaction
values greater than $200 million since 1990. For purchase transactions the
analysis indicated median percentage premiums to the target company's stock
price one week prior to announcement of 43.2%, 33.8%, 64.9%, 13.5% and 23.1% in
1990, 1991, 1992, 1993, and 1994 to date, respectively. In pooling transactions,
the analysis indicated median percentage premiums to the target company's stock
price one week prior to announcement of 56.1%, 38.4%, 39.2%, and 31.0% in 1991,
1992, 1993, and 1994 to date, respectively (in 1990 no pooling transactions were
noted), compared to the premium of 23.3% offered by Panhandle in the proposed
Merger.
Pro Forma Merger Analysis: Dillon Read analyzed the pro forma earnings
impact of the proposed Merger using latest twelve months and estimated 1995
results of ANGC and Panhandle, and considered the impact on a pro forma basis of
pretax cost savings to the combined entity ranging from $0 to $18 million.
Dillon Read expressed no view on whether these savings could be obtained. Dillon
Read also analyzed the pro forma impact of the proposed Merger on the combined
entity's balance sheet, based upon ANGC's and Panhandle's balance sheets as of
June 30, 1994. With respect to projections for ANGC and Panhandle, Dillon Read
assumed that such projections were reasonably prepared upon bases reflecting the
best available estimates and judgments of the respective managements. Such
analysis indicated that earnings per share (resulting from a Merger throughout
the range of the Exchange Ratio) would be accretive to ANGC's stockholders upon
consummation of the Merger.
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Contribution Analysis: Dillon Read calculated the contribution of each of
ANGC and Panhandle to the combined entity with respect to revenues, EBIT, net
income available to common stockholders for the latest twelve months period as
well as estimates for calendar year 1995, the aggregate book value of net
assets, and the aggregate book value of common equity for the twelve-month
period ended as of June 30, 1994. Excluding revenues, which Dillon Read does not
consider truly comparable due to the substantial portion of ANGC's revenues
which are derived from its natural gas marketing operations, these calculations
yielded amounts reflecting ANGC's contribution to the combined entity ranging
from 10.8% to 12.7% of the total pro forma combined entity, with an average
contribution of 12.0%. Based on an Exchange Ratio not lower than 1.5725 nor
greater than 1.8750, ANGC's stockholders will own approximately 16.5% to 19.0%
of the Panhandle Common Stock upon consummation of the Merger, assuming no
exercise prior to the Effective Time of the ANGC Options and no conversion prior
to the Effective Time of the ANGC Convertible Notes. Furthermore, Dillon Read
noted that based on the targeted consideration of $39.00 per share, and assuming
that the Exchange Ratio is between 1.5725 and 1.8750 and that Panhandle's annual
dividend continues at $0.84 per share, ANGC's stockholders would receive an
increase in their annual dividend from $0.12 per share to between $1.32 and
$1.58 for each share of ANGC Common Stock exchanged pursuant to the Merger.
Discounted Estimated Future Stock Price and Dividend Analysis: Dillon Read
performed an analysis of the present value of estimated future stock prices of
ANGC based on various earnings per share growth rates, ranging from 15.0% (an
I/B/E/S estimate) to 22.5% (approximating historical growth), and price/earnings
multiples, ranging from 14.0x to 16.0x. Based on an assumed dividend payout
ratio of 7.0%, Dillon Read also estimated the stream of future dividend
payments. Dillon Read then discounted the projected stock prices to the present
at a rate of 15% and the estimated cash dividend stream to the present at a rate
of 11% and arrived at estimates of per share equity value for ANGC that ranged
from $29.29 to $45.60.
Comparable Mergers and Acquisitions: Using publicly available information,
Dillon Read reviewed 28 merger and acquisition transactions in the gas
gathering, transportation and marketing industry which were completed or
announced since 1987. Of these 28 transactions, twelve lacked sufficient
information to determine the latest twelve months EBITDA associated with the
company or assets to be acquired. For the other sixteen transactions, which in
Dillon Read's judgment were comparable to the Merger for the purpose of this
analysis, Dillon Read compared the multiple of Net Market Capitalization implied
by the purchase prices to latest twelve months EBITDA. In addition to fifteen
completed transactions, Dillon Read included one announced and pending (but not
yet completed) transaction because, in Dillon Read's judgment, it was also
representative of the value acquirors were willing to pay for the target
companies, and was therefore appropriate to include in its analysis. Dillon Read
also compared a subset of these sixteen transactions. The subset, which
comprised seven of the eight most recent transactions, included Natural Gas
Clearinghouse/Trident NGL Holding, K N Energy/American Oil and Gas, Associated
Natural Gas/Grand Valley Gas Company, Tejas Gas/Exxon Texas and Louisiana
Systems and West Clear Lake Storage Facility, Western Gas Resources/Mountain Gas
Resources, Associated Natural Gas/Spindle Facility, and Western Gas
Resources/Union Texas Petroleum. The comparable transaction analysis was
utilized to compare the valuation multiples for ANGC implied by the $39.00 per
share target valuation of the ANGC Common Stock in the Merger to historical
valuation multiples of gas gathering, transportation and marketing companies
involved in past or pending mergers and acquisitions.
The range and mean for the total transaction value as a multiple of latest
twelve month EBITDA for the group of 16 comparable transactions were as follows:
3.5x to 13.1x, with a mean of 7.5x. The range and mean for the total transaction
value as a multiple of latest twelve month EBITDA for the subset of seven
comparable transactions were as follows: 5.3x to 13.1x, with a mean of 8.8x.
ANGC's Net Market Capitalization valuation, based upon the consideration of
$39.00 per share of ANGC Common Stock contemplated by the Merger, as a multiple
of latest twelve months EBITDA was 10.2x.
Implied Valuation Based on Multiples of Latest Twelve Months EBITDA: Dillon
Read calculated hypothetical values for Net Market Capitalization based on
multiples of latest twelve months EBITDA (estimated to show the pro forma effect
of ANGC's acquisition of Grand Valley Gas Company) ranging from 8.5x to 10.0x.
By subtracting net debt (defined as long term debt, including current portion,
plus outstanding checks in excess of bank balances, less cash and cash
equivalents) as of June 30, 1994 from these hypothetical
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Net Market Capitalization values, Dillon Read obtained various implied equity
valuations for ANGC. Dividing these implied equity valuations by the number of
shares outstanding yielded implied values per share ranging from $30.06 to
$37.98.
Discounted Cash Flow Analysis: Dillon Read performed a discounted cash flow
valuation of ANGC using several sets of projections. Projections were as
provided in the financial plan for 1995 prepared by ANGC's management and as
extrapolated through 1999 by Dillon Read using various assumed future product
price increases (ranging from no increase to 2% in the first year and 4%
thereafter) and reinvestment rate and return assumptions (ranging from
reinvesting 75% of excess cash flow at operating margin rates decreasing from
18% to 15%, to reinvesting 100% of excess cash flow at an operating margin rate
of 18%) following discussions with ANGC's management. With respect to
projections for ANGC, Dillon Read assumed that such projections were reasonably
prepared upon bases reflecting the best available estimates and judgments of
management. Utilizing these projections, Dillon Read discounted to a present
value, under varying assumed discount rates, (i) the free unlevered cash flows
through fiscal 1999 and (ii) the projected terminal value at the end of fiscal
year 1999, utilizing various assumed multiples of operating cash flow (EBITDA).
Such analysis indicated that assuming terminal value multiples ranging from 8.0x
to 9.0x (as indicated by the comparable company trading and comparable mergers
analyses) and a discount rate of 11.0%, the net after-tax present value of
ANGC's future cash flows (less net debt of approximately $228 million) ranged
from $37.76 to $50.76 per share. Another variation of the analysis indicated
that assuming a terminal value multiple fixed at 8.5x (as indicated by the
comparable company trading and comparable mergers analyses) and discount rates
ranging from 10.0% to 12.0%, the net after-tax present value of ANGC's future
cash flows (less net debt of approximately $228 million) ranged from $38.36 to
$49.98 per share.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to particular circumstances, and, therefore, such
opinion and analysis is not readily susceptible to summary description.
Accordingly, notwithstanding the separate factors and analyses summarized above,
Dillon Read believes that its analyses must be considered as a whole and that
selecting portions of its analyses and other factors considered by it, without
considering all factors and analyses, could create an incorrect view of the
processes underlying its opinions. Dillon Read did not quantify the effect of
each factor upon its opinion. Dillon Read made numerous assumptions with respect
to industry performance, regulatory treatment, general business and economic
conditions and the other matters discussed herein, many of which are beyond
ANGC's and Panhandle's control. Any estimates contained in Dillon Read's
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of the
financial value of companies do not purport to be appraisals or necessarily
reflect the prices at which companies actually may be sold. Because such
estimates inherently are subject to uncertainty, neither Dillon Read nor any
affiliated person assumes responsibility for their accuracy. In rendering its
opinion, Dillon Read expresses no view as to the range of values at which
Panhandle Common Stock may trade following consummation of the Merger, nor does
Dillon Read make any recommendation to the holders of ANGC Common Stock with
respect to how any such holder should vote on the Merger, or as to the
advisability of disposing of or retaining such Panhandle Common Stock following
the Merger.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The ANGC Board of Directors
selected Dillon Read on the basis of the firm's expertise and reputation.
Dillon Read has acted as financial advisor to the Board of Directors of
ANGC in connection with the Merger and will receive a fee upon the consummation
thereof in addition to the fee it is receiving for rendering its opinion. In
addition, Dillon Read has performed investment banking services for, and
received compensation from, ANGC from time to time. Dillon Read has also
provided investment banking services for, and received compensation from,
Panhandle from time to time. These services have included acting as a manager or
agent for various securities offerings of ANGC, Panhandle, and various
subsidiaries of Panhandle.
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Pursuant to the terms of an engagement letter dated September 6, 1994, ANGC
has agreed to pay Dillon Read, as financial advisor to ANGC in connection with
this transaction, a fee representing 0.66% of the aggregate amount of
consideration paid to ANGC's stockholders, following consummation of the Merger,
against which amount will be credited $50,000 paid to Dillon Read in connection
with the execution of the engagement letter on September 6, 1994 and an
additional $450,000 which was earned following the rendering of the opinion
described above on October 9, 1994. Whether or not the Merger is consummated,
ANGC has also agreed to reimburse Dillon Read for its reasonable out-of-pocket
expenses, including all reasonable fees and disbursements of counsel, and to
indemnify Dillon Read and certain related persons against certain liabilities
relating to or arising out of its engagement, including certain liabilities
under federal securities laws. Dillon Read will not be additionally compensated
for any solicitation of proxies by such firm on behalf of ANGC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of ANGC's Board of Directors with respect
to the Merger, ANGC's stockholders should be aware that certain members of
ANGC's Board and management have certain interests respecting the Merger
separate from their interests as holders of ANGC Common Stock, including those
referred to below.
Under the Merger Agreement, Panhandle has agreed to take action as of the
Effective Time to assume each of the ANGC Options granted under the ANGC 1991
Equity Incentive Plan and the ANGC 1989 Non-qualified Stock Option Plan for
Directors that remains unexercised in whole or in part at such time. See
"Certain Terms of the Merger Agreement -- ANGC Options." The currently unvested
portion of the ANGC Options will be vested and exercisable in full as a result
of the Merger. Pursuant to such assumption, the assumed option will be an option
for the purchase of such number of shares of Panhandle Common Stock that the
holder of the ANGC Option being assumed would have received (without regard to
any vesting schedule) upon consummation of the Merger had such ANGC Option been
exercised immediately prior to the Effective Time, and appropriate adjustment
will be made to the per share exercise price. The following directors of ANGC
hold ANGC Options to purchase the aggregate number of shares of ANGC Common
Stock set forth after their names, with the currently unvested portion thereof
and the average exercise price of all options, including those the vesting of
which will be accelerated, shown in parentheses: Cortlandt S. Dietler -- 69,000
(33,250; $23.82); Frederick R. Mayer -- 5,000 (0; $19.125); Wayne T.
Biddle -- 5,000 (0; $19.125); John A. Redding -- 5,000 (0; $21.00); Donald H.
Anderson -- 87,000 (36,000; $23.52); Michael J. Quigley -- 77,500 (33,125;
$22.46); and Harold R. Logan, Jr. -- 63,500 (28,265; $24.09). The executive
officers of ANGC as a group (excluding Messrs. Anderson, Dietler, Logan and
Quigley, who are also directors) hold ANGC Options to purchase an aggregate of
386,690 shares of ANGC Common Stock, of which 218,003 are unvested, with an
average exercise price of $24.41. In addition, the executive officers of ANGC as
a group (including Messrs. Anderson, Dietler, Logan and Quigley, who are also
directors), hold 31,208 shares of restricted stock. All such restricted stock
will become vested as a result of the Merger. No other director owns any
restricted stock.
Certain of the executive officers and certain key employees of ANGC,
including Messrs. Anderson, Logan and Quigley, who are also directors of ANGC,
have entered into two year employment agreements with ANGC which provide that,
from and after the Effective Time until the second anniversary of the Effective
Time, upon a termination of the employment agreement for any reason other than
for "Cause" (as defined therein), such employee will be paid an amount equal to
one-half of such employee's base salary and minimum bonus set forth in such
employment agreement for the remainder of what would otherwise have been the
term of the employment agreement (but in no event for more than one year). The
employment agreements contain a covenant not to compete with ANGC and its
affiliates during the term of the agreement and during the period after
termination that the employee is receiving payments thereunder. The base
salaries and minimum bonuses of the employees under such agreements approximate
the salaries and bonuses of such employees paid by ANGC on the date the Merger
Agreement was executed.
The Merger Agreement provides that Panhandle will maintain certain
indemnification and limitation of liability provisions in ANGC's Charter and
Bylaws for a period of five years after the Effective Time, will provide a
limited guarantee of those indemnification obligations during such period, and
will continue for five
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years ANGC's directors and officers liability insurance, subject to certain
limitations. See "Certain Terms of the Merger Agreement -- Indemnification."
See "Certain Terms of the Merger Agreement -- Certain Benefit Plans and
Severance" as to post-Merger arrangements respecting ANGC employee benefit
plans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of ANGC Common Stock and is based upon
current provisions of the Code, existing regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
No attempt has been made to comment on all federal income tax consequences of
the Merger that may be relevant to particular holders, including holders that
are subject to special tax rules such as dealers in securities, foreign persons,
mutual funds, insurance companies, tax-exempt entities and holders who do not
hold their shares as capital assets. Holders of ANGC Common Stock are advised
and expected to consult their own tax advisers regarding the federal income tax
consequences of the Merger in light of their personal circumstances and the
consequences under state, local and foreign tax laws.
No ruling from the Internal Revenue Service ("IRS") has been or will be
requested in connection with the Merger. Panhandle has received from its
counsel, Vinson & Elkins L.L.P., an opinion 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 Code, that Panhandle, Merger Sub and ANGC will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code, and that Panhandle, Merger Sub and ANGC will not recognize any gain or
loss as a result of the Merger. It is a condition to the obligation of Panhandle
to consummate the Merger that such opinion shall not have been withdrawn or
modified in any material respect. ANGC has received from its counsel, Holme
Roberts & Owen LLC, an opinion 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 Code, that Panhandle, Merger Sub and ANGC will each be a party to
the reorganization within the meaning of Section 368(b) of the Code, and that
stockholders of ANGC will not recognize any gain or loss from the receipt of
Panhandle Common Stock for their ANGC Common Stock, other than with respect to
cash received in lieu of a fractional share of Panhandle Common Stock. It is a
condition to the obligation of ANGC to consummate the Merger that such opinion
shall not have been withdrawn or modified in any material respect. Such opinions
are subject to certain assumptions and based on certain representations of
Panhandle, Merger Sub and ANGC. Stockholders of ANGC should be aware that such
opinions are not binding on the IRS and no assurance can be given that the IRS
will not adopt a contrary position or that the IRS position would not be
sustained by a court.
Assuming the Merger qualifies as a reorganization under Section 368(a) of
the Code, the following federal income tax consequences will occur:
(a) no gain or loss will be recognized by Panhandle, Merger Sub or
ANGC in connection with the Merger;
(b) no gain or loss will be recognized by a holder of ANGC Common
Stock upon the exchange of all of such holder's shares of ANGC Common Stock
solely for shares of Panhandle Common Stock in the Merger;
(c) the aggregate basis of the shares of Panhandle Common Stock
received by an ANGC stockholder in the Merger (including any fractional
share deemed received) will be the same as the aggregate basis of the
shares of ANGC Common Stock surrendered in exchange therefor;
(d) the holding period of the shares of Panhandle Common Stock
received by an ANGC stockholder in the Merger will include the holding
period of the shares of ANGC Common Stock surrendered in exchange therefor,
provided that such shares of ANGC Common Stock are held as capital assets
at the Effective Time; and
(e) a stockholder of ANGC who receives cash in lieu of a fractional
share will recognize gain or loss equal to the difference, if any, between
such stockholder's basis in the fractional share (as described in paragraph
(c) above) and the amount of cash received. Such gain or loss will be a
capital gain or loss if the ANGC Common Stock is held by such stockholder
as a capital asset at the Effective Time.
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ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling of interests method of accounting assumes that the combining
companies have been merged from inception, and the historical consolidated
financial statements for periods prior to consummation of the Merger are
restated as though the companies had been combined from inception. See the
Unaudited Pro Forma Condensed Financial Information and notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus.
Panhandle and ANGC have been preliminarily advised by their independent
public accountants, KPMG Peat Marwick LLP, that the Merger should be treated as
a pooling of interests in accordance with generally accepted accounting
principles. Consummation of the Merger is conditioned upon the written
confirmation of such advice. Also, such advice contemplates that each person who
may be deemed an affiliate of ANGC or Panhandle will enter into an agreement
with Panhandle not to sell or otherwise transfer any shares of ANGC Common Stock
or Panhandle Common Stock, as the case may be, within 30 days prior to the
Effective Time or any Panhandle Common Stock thereafter prior to the publication
of financial results that include at least 30 days of post-Merger combined
operations of Panhandle and ANGC.
GOVERNMENTAL AND REGULATORY APPROVALS
Transactions such as the Merger are reviewed by the Department of Justice
and the FTC to determine whether they comply with applicable antitrust laws.
Under the provisions of the HSR Act, the Merger may not be consummated until
such time as the specified waiting period requirements of the HSR Act have been
satisfied. Panhandle and ANGC filed notification reports, together with requests
for early termination of the waiting period, with the Department of Justice and
the FTC under the HSR Act on October 18, 1994. Unless earlier terminated or a
request for additional information is made, the applicable waiting period will
expire on November 17, 1994.
At any time before or after the Effective Time, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Panhandle to divest itself, in
whole or in part, of ANGC or of other businesses conducted by Panhandle. There
can be no assurance that a challenge to the Merger will not be made or that, if
such a challenge is made, Panhandle and ANGC will prevail.
Panhandle and ANGC are aware of no other governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities laws.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Panhandle Common Stock to be received by ANGC stockholders in
connection with the Merger have been registered under the Securities Act and,
except as set forth in this paragraph, may be traded without restriction. The
shares of Panhandle Common Stock to be issued in connection with the Merger and
received by persons who are deemed to be "affiliates" (as that term is defined
in Rule 144 under the Securities Act) of ANGC prior to the Merger may be resold
by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act (or, in the case of such persons who become affiliates
of Panhandle, Rule 144 under the Securities Act) or as otherwise permitted under
the Securities Act. Under guidelines published by the Commission, the sale or
other disposition of Panhandle Common Stock or ANGC Common Stock by an affiliate
of either Panhandle or ANGC, as the case may be, within 30 days prior to the
Effective Time or the sale or other disposition of Panhandle Common Stock
thereafter prior to the publication of financial results that include at least
30 days of post-Merger combined operations of Panhandle and ANGC (the "Pooling
Period") could preclude pooling of interests accounting treatment of the Merger.
Accordingly, the Merger Agreement provides that each of ANGC and Panhandle will
use all reasonable efforts to cause its affiliates to execute a written
agreement to the effect that such persons will not sell, transfer or otherwise
dispose of any shares of ANGC Common Stock or Panhandle Common Stock, as the
case may be, during the Pooling Period and, with respect to affiliates of ANGC,
that such persons will not sell, transfer or otherwise dispose of Panhandle
Common Stock at any time in violation of the Securities Act or the rules and
regulations promulgated thereunder, including Rule 145.
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RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, neither Panhandle's nor ANGC's stockholders will be
entitled to any appraisal or dissenter's rights in connection with the Merger.
CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, a copy of which is
attached as Appendix I to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, as promptly as practicable after the
satisfaction or waiver of the conditions to closing the Merger, the parties
shall cause the Merger to be consummated by filing a Certificate of Merger with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with the relevant provisions of, Delaware law (the
date and time of such filing, or such later date or time agreed upon by
Panhandle and ANGC and set forth therein, being the "Effective Time"). It is
anticipated that, if the Panhandle Issuance of Common Stock is approved at the
Panhandle Special Meeting and the Merger Agreement is approved and adopted at
the ANGC Special Meeting and all other conditions to the Merger have been
satisfied or waived, the Effective Time will occur on the date of the Special
Meetings or as soon thereafter as practicable.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, each outstanding share of ANGC Common Stock, other
than shares of ANGC Common Stock held in the treasury of ANGC or owned by
Panhandle or any direct or indirect wholly-owned subsidiary of either Panhandle
or ANGC, which shares will be canceled at the Effective Time, will be converted
into the right to receive a number of shares of Panhandle Common Stock
calculated by dividing (x) $39.00 by (y) the Average Daily Price of the
Panhandle Common Stock, with the result rounded down to the nearest ten
thousandth; provided, however that if the Average Daily Price of the Panhandle
Common Stock is less than $20.80, the Exchange Ratio shall be 1.8750, and if the
Average Daily Price of the Panhandle Common Stock is greater than $24.80, the
Exchange Ratio shall be 1.5725. As used in the Merger Agreement, the "Average
Daily Price of the Panhandle Common Stock" means the average of the closing
prices (or, if the Panhandle Common Stock should not trade on any trading day,
the average of the bid and asked prices therefor on such day), regular way, per
share of Panhandle Common Stock as reported on the New York Stock Exchange
Composite Tape during the fifteen consecutive trading days ending on (but
excluding) the third trading day prior to the ANGC Special Meeting.
Notwithstanding the foregoing, if between the date of the Merger Agreement and
the Effective Time the outstanding shares of Panhandle Common Stock or ANGC
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
As soon as practicable following the Effective Time, Panhandle will mail to
each record holder of ANGC Common Stock immediately prior to the Effective Time,
a letter of transmittal and other information advising such holder of the
consummation of the Merger and for use in exchanging ANGC Common Stock
certificates for Panhandle Common Stock certificates and cash in lieu of
fractional shares. Letters of transmittal will also be available following the
Effective Time at the offices of Panhandle in Houston, Texas. After the
Effective Time, there will be no further registration of transfers on the stock
transfer books of ANGC of shares of ANGC Common Stock that were outstanding
immediately prior to the Effective Time. Share certificates should not be
surrendered for exchange by stockholders of ANGC prior to the Effective Time and
the receipt of a letter of transmittal.
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No fractional shares of Panhandle Common Stock will be issued in the
Merger. Each stockholder of ANGC entitled to a fractional share will receive an
amount in cash equal to the value of such fractional share based upon the
closing price of Panhandle Common Stock on the NYSE Composite Tape on the date
of the Effective Time. No interest will be paid on such amount, and all shares
of ANGC Common Stock held by a record holder shall be aggregated for purposes of
computing the amount of such payment.
Until so surrendered and exchanged, each certificate previously evidencing
ANGC Common Stock shall represent solely the right to receive Panhandle Common
Stock and cash in lieu of fractional shares. Unless and until any such
certificates shall be so surrendered and exchanged, no dividends or other
distributions payable to the holders of record of Panhandle Common Stock as of
any time on or after the Effective Time shall be paid to the holders of such
certificates previously evidencing ANGC Common Stock; provided, however, that,
upon any such surrender and exchange of such certificates, there shall be paid
to the record holders of the certificates issued and exchanged therefor (i) the
amount, without interest thereon, of dividends and other distributions, if any,
with a record date on or after the Effective Time theretofore paid with respect
to such whole shares of Panhandle Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, if any, with a
record date on or after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such whole shares of
Panhandle Common Stock.
ANGC OPTIONS
The Merger Agreement provides that Panhandle and ANGC will take such action
as may be necessary to permit Panhandle to assume, at the Effective Time, each
ANGC Option that remains unexercised in whole or in part and to substitute
shares of Panhandle Common Stock for shares of ANGC Common Stock purchasable
under such assumed ANGC Option, subject to certain terms and conditions. The
assumed ANGC Option will not give the optionee additional benefits which such
optionee did not have under the ANGC Option, and shall be assumed on the same
terms and conditions as the ANGC Option being assumed, subject to the matters
described in the following paragraph.
The number of shares of Panhandle Common Stock purchasable under any ANGC
Option assumed by Panhandle will be equal to the number of shares of Panhandle
Common Stock that the holder of the ANGC Option would have received (without
regard to any vesting schedule) upon consummation of the Merger had such ANGC
Option been exercised in full immediately prior to the Effective Time, and the
per share exercise price will be equal to the per share exercise price of the
ANGC Option divided by the Exchange Ratio.
CONDITIONS TO THE MERGER
The respective obligations of Panhandle and ANGC to consummate the Merger
are subject to the satisfaction of the following conditions, any or all of which
may be waived in writing by the parties hereto, in whole or in part, to the
extent permitted by applicable law: (a) the Registration Statement shall have
been declared effective by the Commission under the Securities Act, no stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceedings for that purpose shall have been
initiated by the Commission, and Panhandle shall have received all "Blue Sky"
permits and other authorizations necessary to consummate the transactions
contemplated by the Merger Agreement; (b) the Merger Agreement and the Merger
shall have been approved and adopted by the requisite vote of the stockholders
of ANGC, and the issuance of the Panhandle Common Stock in the Merger shall have
been approved by the requisite vote of the stockholders of Panhandle; (c) no
Governmental Entity or federal or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger; (d) the applicable waiting period under the HSR Act with respect to the
transactions contemplated by the Merger Agreement shall have expired or been
terminated; and (e) Panhandle and ANGC shall have been advised in writing by
KPMG Peat Marwick LLP on the Closing Date that the Merger should be treated for
financial accounting purposes as a pooling of interests in
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accordance with generally accepted accounting principles and the rules,
regulations and interpretations of the Commission.
The obligation of Panhandle to effect the Merger is also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any or
all of which may be waived in writing by Panhandle, in whole or in part, to the
extent permitted by applicable law: (a) each of the representations and
warranties of ANGC contained in the Merger Agreement shall be true and correct
as of the Closing Date as though made on and as of the Closing Date (except to
the extent such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date); (b) ANGC shall have performed or complied with
all agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Closing Date; (c) since the date of the
Merger Agreement, there shall have been no change, occurrence or circumstance in
the current or future business, financial condition or results of operations of
ANGC or any of its subsidiaries having or reasonably likely to have,
individually or in the aggregate, a material adverse effect on the financial
condition, results of operations or current or future business of ANGC and its
subsidiaries, taken as a whole; (d) there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any Governmental Entity in connection with the
grant of a regulatory approval necessary, in the reasonable business judgment of
Panhandle, to the continuing operation of the current or future business of
ANGC, which imposes any condition or restriction upon Panhandle or the business
or operations of ANGC which, in the reasonable business judgment of Panhandle,
would be materially burdensome in the context of the transactions contemplated
by the Merger Agreement; (e) Vinson & Elkins L.L.P. shall have delivered to
Panhandle its written opinion as of the date that the Panhandle Proxy Statement
is first mailed to Panhandle stockholders substantially to the effect that (x)
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, (y) Panhandle, Merger Sub and ANGC will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (z)
Panhandle, Merger Sub and ANGC will not recognize any gain or loss for U.S.
federal income tax purposes as a result of the Merger, and such opinion shall
not have been withdrawn or modified in any material respect; and (f) the
employees of ANGC set forth in a letter from Panhandle to ANGC shall have
entered into employment agreements with ANGC, effective as of the Effective
Time, in form and substance reasonably acceptable to Panhandle.
The obligation of ANGC to effect the Merger is also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any or
all of which may be waived in writing by ANGC, in whole or in part, to the
extent permitted by applicable law: (a) each of the representations and
warranties of Panhandle and Merger Sub contained in the Merger Agreement shall
be true and correct as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date); (b) Panhandle and
Merger Sub shall have performed or complied with all agreements and covenants
required by the Merger Agreement to be performed or complied with by them on or
prior to the Closing Date; (c) since the date of the Merger Agreement, there
shall have been no change, occurrence or circumstance in the current or future
business, financial condition or results of operations of Panhandle or any of
its subsidiaries having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the financial condition, results of
operations or current or future business of Panhandle and its subsidiaries,
taken as a whole; (d) there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any Governmental Entity in connection with the grant of a regulatory
approval necessary, in the reasonable business judgment of ANGC, to the
continuing operation of the current or future business of Panhandle, which
imposes any condition or restriction upon Panhandle or the business or
operations of Panhandle which, in the reasonable business judgment of ANGC,
would be materially burdensome in the context of the transactions contemplated
by the Merger Agreement; (e) the shares of Panhandle Common Stock to be issued
in the Merger shall have been approved for listing (subject to official notice
of issuance) on the NYSE; and (f) Holme Roberts & Owen LLC shall have delivered
to ANGC its written opinion as of the date that the ANGC Proxy Statement is
first mailed to ANGC stockholders substantially to the effect that (x) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code, (y) Panhandle, Merger Sub and ANGC will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (z) no gain
or loss for U.S. federal
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income tax purposes will be recognized by the holders of ANGC Common Stock upon
receipt of shares of Panhandle Common Stock in the Merger, except with respect
to any cash received in lieu of a fractional share interest in Panhandle Common
Stock, and such opinion shall not have been withdrawn or modified in any
material respect.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
ANGC, Merger Sub and Panhandle relating to, among other things, (i) each of
their organization and similar corporate matters, (ii) each of their
capitalization, (iii) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters, and the absence of
conflicts, violations and defaults under their respective charters and bylaws
and certain other agreements and documents, (iv) compliance with law, (v) the
documents and reports filed by them with the Commission and the accuracy of the
information contained therein, (vi) the absence of certain changes and events,
(vii) litigation, (viii) employee benefit matters, (ix) taxes and matters
relating to a tax-free reorganization, (x) certain matters relating to pooling
of interests accounting, (xii) certain business practices, (xiii) environmental
matters, (xiv) vote required, (xv) brokers, (xvi) insurance, (xvii) properties,
(xviii) certain contracts and restrictions, (xix) title to property, (xx)
certain regulatory matters, (xxi) futures trading and fixed price exposure, and
(xxii) the accuracy of certain information provided. The representations and
warranties expire at the Effective Time.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE MERGER
Each of ANGC and Panhandle has agreed that, prior to the Effective Time,
unless otherwise expressly contemplated by the Merger Agreement or consented to
in writing by the other, it will and will cause its subsidiaries to (a) operate
its business in all material respects in the usual and ordinary course
consistent with past practices; (b) use all reasonable efforts to preserve
substantially intact its business organization, maintain its material rights and
franchises, retain the services of its respective officers and key employees and
maintain its relationships with its material customers and suppliers; (c)
maintain and keep its material properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain supplies
and inventories in quantities consistent with its customary business practice;
and (d) use all reasonable efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that currently
maintained.
ANGC has agreed that, prior to the Effective Time, except as expressly
contemplated by the Merger Agreement or otherwise consented to in writing by
Panhandle, it will not do, and will not permit any of its subsidiaries to do,
any of the following: (a)(i) increase the compensation payable to or to become
payable to any director or executive officer, subject to certain exceptions;
(ii) grant any severance or termination pay to, or enter into or amend any
employment or severance agreement with, any director, officer or employee,
subject to certain exceptions; (iii) establish, adopt or enter into any employee
benefit plan or arrangement; or (iv) amend, or take any other actions with
respect to, any of ANGC's benefit plans, subject to certain exceptions; (b)
declare or pay any dividend on, or make any other distribution in respect of,
outstanding shares of capital stock, with certain exceptions including a
provision permitting regular quarterly dividends with respect to ANGC Common
Stock in an amount not to exceed $.03 per share; (c)(i) except for certain
matters, redeem, purchase or otherwise acquire any shares of its or any of its
subsidiaries' capital stock or any securities or obligations convertible into or
exchangeable for any shares of its or its subsidiaries' capital stock, or any
options, warrants or conversion or other rights to acquire any shares of its or
its subsidiaries' capital stock or any such securities or obligations; (ii)
effect any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its subsidiaries' capital stock; (d)(i)
except for certain matters and except as contemplated by the Stock Option
Agreement, issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of any class of its or
its subsidiaries' capital stock, any securities convertible into or exercisable
or exchangeable for any such shares, or any rights, warrants or options to
acquire any such shares; (ii) amend or otherwise modify
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the terms of any such rights, warrants or options the effect of which shall be
to make such terms more favorable to the holders thereof; (iii) take any action
to optionally accelerate the exercisability of ANGC Options; (e) acquire or
agree to acquire any business or other entity, or otherwise acquire or agree to
acquire any assets of any other person (with certain exceptions) in each case
which are material, individually or in the aggregate, to ANGC and its
subsidiaries, taken as a whole; (f) sell or otherwise dispose of any of its
material assets or any material assets of any of its subsidiaries, with certain
exceptions; (g) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a Competing
Transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement; (h) adopt or propose to adopt certain
amendments to its charter or bylaws; (i) change any of its methods of accounting
or take certain actions with respect to taxes; (j) incur any obligation for
borrowed money or purchase money indebtedness, with certain exceptions; (k)
enter into certain material contracts; (l) take (and will use reasonable efforts
to prevent any affiliate of ANGC from taking) any action that, in the judgment
of KPMG Peat Marwick LLP, would cause the Merger not to be treated as a "pooling
of interests" for financial accounting purposes; or (m) agree in writing or
otherwise to do any of the foregoing.
Panhandle has agreed that, prior to the Effective Time, except as expressly
contemplated by the Merger Agreement or otherwise consented to in writing by
ANGC, it will not do, and will not permit any of its subsidiaries to do, any of
the following: (i) knowingly take any action which would result in a failure to
maintain the trading of the Panhandle Common Stock on the NYSE; (ii) declare or
pay any dividend on, or make any other distribution in respect of, outstanding
shares of capital stock, with certain exceptions including a provision
permitting regular quarterly dividends with respect to Panhandle Common Stock in
an amount not to exceed $.21 per share; (iii) acquire or agree to acquire, by
merging or consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets of any other person (other than
the purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice), which, in each case, would
materially delay or prevent the consummation of the transactions contemplated by
this Agreement; (iv) adopt or propose to adopt any amendments to its charter or
bylaws, which would have an adverse impact on the consummation of the Merger;
(v) take (and will use reasonable efforts to prevent any affiliate of Panhandle
from taking) any action that, in the judgment of KPMG Peat Marwick LLP, would
cause the Merger not to be treated as a "pooling of interests" for financial
accounting purposes; or (vi) agree in writing or otherwise to do any of the
foregoing.
NO SOLICITATION
Additionally, ANGC has agreed not to initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal relating to,
or that may reasonably be expected to lead to, any Competing Transaction, or
enter into discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers, directors or
employees of ANGC or any of its subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by ANGC or any of
ANGC's subsidiaries to take any such action, and ANGC shall promptly notify
Panhandle of all relevant terms of any such inquiries and proposals received by
ANGC or any of its subsidiaries or by any such officer, director, investment
banker, financial advisor, attorney, accountant or other representative relating
to any of such matters and if such inquiry or proposal is in writing, ANGC shall
promptly deliver or cause to be delivered to Panhandle a copy of such inquiry or
proposal; provided, however, that the Board of Directors of ANGC may (i) furnish
information to, or enter into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide proposal in writing by such
person or entity to acquire ANGC pursuant to a merger, consolidation, share
exchange, business combination or other similar transaction or to acquire a
substantial portion of the assets of ANGC or any of its Significant
Subsidiaries, if, and only to the extent that (A) the Board of Directors of
ANGC, after consultation with and based upon the advice of independent legal
counsel (who may be ANGC's regularly engaged independent legal counsel),
determines in good faith that such action is necessary for such Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law and (B) prior to furnishing such information to, or entering into
discussions or negotiations
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with, such person or entity ANGC (x) provides written notice to Panhandle to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity and (y) enters into with such person or
entity a confidentiality agreement in reasonably customary form on terms not
more favorable to such person or entity than the terms contained in that certain
Confidentiality Agreement dated as of September 8, 1994 between Panhandle and
ANGC; (ii) comply with Rule 14e-2 promulgated under the Exchange Act with regard
to a Competing Transaction; or (iii) fail to make or withdraw or modify its
recommendation of the Merger and the Merger Agreement if there exists a
Competing Transaction and the Board of Directors of ANGC, after consultation
with and based upon the advice of independent legal counsel (who may be ANGC's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law.
CERTAIN POST-MERGER MATTERS
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and ANGC as the Surviving Corporation will succeed to all of the
assets, rights and obligations of Merger Sub.
Pursuant to the Merger Agreement, the ANGC Charter and the ANGC Bylaws, as
in effect immediately prior to the Effective Time, will be the certificate of
incorporation and bylaws of the Surviving Corporation until amended as provided
therein and pursuant to the Delaware General Corporation Law ("DGCL").
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement and the Merger by
the stockholders of ANGC: (a) by mutual consent of Panhandle and ANGC; (b) by
Panhandle, upon a breach of any representation, warranty, covenant or agreement
on the part of ANGC set forth in the Merger Agreement, or if any representation
or warranty of ANGC shall have become untrue, in either case such that
Panhandle's conditions to closing would be incapable of being satisfied by March
31, 1995 (or as otherwise extended as permitted by the Merger Agreement); (c) by
ANGC, upon a breach of any representation, warranty, covenant or agreement on
the part of Panhandle or Merger Sub set forth in the Merger Agreement, or if any
representation or warranty of Panhandle or Merger Sub shall have become untrue,
in either case such that ANGC's conditions to closing would be incapable of
being satisfied by March 31, 1995 (or as otherwise extended as permitted by the
Merger Agreement); (d) by either Panhandle or ANGC, if there shall be any Order
which is final and nonappealable preventing the consummation of the Merger,
subject to a limited exception; (e) by either Panhandle or ANGC, if the Merger
shall not have been consummated before March 31, 1995; provided, however, that
the Merger Agreement may be extended by written notice of either Panhandle or
ANGC to a date not later than June 30, 1995, if the Merger shall not have been
consummated as a direct result of ANGC, Panhandle or Merger Sub having failed by
March 31, 1995 to receive all required regulatory approvals or consents with
respect to the Merger; (f) by either Panhandle or ANGC, if the Merger Agreement
and the Merger shall fail to receive the requisite vote for approval and
adoption by the stockholders of ANGC at the ANGC Special Meeting or if the
issuance of the Panhandle Common Stock in connection with the Merger shall fail
to receive the requisite vote for approval by the stockholders of Panhandle at
the Panhandle Special Meeting; (g) by Panhandle, if (1) the Board of Directors
of ANGC withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger in a manner adverse to Panhandle or shall have resolved
to do any of the foregoing; (2) the Board of Directors of ANGC shall have
recommended to the stockholders of ANGC any Competing Transaction or shall have
resolved to do so; (3) a tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of ANGC is commenced, and the Board of
Directors of ANGC does not recommend that stockholders not tender their shares
into such tender or exchange offer, or; (4) any person (other than Panhandle or
an affiliate thereof) shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder), shall have been formed which beneficially owns, or has the right to
acquire beneficial ownership of, 20% or more of the then outstanding shares of
capital stock of ANGC; or (h) by ANGC, if the Board of Directors of ANGC (x)
fails to make or withdraws its recommendation to
41
<PAGE> 48
ANGC's stockholders of the Merger Agreement if there exists at such time a
Competing Transaction, or (y) recommends to ANGC's stockholders approval or
acceptance of a Competing Transaction, in each case only if the Board of
Directors of ANGC, after consultation with and based upon the advice of
independent legal counsel (who may be ANGC's regularly engaged independent legal
counsel), determines in good faith that such action is necessary for such Board
of Directors to comply with its fiduciary duties to stockholders under
applicable law.
Subject to limited exceptions, including the survival of ANGC's agreement
to pay a termination fee to Panhandle under certain circumstances as discussed
below, in the event of the termination of the Merger Agreement, the Merger
Agreement shall become void, there shall be no liability on the part of
Panhandle, Merger Sub or ANGC to the other and all rights and obligations of the
parties thereto shall cease, except that no party will be relieved of any
liability for (i) any breach of such party's covenants or agreements contained
in the Merger Agreement, or (ii) any willful breach of such party's
representations or warranties contained in the Merger Agreement.
The Merger Agreement may be amended by the parties by action taken by or on
behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of ANGC, (i) no amendment, which under applicable law may not be
made without the approval of the stockholders of ANGC, may be made without such
approval, and (ii) no amendment, which under the applicable rules of the NYSE,
may not be made without the approval of the stockholders of Panhandle, may be
made without such approval. At any time prior to the Effective Time, any party
to the Merger Agreement may (a) extend the time for the performance of any of
the obligations or other acts of the other party thereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
therein or in any document delivered pursuant thereto and (c) waive compliance
by the other party with any of the agreements or conditions contained therein.
EXPENSES AND TERMINATION FEE
All expenses incurred by Panhandle and ANGC will be borne by the party
incurring such expenses; provided, however, that the allocable share of
Panhandle and ANGC for all expenses related to printing, filing and mailing the
Registration Statement, the ANGC Proxy Statement and the Panhandle Proxy
Statement and all regulatory filing fees (other than the filing fee for
registering Panhandle Common Stock pursuant to the Registration Statement, which
shall be paid by Panhandle) incurred in connection with the Registration
Statement, the ANGC Proxy Statement and the Panhandle Proxy Statement shall be
one-half each.
The Merger Agreement also provides that ANGC will pay to Panhandle a fee
equal to $20,000,000, which amount will be inclusive of all of Panhandle's
expenses, if the Merger Agreement is terminated in accordance with its terms:
(a) by Panhandle after a wilful breach by ANGC, if ANGC shall have had contacts
or entered into negotiations after the date of the Merger Agreement regarding a
Competing Transaction, and within twelve months of the termination of the Merger
Agreement ANGC consummates a Business Combination or enters into a definitive
agreement providing for a Business Combination (as defined below) with any
person with whom such contacts had been made; (b) by either Panhandle or ANGC if
the Merger Agreement fails to receive the requisite vote for approval and
adoption by the stockholders of ANGC at the ANGC Special Meeting, and at the
time of such meeting there shall exist a Competing Transaction; (c) by Panhandle
if the Board of Directors of ANGC withdraws, modifies or changes its
recommendation of the Merger Agreement or the Merger in a manner adverse to
Panhandle (or resolves to do so) and, at such time, there exists a Competing
Transaction; (d) by Panhandle, if the Board of Directors of ANGC shall recommend
any Competing Transaction to ANGC's stockholders (or resolves to do so); (e) by
Panhandle, if a tender or exchange offer for 20% or more of the capital stock of
ANGC is commenced, and ANGC's Board of Directors does not recommend that its
stockholders not tender their shares into such tender offer or exchange offer;
or (f) by ANGC, if the Board of Directors of ANGC (i) fails to recommend (or
withdraws its recommendation of) approval and adoption by its stockholders of
the Merger and the Merger Agreement and there exists a Competing Transaction, or
(ii) recommends a Competing Transaction, in each case upon a determination in
good faith, after consultation with and based on the advice of independent legal
counsel, that such action is necessary for such Board to comply with its
fiduciary duties under applicable law.
42
<PAGE> 49
The Merger Agreement defines "Business Combination" as (i) a merger,
consolidation, share exchange, business combination or similar transaction
involving ANGC, (ii) a sale, lease, exchange, transfer or other disposition of
20% or more of the assets of ANGC and its subsidiaries, taken as a whole, in a
single transaction or a series of transactions, or (iii) the acquisition, by a
person (other than Panhandle or any affiliate thereof) or group (as such term is
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act) of 20% or more of the ANGC Common Stock whether by tender or exchange offer
or otherwise.
CERTAIN BENEFIT PLANS AND SEVERANCE
The Merger Agreement provides that Panhandle will keep ANGC's benefit plans
(or benefit plans providing reasonably comparable benefits), other than ANGC's
option plans, in effect for a period of at least 50 weeks after the Effective
Time. Any employee of ANGC (other than certain executive officers and key
personnel of ANGC who have entered into employment agreements with ANGC) whose
employment is terminated by ANGC during such period after the Effective Time
shall be entitled to (i) a severance benefit equal to two month's base salary
plus the product of one-half of a month's base salary multiplied by the number
of such employee's full or partial years of service with ANGC or any successor
and (ii) the continuance of such employee's health benefits for six months after
such termination on the same basis as immediately prior to such termination.
INDEMNIFICATION
The Merger Agreement provides that, for a period of five years after the
Effective Time, Panhandle (i) shall not amend or otherwise modify certain
limitation of liability and indemnification provisions of ANGC's Charter and
By-laws in a manner that would adversely affect the rights thereunder of any
individuals who at any time prior to the Effective Time were directors or
officers of ANGC in respect of acts or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
the Merger Agreement), unless such amendment or modification is required by law,
(ii) shall guarantee the performance by ANGC of its obligations under such
provisions to the extent of the excess, if any, of (A) the net worth of ANGC as
of the Effective Time over (B) the net worth of ANGC as of the date of any claim
under such provisions by a person referred to in the foregoing clause (i), and
(iii) shall cause to be maintained in effect the current policies of directors'
and officers' liability insurance maintained by ANGC (or substitute policies
under certain circumstances) with respect to claims arising from facts or events
which occurred before the Effective Time; provided, however that in no event
shall Panhandle be required to expend more than 200% of the current annual
premiums paid by ANGC for such insurance.
STOCK OPTION AGREEMENT
Panhandle and ANGC have entered into a Stock Option Agreement dated October
9, 1994 (the "Stock Option Agreement") in connection with, and as consideration
for, Panhandle's and Merger Sub's execution of the Merger Agreement. Under the
Stock Option Agreement, ANGC has granted to Panhandle an irrevocable option (the
"Option") to purchase up to 3,007,948 shares of ANGC Common Stock (the "Option
Shares") for the Exercise Price (as defined below), which Option is exercisable
in whole or in part at any time and from time to time after the occurrence of a
Trigger Event (as defined below) and prior to the Expiration Date (as defined
below).
"Exercise Price" means $39.00 per share; provided, however, if as of the
exercise date of the Option the Closing Price (as defined below) is more than
$3.50 in excess of the Exercise Price, then the Exercise Price shall be
increased to an amount equal to the Closing Price less $3.50. The term
"Expiration Date" means the earlier to occur of (i) the Effective Time; or (ii)
5:00 p.m., Houston time, on the date which is 90 days following the occurrence
of a Trigger Event. The term "Closing Price" as of any date means the average of
the closing prices (or, if the ANGC Common Stock should not trade on any trading
day, the average of the bid and asked prices therefor on such day), regular way,
per share of the ANGC Common Stock as reported on
43
<PAGE> 50
the NYSE Composite Tape during the five consecutive trading days ending on (and
including) the trading day immediately prior to such date.
A "Trigger Event" occurs if the Merger Agreement is terminated in
accordance with its terms: (a) by Panhandle after a wilful breach by ANGC, if
ANGC shall have had contacts or entered into negotiations after the date of the
Merger Agreement regarding a Competing Transaction, and within twelve months of
the termination of the Merger Agreement ANGC consummates a Business Combination
or enters into a definitive agreement providing for a Business Combination (as
defined in the Merger Agreement) with any person with whom such contacts had
been made; (b) by either Panhandle or ANGC if the Merger Agreement fails to
receive the requisite vote for approval and adoption by the stockholders of ANGC
at the ANGC Special Meeting, and at the time of such meeting there shall exist a
Competing Transaction; (c) by Panhandle if the Board of Directors of ANGC
withdraws, modifies or changes its recommendation of the Merger Agreement or the
Merger in a manner adverse to Panhandle (or resolves to do so) and, at such
time, there exists a Competing Transaction; (d) by Panhandle, if the Board of
Directors of ANGC shall recommend any Competing Transaction to ANGC's
stockholders (or resolves to do so); (e) by Panhandle, if a tender or exchange
offer for 20% or more of the capital stock of ANGC is commenced, and ANGC's
Board of Directors does not recommend that its stockholders not tender their
shares into such tender offer or exchange offer; or (f) by ANGC, if the Board of
Directors of ANGC (i) fails to recommend (or withdraws its recommendation of)
approval and adoption by its stockholders of the Merger and the Merger Agreement
and there exists a Competing Transaction, or (ii) recommends a Competing
Transaction, in each case upon a determination in good faith, after consultation
with and based on the advice of independent legal counsel, that such action is
necessary for such Board to comply with its fiduciary duties under applicable
law.
The Stock Option Agreement has been filed as an Exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, and is
incorporated herein by reference.
IRREVOCABLE PROXIES
In consideration for Panhandle's and Merger Sub's execution of the Merger
Agreement, each of the directors and certain executive officers and key
employees of ANGC executed an irrevocable proxy (an "Irrevocable Proxy")
appointing Panhandle as his proxy to vote any shares of ANGC Common Stock owned
by such person (whether owned on the date of such Irrevocable Proxy or
thereafter acquired) in favor of the Merger and adoption of the Merger
Agreement, and against any business combination proposal or other matter that
may interfere with or be inconsistent with the Merger or the Merger Agreement
(including any Competing Transaction), at any meeting of stockholders of ANGC
(or consent in lieu thereof) and any adjournment or adjournments thereof. The
Irrevocable Proxies are not revocable, and provide that the shares of ANGC
Common Stock subject to the Irrevocable Proxy may not be transferred unless
notice is given of the Irrevocable Proxy to the transferee, and the transferee
agrees that the shares transferred will remain subject to the Irrevocable Proxy.
The Irrevocable Proxies, which as of the Record Date covered an aggregate of
1,469,483 shares of ANGC Common Stock (or approximately 9.7% of the ANGC Common
Stock entitled to vote at the ANGC Special Meeting), will terminate
automatically on the earliest to occur of (i) the Effective Time, (ii)
termination of the Merger Agreement pursuant its terms, and (iii) June 30, 1995.
The form of Irrevocable Proxy has been filed as an Exhibit to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part,
and is incorporated herein by reference.
44
<PAGE> 51
MARKET PRICES OF COMMON STOCK AND DIVIDEND INFORMATION
The Panhandle Common Stock is traded on the NYSE and the Pacific Stock
Exchange under the symbol "PEL" and the ANGC Common Stock is traded on the NYSE
under the symbol "NGA." The following table sets forth the range of high and low
per share sale prices for Panhandle Common Stock and ANGC Common Stock for the
periods indicated, as reported on the NYSE Composite Tape, and the cash
dividends paid on each share of Panhandle Common Stock and ANGC Common Stock.
<TABLE>
<CAPTION>
PANHANDLE ANGC
---------------------------- ------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
----- ----- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
1992*
First Quarter.......................... $15 7/8 $13 1/2 $ 0.20 $30 $18 1/8 $ 0.03
Second Quarter......................... 17 1/4 12 7/8 0.20 24 3/4 19 1/4 0.03
Third Quarter.......................... 19 3/8 15 3/4 0.20 30 7/8 22 1/2 0.03
Fourth Quarter......................... 19 3/4 16 1/4 0.20 30 5/8 27 5/8 0.03
1993*
First Quarter.......................... $23 3/4 $16 3/4 $ 0.20 $34 3/4 $25 1/2 $ 0.03
Second Quarter......................... 25 19 3/4 0.20 37 32 1/4 0.03
Third Quarter.......................... 27 1/4 23 0.20 41 32 0.03
Fourth Quarter......................... 26 20 3/8 0.20 39 1/2 28 1/2 0.03
1994*
First Quarter.......................... $25 1/2 $20 5/8 $ 0.21 $36 3/8 $31 1/4 $ 0.03
Second Quarter......................... 22 1/4 18 1/4 0.21 37 31 7/8 0.03
Third Quarter.......................... 23 1/2 19 1/2 0.21 35 15/1 28 1/4 0.03
Fourth Quarter (through November 10)... 23 5/8 21 5/8 -- 38 3/8 30 3/8 --
</TABLE>
- ---------------
* Calendar quarters. Panhandle's fiscal year ends on December 31, and ANGC's
fiscal year ends on September 30.
On October 7, 1994, the last trading day prior to the announcement by
Panhandle and ANGC that they had executed the Merger Agreement, the closing per
share sale prices of Panhandle Common Stock and ANGC Common Stock, as reported
on the NYSE Composite Tape, were $22 5/8 and $34 1/4, respectively. See the
cover page of this Joint Proxy Statement/Prospectus for a recent closing price
of Panhandle Common Stock and ANGC Common Stock.
Following the Merger, Panhandle Common Stock will continue to be traded on
the NYSE and the Pacific Stock Exchange. Following the Merger, ANGC Common Stock
will cease to be traded on the NYSE, and there will be no further market for
such stock.
Panhandle has paid cash dividends on the Panhandle Common Stock each year
since 1939, and anticipates that it will maintain the current $0.21 per share
quarterly dividend level on the Panhandle Common Stock after the Merger,
although future dividend payments will necessarily depend on Panhandle's
earnings and financial condition, capital requirements and other relevant
factors.
ANGC has paid cash dividends on the ANGC Common Stock each year since 1990
and, if the Merger is not consummated, intends to maintain the current $0.03 per
share quarterly dividend level, although future dividend payments will
necessarily depend on ANGC's earnings and financial condition, capital
requirements and other relevant factors.
45
<PAGE> 52
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information reflects
adjustments to the historical consolidated balance sheets and statements of
income of Panhandle and ANGC to give effect to the Merger, using the pooling of
interests method of accounting for a business combination.
ANGC's consolidated financial statements are based on a fiscal year end of
September 30 as compared with Panhandle's fiscal year end of December 31. As a
result, the unaudited pro forma financial information combines different
calendar periods. The unaudited pro forma condensed balance sheet as of
September 30, 1994 assumes that the Merger occurred as of that date and reflects
the combination of the historical balance sheet of Panhandle as of September 30,
1994 with the historical balance sheet of ANGC as of June 30, 1994. The pro
forma adjustments reflected in the pro forma condensed financial information
give effect to the issuance of 25.8 million shares of Panhandle Common Stock as
of September 30, 1994, assuming an Exchange Ratio of 1.7105 (the Exchange Ratio
resulting from an Average Daily Price of the Panhandle Common Stock of $22.80,
which is the midpoint of the price range of $20.80 and $24.80 for Panhandle
Common Stock used to determine the maximum and minimum Exchange Ratios of 1.8750
and 1.5725, respectively). The historical balance sheets of ANGC have been
restated to reflect ANGC's merger with Grand Valley that was effective July 1,
1994 and was accounted for as a pooling of interests.
The unaudited pro forma condensed statements of income for the nine months
ended September 30, 1994 and September 30, 1993, and for the years ended
December 31, 1993, 1992 and 1991 assume that the Merger occurred as of January
1, 1991, and combine the historical results of operations of Panhandle for the
nine months ended September 30, 1994 and September 30, 1993, and the years ended
December 31, 1993, 1992 and 1991 with the historical results of operations of
ANGC for the nine months ended June 30, 1994 and June 30, 1993, and the years
ended September 30, 1993, 1992 and 1991, respectively. The historical results of
operations for ANGC have been restated to reflect ANGC's merger with Grand
Valley.
The following unaudited pro forma condensed financial information has been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Panhandle and ANGC,
incorporated by reference in this Joint Proxy Statement/Prospectus or included
elsewhere herein. The following unaudited pro forma condensed statements of
income are not necessarily indicative of the results of operations that would
have occurred had the Merger occurred on January 1, 1991, nor are they
necessarily indicative of future operating results of the combined companies.
46
<PAGE> 53
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PANHANDLE
NINE MONTHS ANGC NINE
ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
1994 1994 PRO FORMA
------------- ------------ ----------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING REVENUES
Sales of natural gas and liquids......................... $ 689.0 $1,583.4 $2,272.4
Transportation of natural gas............................ 950.5 19.1 969.6
Natural gas storage and other............................ 165.1 9.6 174.7
-------- -------- --------
Total............................................ 1,804.6 1,612.1 3,416.7
-------- -------- --------
COSTS AND EXPENSES
Gas purchased............................................ 615.7 1,496.2 2,111.9
Operating and maintenance................................ 379.7 33.0 412.7
General and administrative............................... 173.1 22.3 195.4
Depreciation and amortization............................ 167.3 22.8 190.1
Miscellaneous taxes...................................... 60.1 -- 60.1
-------- -------- --------
Total............................................ 1,395.9 1,574.3 2,970.2
-------- -------- --------
Operating Income........................................... 408.7 37.8 446.5
-------- -------- --------
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated affiliates.......... 24.2 -- 24.2
Other income, net of deductions.......................... (0.9) 0.9 --
-------- -------- --------
Total............................................ 23.3 0.9 24.2
-------- -------- --------
Gross Income............................................... 432.0 38.7 470.7
INTEREST EXPENSE........................................... 166.7 12.2 178.9
-------- -------- --------
Income before Income Tax................................... 265.3 26.5 291.8
INCOME TAX................................................. 108.1 11.7 119.8
-------- -------- --------
NET INCOME................................................. $ 157.2 $ 14.8 $ 172.0
======== ======== ========
Average Common Shares Outstanding.......................... 120.4 146.1
======== ========
Earnings per Common Share.................................. $ 1.31 $ 1.18
======== ========
</TABLE>
See accompanying notes to pro forma condensed financial information.
47
<PAGE> 54
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
PANHANDLE
NINE MONTHS ANGC NINE
ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
1993 1993 PRO FORMA
----------- ----------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING REVENUES
Sales of natural gas and liquids......................... $1,059.3 $1,299.5 $2,358.8
Transportation of natural gas............................ 728.7 10.8 739.5
Natural gas storage and other............................ 137.9 6.1 144.0
-------- -------- --------
Total............................................ 1,925.9 1,316.4 3,242.3
-------- -------- --------
COSTS AND EXPENSES
Gas purchased............................................ 718.2 1,216.3 1,934.5
Operating and maintenance................................ 401.7 25.9 427.6
General and administrative............................... 167.6 16.5 184.1
Depreciation and amortization............................ 169.6 17.4 187.0
Miscellaneous taxes...................................... 61.6 -- 61.6
-------- -------- --------
Total............................................ 1,518.7 1,276.1 2,794.8
-------- -------- --------
Operating Income........................................... 407.2 40.3 447.5
-------- -------- --------
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated affiliates.......... 14.2 -- 14.2
Other income, net of deductions.......................... 13.9 0.8 14.7
-------- -------- --------
Total............................................ 28.1 0.8 28.9
-------- -------- --------
Gross Income............................................... 435.3 41.1 476.4
INTEREST EXPENSE........................................... 212.7 10.1 222.8
-------- -------- --------
Income before Income Tax................................... 222.6 31.0 253.6
INCOME TAX................................................. 93.1 12.3 105.4
-------- -------- --------
NET INCOME................................................. $ 129.5 $ 18.7 $ 148.2
======== ======== ========
Average Common Shares Outstanding.......................... 113.4 138.4
======== ========
Earnings per Common Share.................................. $ 1.14 $ 1.07
======== ========
</TABLE>
See accompanying notes to pro forma condensed financial information.
48
<PAGE> 55
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PANHANDLE ANGC
YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1993 PRO FORMA
------------ ------------- ---------
<S> <C> <C> <C>
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING REVENUES
Sales of natural gas and liquids........................ $1,277.8 $1,768.9 $3,046.7
Transportation of natural gas........................... 1,045.3 12.1 1,057.4
Natural gas storage and other........................... 190.1 7.8 197.9
-------- -------- --------
Total........................................... 2,513.2 1,788.8 4,302.0
-------- -------- --------
COSTS AND EXPENSES
Gas purchased........................................... 918.6 1,657.0 2,575.6
Operating and maintenance............................... 621.2 34.2 655.4
General and administrative.............................. 227.7 22.1 249.8
Depreciation and amortization........................... 227.2 23.6 250.8
Miscellaneous taxes..................................... 78.6 -- 78.6
-------- -------- --------
Total........................................... 2,073.3 1,736.9 3,810.2
-------- -------- --------
Operating Income.......................................... 439.9 51.9 491.8
-------- -------- --------
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated affiliates......... 16.1 -- 16.1
Other income, net of deductions......................... 64.0 1.1 65.1
-------- -------- --------
Total........................................... 80.1 1.1 81.2
-------- -------- --------
Gross Income.............................................. 520.0 53.0 573.0
INTEREST EXPENSE.......................................... 269.3 13.2 282.5
-------- -------- --------
Income before Income Tax.................................. 250.7 39.8 290.5
INCOME TAX................................................ 102.6 16.3 118.9
-------- -------- --------
NET INCOME................................................ $ 148.1 $ 23.5 $ 171.6
======== ======== ========
Average Common Shares Outstanding......................... 115.0 140.0
======== ========
Earnings per Common Share................................. $ 1.29 $ 1.23
======== ========
</TABLE>
See accompanying notes to pro forma condensed financial information.
49
<PAGE> 56
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
PANHANDLE ANGC
YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
1992 1992 PRO FORMA
------------ ------------- ---------
<S> <C> <C> <C>
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
OPERATING REVENUES
Sales of natural gas and liquids........................ $1,729.6 $1,111.8 $2,841.4
Transportation of natural gas........................... 750.9 7.1 758.0
Natural gas storage and other........................... 275.8 6.1 281.9
-------- -------- --------
Total........................................... 2,756.3 1,125.0 3,881.3
-------- -------- --------
COSTS AND EXPENSES
Gas purchased........................................... 1,033.5 1,025.4 2,058.9
Operating and maintenance............................... 551.7 25.4 577.1
General and administrative.............................. 246.1 16.3 262.4
Depreciation and amortization........................... 237.0 21.9 258.9
Miscellaneous taxes..................................... 75.5 -- 75.5
-------- -------- --------
Total........................................... 2,143.8 1,089.0 3,232.8
-------- -------- --------
Operating Income.......................................... 612.5 36.0 648.5
-------- -------- --------
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated affiliates......... 5.8 -- 5.8
Other income, net of deductions......................... (11.0) 1.6 (9.4)
-------- -------- --------
Total........................................... (5.2) 1.6 (3.6)
-------- -------- --------
Gross Income.............................................. 607.3 37.6 644.9
INTEREST EXPENSE.......................................... 294.8 12.4 307.2
-------- -------- --------
Income before Income Tax.................................. 312.5 25.2 337.7
INCOME TAX................................................ 125.4 10.3 135.7
-------- -------- --------
NET INCOME................................................ $ 187.1 $ 14.9 $ 202.0
======== ======== ========
Average Common Shares Outstanding......................... 108.2 132.3
======== ========
Earnings per Common Share................................. $ 1.73 $ 1.53
======== ========
</TABLE>
See accompanying notes to pro forma condensed financial information.
50
<PAGE> 57
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
PANHANDLE ANGC
YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
1991 1991 PRO FORMA
------------ ------------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING REVENUES
Sales of natural gas and liquids.................... $1,900.3 $725.9 $2,626.2
Transportation of natural gas....................... 601.8 5.0 606.8
Natural gas storage and other....................... 171.6 4.9 176.5
-------- ------ --------
Total....................................... 2,673.7 735.8 3,409.5
-------- ------ --------
COSTS AND EXPENSES
Gas purchased....................................... 1,116.1 657.0 1,773.1
Operating and maintenance........................... 540.7 21.2 561.9
General and administrative.......................... 258.1 12.1 270.2
Depreciation and amortization....................... 251.3 17.5 268.8
Miscellaneous taxes................................. 74.9 -- 74.9
-------- ------ --------
Total....................................... 2,241.1 707.8 2,948.9
-------- ------ --------
Operating Income...................................... 432.6 28.0 460.6
-------- ------ --------
OTHER INCOME AND DEDUCTIONS
Equity in earnings of unconsolidated affiliates..... 21.6 -- 21.6
Other income, net of deductions..................... 29.9 1.9 31.8
-------- ------ --------
Total....................................... 51.5 1.9 53.4
-------- ------ --------
Gross Income.......................................... 484.1 29.9 514.0
INTEREST EXPENSE...................................... 336.0 8.6 344.6
-------- ------ --------
Income before Income Tax.............................. 148.1 21.3 169.4
INCOME TAX............................................ 62.3 7.7 70.0
-------- ------ --------
NET INCOME............................................ $ 85.8 $ 13.6 $ 99.4
======== ====== ========
Average Common Shares Outstanding..................... 98.9 120.5
======== ========
Earnings per Common Share............................. $ 0.87 $ 0.82
======== ========
</TABLE>
See accompanying notes to pro forma condensed financial information.
51
<PAGE> 58
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1994
ASSETS
<TABLE>
<CAPTION>
PANHANDLE ANGC
SEPTEMBER 30, JUNE 30, PRO FORMA
1994 1994 ADJUSTMENTS PRO FORMA
------------- --------- ----------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....................... $ 53.2 $ 70.1 $ $ 123.3
Accounts and notes receivable................... 200.3 190.7 391.0
Inventory and supplies.......................... 113.7 22.6 136.3
Other........................................... 296.3 3.8 300.1
--------- ------- -------- ---------
Total................................... 663.5 287.2 -- 950.7
--------- ------- -------- ---------
INVESTMENTS
Affiliates...................................... 146.7 -- 146.7
Other........................................... 75.5 -- 75.5
--------- ------- -------- ---------
Total................................... 222.2 -- -- 222.2
--------- ------- -------- ---------
PLANT, PROPERTY AND EQUIPMENT
Original cost................................... 7,355.6 563.5 7,919.1
Accumulated depreciation and amortization....... (2,859.3) (114.5) (2,973.8)
--------- ------- -------- ---------
Net plant, property and equipment....... 4,496.3 449.0 -- 4,945.3
--------- ------- -------- ---------
DEFERRED CHARGES
Goodwill, net................................... 317.8 28.0 345.8
Prepaid pension................................. 235.5 -- 235.5
Other........................................... 841.5 15.4 856.9
--------- ------- -------- ---------
Total................................... 1,394.8 43.4 -- 1,438.2
--------- ------- -------- ---------
TOTAL ASSETS...................................... $ 6,776.8 $ 779.6 $ -- $ 7,556.4
========= ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Long-term debt due within one year.............. $ 125.0 $ 4.1 $ $ 129.1
Rate refund provisions.......................... 194.5 -- 194.5
Accounts payable................................ 80.6 194.8 275.4
Accrued interest................................ 57.9 2.8 60.7
Taxes payable................................... 57.3 -- 57.3
Other........................................... 458.2 55.3 513.5
--------- ------- -------- ---------
Total................................... 973.5 257.0 -- 1,230.5
--------- ------- -------- ---------
DEFERRED LIABILITIES AND CREDITS
Deferred income tax............................. 1,168.9 42.3 1,211.2
Deferred revenue -- liquefied natural gas
project...................................... 71.8 -- 71.8
Other........................................... 872.6 1.0 873.6
--------- ------- -------- ---------
Total................................... 2,113.3 43.3 -- 2,156.6
--------- ------- -------- ---------
LONG-TERM DEBT.................................... 1,926.0 239.1 -- 2,165.1
--------- ------- -------- ---------
COMMON STOCKHOLDERS' EQUITY
Common stock.................................... 120.7 0.8 25.0 146.5
Paid-in capital................................. 2,056.8 167.7 (25.0) 2,199.5
Retained earnings (deficit)..................... (413.5) 71.7 -- (341.8)
--------- ------- -------- ---------
Total................................... 1,764.0 240.2 -- 2,004.2
--------- ------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 6,776.8 $ 779.6 $ -- $ 7,556.4
========= ======= ======== =========
</TABLE>
See accompanying notes to pro forma condensed financial information.
52
<PAGE> 59
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
On October 9, 1994, Panhandle, Merger Sub, a wholly-owned subsidiary of
Panhandle, and ANGC entered into an Agreement and Plan of Merger that provides
for the merger of Merger Sub with and into ANGC. Under the terms of the Merger
Agreement, each outstanding share of ANGC Common Stock will be converted into
the right to receive between 1.5725 and 1.8750 shares of Panhandle Common Stock,
depending on the Average Daily Price of Panhandle Common Stock during a
specified 15 day period prior to completion of the Merger. The business
combination is to be accounted for using the pooling of interests method of
accounting for business combinations. Panhandle's fiscal year ends December 31
and ANGC's fiscal year ends September 30. As disclosed in ANGC's audited
consolidated financial statements and notes thereto contained in this Joint
Proxy Statement/Prospectus, ANGC's historical amounts have been restated to
reflect ANGC's merger with Grand Valley that was effective July 1, 1994 and was
accounted for as a pooling of interests. Certain historical amounts presented in
Panhandle's and ANGC's Form 10-K's for their 1993 fiscal years and ANGC's
Quarterly Report on Form 10-Q for the third fiscal quarter of 1994, incorporated
by reference in this Joint Proxy Statement/Prospectus, have been reclassified to
conform to the current reporting presentation.
2. PRO FORMA ADJUSTMENTS
(a) The adjustments to stockholders' equity as of September 30, 1994 give
effect to the issuance of 25.8 million shares of Panhandle Common Stock in
exchange for 15.1 million shares of ANGC Common Stock outstanding as of June 30,
1994 and give effect to the retirement of the ANGC Common Stock, assuming an
Exchange Ratio of 1.7105 (the Exchange Ratio resulting from an Average Daily
Price of the Panhandle Common Stock of $22.80, which is the midpoint of the
price range of $20.80 and $24.80 for Panhandle Common Stock used to determine
the maximum and minimum Exchange Ratios of 1.8750 and 1.5725, respectively).
(b) Certain reclassifications have been made to the historical financial
information of Panhandle to conform with ANGC's presentation.
3. PRO FORMA EARNINGS PER SHARE
The pro forma average common shares outstanding have been computed by
adjusting the historical average common shares outstanding for Panhandle by the
pro forma effect of the shares assumed to be issued in exchange for the
outstanding ANGC Common Stock.
4. MERGER EXPENSES
The unaudited pro forma condensed financial information excludes
nonrecurring expenses incurred as a direct result of the Merger transaction.
These expenses, which primarily consist of financial advisory, legal, accounting
and other professional fees, are expected to total approximately $10 million and
will be included in the consolidated statements of income of Panhandle and ANGC,
as appropriate, in the periods incurred.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS OF PANHANDLE AND ANGC
PANHANDLE
The following table sets forth information with respect to stockholders of
Panhandle who were known to Panhandle to own more than 5% of the Panhandle
Common Stock outstanding as of the Record Date. The information set forth below
is based solely upon information furnished by such stockholders or contained in
filings made by such persons with the Commission, and is as of the dates
specified below.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF PANHANDLE COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL ---------------------------------
BENEFICIAL OWNER OWNERSHIP BEFORE MERGER AFTER MERGER(1)
- --------------------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Employees' Savings Plan of 9,386,044 7.8% 6.4%
Panhandle Eastern Corporation(2)
5400 Westheimer Court
Houston, Texas 77056-5310
State Street Bank of Boston and Trust(3) 7,906,115 6.5% 5.4%
225 Franklin Street
Boston, Massachusetts 02110-2875
Sonatrach Petroleum Investment 7,500,000 6.2% 5.1%
Corporation, B.V.(4)
Sloterkade 138F
1058 HM
Amsterdam, The Netherlands
Ark Asset Management Company, Inc.(5) 6,197,300 5.1% 4.2%
1 New York Plaza, 29th Floor
New York, New York 10004-1901
Barrow, Hanley, Mewhinney & Strauss, Inc.(6) 6,165,418 5.1% 4.2%
200 Crescent Court, Suite 1900
Dallas, Texas 75201-1870
</TABLE>
- ---------------
(1) Upon consummation of the Merger, assuming that (i) no change occurs in
shares owned as of the indicated date, (ii) 120,714,811 shares of Panhandle
Common Stock and 15,117,514 shares of ANGC Common Stock are outstanding at
the Effective Time and (iii) the Exchange Ratio is 1.7105. If the Exchange
Ratio is 1.8750, these percentages would be as follows: Employees' Savings
Plan of Panhandle Eastern Corporation ("ESP") -- 6.3%, State Street Bank of
Boston and Trust ("State Street") -- 5.3%, Sonatrach Petroleum Investment
Corporation, B.V. ("Sonatrach PIC") -- 5.0%, Ark Asset Management Company,
Inc. ("Ark") -- 4.2% and Barrow, Hanley, Mewhinney & Strauss, Inc.
("Barrow") -- 4.1%. If the Exchange Ratio is 1.5725, these percentages
would be as follows: ESP -- 6.5%, State Street -- 5.5%, Sonatrach -- 5.2%,
Ark -- 4.3% and Barrow -- 4.3%.
(2) ESP holds shares of Common Stock for the account of participants, who are
employees of Panhandle and participating affiliates. Generally, the ESP
passes through to participants the right to vote shares of Common Stock
allocated to their accounts and to tender such shares in response to a
tender or exchange offer for Common Stock. The ESP is administered by an
administrative committee whose members are H. D. Church, Senior Vice
President of TETCO; Paul F. Ferguson, Jr., Vice President and Treasurer of
Panhandle; D. R. Hennig, Vice President of PEPL, TETCO and Trunkline; James
B. Hipple, Senior Vice President and Chief Financial Officer of Panhandle;
Theopolis Holeman, Vice President of PEPL; Sandra P. Meyer, Controller of
Panhandle; Michael J. Bradley, Vice President of Centana; and J. D. Rogers,
General Manager, Administration, of Algonquin. Holdings of ESP are as of
September 30, 1994.
(3) Based on a Form 13F filed by State Street with respect to its holdings on
June 30, 1994.
(Notes continued on following page)
54
<PAGE> 61
(4) Sonatrach PIC is a Dutch corporation owned by two shareholders: Sonatrach
(the national oil and gas company of Algeria), which owns a 99.9 percent
interest, and Banque Algerienne du Commerce Exterieur ("BACE"), a Swiss
bank, which owns a 0.1 percent interest. The principal executive offices of
Sonatrach are located at 10, Rue du Sahara, Hydra, Algiers (Algeria), and
the principal executive offices of BACE are located at Schutzengasse 4,
Postfach, 8023 Zurich, Switzerland. Sonatrach and BACE are wholly owned by
the government of Algeria. Holdings of Sonatrach PIC are as of the Record
Date.
(5) Based on a Form 13F filed by Ark with respect to its holdings on June 30,
1994.
(6) Based on a Form 13F filed by Barrow with respect to its holdings on June 30,
1994.
Information as to the beneficial ownership of Panhandle Common Stock by the
directors and executive officers of Panhandle is set forth under "A. Election of
Directors" and "Security Ownership of Management" in the proxy statement of
Panhandle dated March 11, 1994 respecting its 1994 Annual Meeting of
Stockholders, which information is incorporated by reference in Panhandle's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference." Upon consummation of the Merger, no such person will own
beneficially as much as 1% of the outstanding shares of Panhandle Common Stock.
ANGC
The following table sets forth information with respect to stockholders of
ANGC who were known to ANGC to own more than 5% of the ANGC Common Stock
outstanding as of the Record Date. The information set forth below is based
solely upon information furnished by such stockholders or contained in filings
made by such persons with the Commission, and is as of the dates specified
below.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND PERCENT OF
NATURE OF OF ANGC PANHANDLE
BENEFICIAL COMMON COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP STOCK STOCK(4)
----------------------------------------------- ----------- ------- ---------
<S> <C> <C> <C>
Merrill Lynch Investment Management, Inc. 1,250,000(1) 8.3% 1.5%
and Merrill Lynch Growth Fund for
Investment and Retirement
Post Office Box 9011
Princeton, New Jersey 28540-9011
Cortlandt S. Dietler 877,749(2) 5.8% 1.0%
370 Seventeenth Street, Suite 900
Denver, Colorado 80202
Warburg, Pincus Counsellors 804,571(3) 5.3% 0.9%
466 Lexington Avenue
New York, New York 10017
</TABLE>
- ---------------
(1) Based on a Form 13F filed by Merrill Lynch Investment Management, Inc. and
Merrill Lynch Growth Fund for Investment and Retirement (collectively,
"MLIM") with respect to their holdings on June 30, 1994.
(2) Includes options to purchase 69,000 shares, all of which will vest upon
consummation of the Merger. Holdings of Mr. Dietler are as of the Record
Date.
(3) Based on a Form 13F filed by Warburg Pincus Counsellors, Inc. ("Warburg")
with respect to its holdings on June 30, 1994.
(4) Upon consummation of the Merger, assuming that (i) no change occurs in
shares of ANGC Common Stock owned the indicated date, (ii) 120,714,811
shares of Panhandle Common Stock and 15,117,514 shares of ANGC Common Stock
are outstanding at the Effective Time and (iii) the Exchange Ratio is
1.7105. If the Exchange Ratio is 1.8750, these percentages would be as
follows: MLIM -- 1.6%, Cortlandt S. Dietler ("Dietler") -- 1.1% and
Warburg -- 1.0%. If the Exchange Ratio is 1.5725, these percentages would
be as follows: MLIM -- 1.4%, Dietler -- 1.0%, and Warburg -- 0.9%.
55
<PAGE> 62
Information as to the beneficial ownership of ANGC Common Stock by the
directors and executive officers of ANGC is set forth under "Security Ownership
of Management" in the proxy statement of ANGC dated February 10, 1994 respecting
its 1994 Annual Meeting of Stockholders, which information is incorporated by
reference in ANGC's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 incorporated herein by reference. See "Incorporation of
Certain Documents by Reference." Upon consummation of the Merger, no such person
will own beneficially as much as 1% of the outstanding shares of Panhandle
Common Stock, except for Cortlandt S. Dietler, who will own beneficially
approximately 1.0% of such shares (based on the assumptions set forth in the
first sentence of footnote (4) to the above table).
Certain information relating to the management, executive compensation,
certain relationships and related transactions pertaining to Panhandle and ANGC
is set forth or incorporated by reference in their respective Annual Reports on
Form 10-K for the years ended December 31, 1993 and September 30, 1993,
respectively. Such Annual Reports are incorporated by reference in this Joint
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference."
DESCRIPTION OF PANHANDLE CAPITAL STOCK
GENERAL
At the Record Date, the authorized capital stock of Panhandle consisted of
300,000,000 shares of common stock, of which 120,714,811 were outstanding, and
3,000,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock"), none of which were outstanding.
The descriptions set forth below of the Panhandle Common Stock, Preferred
Stock and Rights (as defined below) constitute brief summaries of certain
provisions of Panhandle's Restated Certificate of Incorporation (the "Panhandle
Charter") and By-Laws, the Rights Agreement between Panhandle and Continental
Stock Transfer & Trust Company and other documents, all of which are filed as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part and are incorporated herein by reference. Such
summaries do not purport to be complete and are qualified in their entirety by
reference to such documents.
PANHANDLE COMMON STOCK
General. Each share of Panhandle Common Stock has one vote on all matters
on which stockholders are entitled or permitted to vote, including the election
or removal of directors. Holders of the Panhandle Common Stock have no
redemption or conversion rights, participate ratably in any distribution of
assets to stockholders in liquidation, subject to the preferential rights of
holders of the Preferred Stock, and have no preemptive or other subscription
rights. Cumulative voting is not permitted in the election of directors. Holders
of the Panhandle Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors of Panhandle out of funds legally available
therefor, subject to the preferential rights of the holders of the Preferred
Stock then outstanding. All outstanding shares of Panhandle Common Stock are,
and the shares to be issued pursuant to the Merger Agreement will be, fully paid
and nonassessable. Continental Stock Transfer & Trust Company is Co-Transfer
Agent and Co-Registrar, with Panhandle, for the Panhandle Common Stock.
General Provisions of Panhandle Charter and By-Laws. The By-Laws of
Panhandle provide that the Board shall consist of no less than three members,
divided into three classes, each class to have a three-year term. The three-year
terms of office of the directors shall expire at successive annual meetings of
the stockholders, so that one class is elected each year. Under the Panhandle
Charter, the By-Laws of Panhandle may only be altered, amended or repealed by
(a) resolution adopted by a majority of the Board or (b) at any annual or
special meeting of stockholders by the affirmative vote of not less than 75% of
the holders of shares of stock at the time entitled to vote generally in the
election of directors ("Voting Stock").
The Panhandle Charter also requires that certain "Business Transactions,"
including mergers, consolidations and sales of a substantial amount of assets,
between Panhandle and a "Related Person" (e.g., any person who is the beneficial
owner of more than 10% of the voting power of Panhandle) be approved by the
56
<PAGE> 63
affirmative vote of the holders of at least 80% of the outstanding Voting Stock
unless (a) the transaction is approved by two-thirds of the "Continuing
Directors" of Panhandle (generally, the members of the Board as constituted
prior to the time such Related Person became a Related Person, with such
additional persons as such members shall appoint or nominate for election by the
stockholders), or (b) the transaction is a merger or consolidation in which
stockholders of Panhandle will receive at least a certain minimum price for
their shares (based on the highest price paid by the Related Person in specified
instances) and certain other conditions are satisfied.
PREFERRED STOCK
The Board, without further action by the stockholders, is authorized to
issue shares of Preferred Stock in one or more series and, with certain
limitations, to determine preferences as to dividends and in liquidation, and
voting, conversion, redemption and other rights of each series. The Board could
issue a series or series of Preferred Stock with rights more favorable with
respect to dividends and liquidation than those held by the holders of Panhandle
Common Stock.
RIGHTS
On March 11, 1986, the Board declared a dividend of one Participating
Preferred Stock Purchase Right (a "Right") for each outstanding share of
Panhandle Common Stock held of record on March 21, 1986 or issued thereafter and
prior to the date the Rights become exercisable. Shares of Panhandle Common
Stock issued pursuant to the Merger Agreement will be accompanied by an equal
number of Rights. Until the Rights become exercisable, they will be evidenced by
certificates for shares of Panhandle Common Stock and will automatically trade
with such Panhandle Common Stock. If and when the Rights become exercisable,
Rights certificates will be distributed and the Rights will become separately
tradeable.
Each Right entitles the holder thereof to purchase from Panhandle one
one-hundredth of a share of Participating Preferred Stock for a price of
$103.63, subject to certain anti-dilution adjustments. The Rights become
exercisable after the tenth day following the date on which a public
announcement is made that any Person (as defined in the Panhandle Charter) has
acquired Beneficial Ownership (as defined in the Panhandle Charter) of 20% or
more of the Panhandle Common Stock or the date on which a Person commences or
makes a public announcement of its intent to commence a tender or exchange offer
to acquire (when added to shares already Beneficially Owned by such Person) 30%
or more of the Panhandle Common Stock. The Rights expire on the earlier of (i)
March 1, 1996 or, if later, the third anniversary of the date on which the
Rights became exercisable and (ii) the date on which the Rights are redeemed.
Panhandle is entitled to redeem the Rights at any time prior to the tenth day
after a public announcement that a Person has acquired 20% or more of the
Panhandle Common Stock at a redemption price of $0.0415 per Right. Panhandle may
also redeem the Rights within two years after such date in connection with an
acquisition of Panhandle by a Person other than a Person Beneficially Owning 20%
or more of the Panhandle Common Stock (an "Acquiring Person") if such
acquisition is approved by a majority of the shares of Panhandle Common Stock
(excluding shares owned by an Acquiring Person).
Prior to the expiration of the Rights, with certain exceptions, Panhandle
may not (a) consolidate with or merge with or into any other Person (other than
a wholly-owned subsidiary of Panhandle) or have any other Person (other than a
wholly-owned subsidiary of Panhandle) consolidate with or merge with or into
Panhandle if, in connection therewith, all or part of the Panhandle Common Stock
is changed in any way or is converted into or exchanged for stock or other
securities or cash or other property, (b) sell or otherwise transfer (or allow
one or more of its subsidiaries to sell or otherwise transfer) assets (i)
aggregating more than 50% of the assets (measured by book value), (ii)
aggregating more than 50% of the assets (measured by fair market value) or (iii)
generating more than 50% of the operating income or cash flow, of Panhandle and
its subsidiaries (taken as a whole) to any other Person (other than Panhandle or
a wholly-owned subsidiary of Panhandle) or to two or more such Persons which are
affiliated, (c) engage in certain transactions with Acquiring Persons, or (d)
permit certain other events to occur at such time as there shall be an Acquiring
Person, unless in any such case provision is made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, a number of shares of
57
<PAGE> 64
publicly traded common stock of the Acquiring Person or the Person engaging in
the transaction (or an affiliate or associate thereof) which at the time of such
transaction would have a market value equal to twice the then current exercise
price of the Right. The terms of the Rights may be amended by Panhandle in any
manner which does not adversely affect the holders thereof.
Holders of the Rights have no right to vote or to receive dividends.
RESTRICTIONS ON DIVIDENDS
At September 30, 1994, under the most restrictive covenant limiting the
payment of dividends by Panhandle, the consolidated stockholders' equity
available for the payment of dividends was $721.4 million.
COMPARATIVE RIGHTS OF PANHANDLE AND ANGC STOCKHOLDERS
If the Merger is consummated, the stockholders of ANGC will become
stockholders of Panhandle. The rights of the stockholders of both Panhandle and
ANGC are governed by and subject to the provisions of the DGCL. The rights of
current ANGC stockholders following the Merger will be governed by the Panhandle
Charter and Panhandle's By-Laws rather than the provisions of the ANGC Charter
and ANGC's By-Laws. The following is a brief summary of certain differences
between the rights of Panhandle stockholders and the rights of ANGC
stockholders, and is qualified in its entirety by reference to the relevant
provisions of the DGCL, the Panhandle Charter, Panhandle's By-Laws, the ANGC
Charter and ANGC's By-Laws.
NUMBER AND CLASSIFICATION OF BOARD OF DIRECTORS
The Panhandle Charter and Panhandle's By-Laws provide for the
classification of the Board of Directors of Panhandle into three classes, with
directors serving staggered three-year terms. The Panhandle Charter also
provides that the number of directors shall be fixed from time to time by the
Board of Directors of Panhandle, but may not consist of less than three persons.
The foregoing provisions cannot be altered, amended or repealed without the
affirmative vote of the holders of not less than 75% of the Voting Stock.
Currently, the number of Panhandle directors is 12.
The ANGC Charter and ANGC's By-Laws do not provide for the classification
of the Board of Directors of ANGC. ANGC's By-Laws provide that the number of
directors shall be fixed from time to time by the ANGC Board, but may not
consist of less than three nor more than seven persons. Currently, the number of
ANGC directors is seven.
POWER TO CALL SPECIAL MEETINGS
Panhandle's By-Laws provide that a special meeting of stockholders may be
called by a majority of directors then in office or by the Chief Executive
Officer of Panhandle. ANGC's By-Laws provide that a special meeting of
stockholders may be called by the Chairman, Chief Executive Officer, President,
Board of Directors or by the holders of at least 10% of the stock entitled to
vote at the meeting.
STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
The Panhandle Charter contains certain provisions that require that a
higher percentage of stockholders approve certain mergers, consolidations, sales
of a substantial amount of assets and other similar transactions than would
otherwise be required under the DGCL, subject to certain exceptions. See
"Description of Panhandle Capital Stock." The ANGC Charter does not contain a
similar provision.
ACTION BY WRITTEN CONSENT
Panhandle's Charter does not permit action to be taken by stockholders
without a meeting. ANGC's Bylaws permit the taking of stockholder action by
written consent of holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize such action at a meeting.
58
<PAGE> 65
AMENDMENTS OF BYLAWS
Panhandle's Bylaws may be amended by the Board of Directors of Panhandle or
by the holders of not less than 75% of the outstanding stock of Panhandle.
ANGC's Bylaws may be amended by the Board of Directors of ANGC and by the
holders of a majority of the outstanding shares present and entitled to vote at
a meeting, provided that a quorum (consisting of a majority of the shares
outstanding and entitled to vote) is present.
Also see "Description of Panhandle Capital Stock."
CERTAIN LITIGATION
On October 11, 1994, two separate lawsuits were filed in the Delaware Court
of Chancery on behalf of stockholders of ANGC against ANGC and its directors
and, in one of the lawsuits, also against Panhandle (collectively, the
"Defendants"). The lawsuits are captioned Jay Glatzer v. Dietler, et al., C.A.
No. 13791 and 7547 Partners v. Dietler, et al., C.A. No. 13796 (collectively,
the "Actions"). The complaints in the Actions allege, among other things, that
the Defendants (other than Panhandle) have breached their fiduciary duties to
ANGC stockholders by causing ANGC to enter into the Merger Agreement at a
grossly inadequate price, by causing ANGC to enter into the Stock Option
Agreement and agree to the $20 million termination fee, by granting the
irrevocable proxies to Panhandle, by not adequately soliciting other bidders for
ANGC, and by using their unequal knowledge and economic power to the detriment
of ANGC stockholders. The Glatzer Action also alleges that Panhandle has
knowingly aided and abetted the individual Defendants' breaches of fiduciary
duty by offering to reward them by maintaining and enhancing their positions in
the combined company. The complaints in the Actions seek, among other things,
(i) a declaration that the Actions are properly maintainable as class actions,
(ii) an order preliminarily and permanently enjoining consummation of the
proposed transaction (and, in one of the Actions, requiring that ANGC be placed
for auction or that a market check be conducted), (iii) the award of
compensatory damages, and (iv) the award of costs and disbursements. The
Defendants believe that the allegations contained in the complaint are wholly
without merit, and intend to contest the Actions vigorously.
INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of KPMG Peat Marwick LLP will be
present at the Panhandle Special Meeting and the ANGC Special Meeting to respond
to appropriate questions of stockholders and to make a statement if they so
desire.
LEGAL MATTERS
The validity of the Panhandle Common Stock offered hereby has been passed
upon for Panhandle by Vinson & Elkins L.L.P., Houston, Texas. Certain tax
consequences of the Merger have been passed upon for Panhandle by Vinson &
Elkins L.L.P., Houston, Texas, and for ANGC by Holme Roberts & Owen LLC, Denver,
Colorado.
EXPERTS
The consolidated financial statements and financial statement schedules,
included in Panhandle's annual report on Form 10-K for the year ended December
31, 1993, have been incorporated by reference herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP covering Panhandle's December 31, 1993 consolidated financial
statements refers to changes in the method of accounting for income taxes and
postretirement benefits other than pensions.
The consolidated financial statements and financial statements schedules
included in ANGC's annual report on Form 10-K for the year ended September 30,
1993 have been incorporated by reference herein and
59
<PAGE> 66
in the Registration Statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The supplemental consolidated financial statements of ANGC appearing
elsewhere herein have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and in reliance upon the report of
Arthur Andersen LLP, independent public accountants, appearing in the
Registration Statement, and upon the authority of said firms as experts in
accounting and auditing. The supplemental consolidated financial statements give
retroactive effect to the merger with Grand Valley effective July 1, 1994.
STOCKHOLDERS' PROPOSALS
Any proposals of holders of Panhandle Common Stock intended to be presented
at the Annual Meeting of Stockholders of Panhandle to be held in 1995 must have
been received by Panhandle, addressed to the Corporate Secretary at 5400
Westheimer Court, P.O. Box 1642, Houston, Texas 77251-1642, no later than
November 11, 1994, to be considered for inclusion in the proxy statement and
form of proxy relating to that meeting.
If the Merger is not consummated, any proposals of stockholders of ANGC
intended to be presented at the Annual Meeting of Stockholders of ANGC to be
held in 1995 must have been received by ANGC, addressed to the Secretary at 370
17th Street, Suite 900, Denver, Colorado 80202, no later than September 3, 1994,
to be considered for inclusion in the proxy statement and form of proxy relating
to that meeting.
60
<PAGE> 67
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets, September 30, 1993 and 1992............................ F-3
Consolidated Statements of Operations, Years ended September 30, 1993, 1992 and
1991............................................................................. F-4
Consolidated Statements of Stockholders' Equity, Years ended September 30, 1993,
1992 and 1991.................................................................... F-5
Consolidated Statements of Cash Flows, Years ended September 30, 1993, 1992 and
1991............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
The Stockholders
Associated Natural Gas Corporation:
We have audited the accompanying supplemental consolidated balance sheets
of Associated Natural Gas Corporation (ANGC) and subsidiaries as of September
30, 1993 and 1992, and the related supplemental consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended September 30, 1993. These supplemental consolidated
financial statements are the responsibility of ANGC's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits. We did not audit the financial
statements of Grand Valley Gas Company (Grand Valley). Grand Valley was merged
into a subsidiary of ANGC effective July 1, 1994. As described in note 1 to the
supplemental consolidated financial statements, the merger has been accounted
for as a pooling of interests and the supplemental financial statements give
retroactive effect to the merger. Grand Valley's assets constitute 11.4 percent
in 1993 and 7.5 percent in 1992 and Grand Valley's revenues constitute 18.1
percent in 1993, 17.5 percent in 1992 and 14.3 percent in 1991 of the related
consolidated totals. The Grand Valley financial statements were audited by other
auditors whose report has been furnished to us, and our opinion insofar as it
relates to the amounts included for Grand Valley, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the merger with Grand Valley effective July 1, 1994. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of ANGC and subsidiaries
after financial statements covering the date of consummation of the business
combination are issued.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Associated Natural Gas Corporation and subsidiaries as of September 30, 1993 and
1992, and the results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1993, in conformity with
generally accepted accounting principles applicable after financial statements
are issued for a period which includes the date of the business combination.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Denver, Colorado
July 1, 1994
F-2
<PAGE> 69
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1993 1992
------------ ------------
(RESTATED -- NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash in margin
accounts of $4,441,301 and $5,756,037, respectively............ $ 63,586,968 $ 44,958,311
Accounts receivable, net of allowance............................. 185,844,633 127,291,961
Natural gas, crude oil and petroleum product inventories.......... 26,994,076 13,947,954
Notes receivable.................................................. 4,227,258 2,909,052
Income taxes receivable........................................... 2,138,511 2,132,998
Other............................................................. 719,601 1,018,134
------------ ------------
Total current assets...................................... 283,511,047 192,258,410
------------ ------------
Property, plant and equipment, at cost (note 3):
Natural gas processing facilities................................. 88,046,503 79,271,807
Natural gas and crude oil pipelines............................... 324,031,220 275,019,938
Construction in progress.......................................... 17,335,314 8,950,224
Other equipment................................................... 17,791,890 13,190,131
------------ ------------
447,204,927 376,432,100
Less accumulated depreciation..................................... 93,772,409 73,688,768
------------ ------------
353,432,518 302,743,332
Other Assets:
Goodwill and other intangibles, net of applicable amortization of
$5,542,244 and $3,234,163, respectively........................ 29,786,426 32,094,778
Gas contracts and other intangibles, net of applicable
amortization of $156,250 and $12,500, respectively............. 1,118,750 610,342
Other, net........................................................ 7,732,568 5,336,816
------------ ------------
$675,581,309 $533,043,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade.......................................................... $220,759,278 $143,822,426
Other.......................................................... 4,180,579 4,207,483
------------ ------------
224,939,857 148,029,909
Outstanding checks in excess of bank balances..................... 26,697,341 17,824,783
Notes payable to stockholders and others.......................... -- 1,950,000
Accrued interest expense.......................................... 4,802,292 4,621,497
Dividends payable................................................. 394,607 389,443
Current portion of long-term debt (note 4)........................ 4,000,000 4,830,001
------------ ------------
Total current liabilities................................. 260,834,097 177,645,633
------------ ------------
Deferred income taxes (note 5)...................................... 37,941,306 32,112,370
Long-term debt (note 4)............................................. 163,000,000 137,000,000
------------ ------------
Total liabilities......................................... 461,775,403 346,758,003
------------ ------------
Stockholders' equity (note 7):
Common stock, $.10 par value. Authorized 20,000,000 shares; issued
and outstanding 14,723,406 shares in 1993 and 14,587,534 shares
in 1992........................................................ 1,472,340 1,458,753
Additional paid-in capital........................................ 155,083,952 150,373,739
Unamortized restricted stock compensation award................... (1,193,149) (2,008,379)
Retained earnings................................................. 58,442,763 36,461,562
------------ ------------
Total stockholders' equity................................ 213,805,906 186,285,675
------------ ------------
Commitments (note 6)
$675,581,309 $533,043,678
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 70
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
-------------- -------------- ------------
(RESTATED -- NOTE 1)
<S> <C> <C> <C>
Operating revenue:
Natural gas and petroleum products sales...... $1,768,887,178 $1,111,774,170 $725,914,238
Transportation................................ 12,136,943 7,087,775 5,027,524
Other......................................... 7,825,419 6,172,702 4,888,064
-------------- -------------- ------------
1,788,849,540 1,125,034,647 735,829,826
-------------- -------------- ------------
Operating expenses:
Natural gas and petroleum products
purchases.................................. 1,656,976,162 1,025,413,395 657,056,055
Operations.................................... 34,262,934 25,440,327 21,249,584
General and administrative.................... 22,125,288 16,310,739 12,066,183
Depreciation and amortization................. 23,585,156 21,844,221 17,495,849
-------------- -------------- ------------
1,736,949,540 1,089,008,682 707,867,671
-------------- -------------- ------------
Income from operations..................... 51,900,000 36,025,965 27,962,155
Other income (expense):
Interest expense.............................. (13,155,488) (12,460,459) (8,545,655)
Interest income............................... 1,119,969 1,605,812 1,771,068
Other, net.................................... (31,820) 21,624 109,192
-------------- -------------- ------------
(12,067,339) (10,833,023) (6,665,395)
-------------- -------------- ------------
Earnings before income taxes............... 39,832,661 25,192,942 21,296,760
Income tax expense (note 5)..................... (16,285,162) (10,296,944) (7,653,732)
-------------- -------------- ------------
Net earnings............................... $ 23,547,499 $ 14,895,998 $ 13,643,028
============== ============== ============
Earnings per common share....................... $ 1.61 $ 1.06 $ 1.08
============== ============== ============
Dividends per common share...................... $ .11 $ .11 $ .10
============== ============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 71
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(RESTATED -- NOTE 1)
<TABLE>
<CAPTION>
UNAMORTIZED
RESTRICTED
ADDITIONAL STOCK TOTAL
COMMON PAID-IN RETAINED COMPENSATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS AWARD EQUITY
--------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1990................ $1,149,122 $86,043,378 $10,754,087 $ (31,669) $97,914,918
Issuance of 1,186,354 shares of common
stock.............................. 118,635 25,981,153 -- -- 26,099,788
Grants of compensatory stock
options............................ -- 241,550 -- -- 241,550
Issuance of 48,311 shares of
restricted common stock............ 4,831 1,223,874 -- (1,228,705) --
Amortization of restricted stock
awards............................. -- -- -- 439,140 439,140
Purchase and retirement of 53,750
shares of common stock............. (5,375) (1,341,000) -- -- (1,346,375)
Exercise of stock options to purchase
291,950 shares of common stock..... 29,195 4,072,006 -- -- 4,101,201
Dividends declared on common stock.... -- -- (1,316,423) -- (1,316,423)
Net earnings.......................... -- -- 13,643,028 -- 13,643,028
---------- ------------ ----------- ----------- ------------
Balance, September 30, 1991............. 1,296,408 116,220,961 23,080,692 (821,234) 139,776,827
Issuance of 1,343,356 shares of common
stock.............................. 134,336 31,615,826 -- -- 31,750,162
Grant of 2,775 shares of compensatory
stock.............................. 277 98,034 -- -- 98,311
Grants of compensatory stock options
(Note 3)........................... -- 1,242,674 -- (1,242,674) --
Issuance of 26,544 shares of
restricted common stock, net of
forfeitures........................ 2,654 563,846 -- (566,500) --
Amortization of restricted stock
awards............................. -- -- -- 622,029 622,029
Exercise of stock options to purchase
250,775 shares of common stock..... 25,078 632,398 -- -- 657,476
Dividends declared on common stock.... -- -- (1,515,128) -- (1,515,128)
Net earnings.......................... -- -- 14,895,998 -- 14,895,998
---------- ------------ ----------- ----------- ------------
Balance, September 30, 1992............. 1,458,753 150,373,739 36,461,562 (2,008,379) 186,285,675
Grant of 462 shares of compensatory
stock.............................. 46 17,029 -- -- 17,075
Issuance of 16,980 shares of
restricted common stock, net of
forfeitures........................ 1,698 522,064 -- (523,762) --
Amortization of restricted stock
awards............................. -- -- -- 1,338,992 1,338,992
Exercise of stock options to purchase
177,205 shares of common stock..... 17,720 3,571,949 -- -- 3,589,669
Purchase and retirement of 58,775
shares of common stock............. (5,877) (2,112,843) -- -- (2,118,720)
Tax benefit from nonqualified stock
options
(Note 5)........................... -- 2,712,014 -- -- 2,712,014
Dividends declared on common stock.... -- -- (1,566,298) -- (1,566,298)
Net earnings.......................... -- -- 23,547,499 -- 23,547,499
---------- ------------ ----------- ----------- ------------
Balance, September 30, 1993............. $1,472,340 $155,083,952 $58,442,763 $(1,193,149) $213,805,906
========== ============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 72
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
(RESTATED -- NOTE 1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................... $ 23,547,499 $ 14,895,998 $ 13,643,028
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization............................... 23,585,156 21,844,221 17,495,849
Amortization of deferred financing costs.................... 144,180 131,893 67,807
Deferred income tax expense................................. 7,216,116 5,212,038 3,258,646
Amortization of restricted stock award...................... 1,338,992 622,029 439,140
Grants of compensatory stock and stock options.............. 17,075 98,312 241,550
Loss (gain) on disposition of assets........................ 112,851 (16,122) (906)
------------ ------------ ------------
55,961,869 42,788,369 35,145,114
Change in working capital items and other................... 5,654,218 6,896,095 1,101,599
------------ ------------ ------------
Net cash provided by operating activities................. 61,616,087 49,684,464 36,246,713
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures for property, plant and equipment......... (68,108,803) (92,740,831) (40,943,815)
Payments for acquisition of MEGA............................... -- -- (6,424,132)
Notes receivable, net.......................................... (2,818,206) (2,909,052) --
Proceeds from disposition of assets............................ 483,341 396,182 335,693
Increase in other assets, net.................................. (3,208,783) (1,008,454) (894,349)
------------ ------------ ------------
Net cash used by investing activities..................... (73,652,451) (96,262,155) (47,926,603)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings, including private placement........................ 44,482,649 67,500,000 112,000,000
Repayments of debt............................................. (21,780,001) (46,746,500) (87,431,056)
Repurchases of common stock.................................... (2,118,720) -- (1,346,375)
Net proceeds from issuance of common stock..................... 2,769,669 32,272,635 1,916,201
Dividends paid................................................. (1,561,134) (1,473,544) (1,274,580)
Increase in outstanding checks in excess of bank balances...... 8,872,558 3,304,121 6,078,134
------------ ------------ ------------
Net cash provided by financing activities................. 30,665,021 54,856,712 29,942,324
------------ ------------ ------------
Net increase in cash and cash equivalents.............. 18,628,657 8,279,021 18,262,434
Cash and cash equivalents, beginning of year........... 44,958,311 36,679,290 18,416,856
------------ ------------ ------------
Cash and cash equivalents, end of year................. $ 63,586,968 $ 44,958,311 $ 36,679,290
============ ============ ============
Changes in working capital items and other:
Increase in accounts receivable............................. $(58,552,671) $(44,805,732) $ (1,865,770)
(Increase) decrease in natural gas, crude oil and petroleum
product inventories....................................... (13,046,122) (7,010,477) 3,003,150
Increase in income taxes receivable......................... (5,513) (2,091,424) (41,574)
(Increase) decrease in other current assets................. 2,475,779 (447,288) 70,645
Increase (decrease) in accounts payable..................... 74,601,950 61,236,851 (2,958,383)
Increase in accrued interest expense........................ 180,795 273,297 3,533,246
Decrease in income taxes payable............................ -- (259,132) (540,376)
Other, net.................................................. -- -- (99,339)
------------ ------------ ------------
$ 5,654,218 $ 6,896,095 $ 1,101,599
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest, net of amount capitalized......................... $ 12,974,693 $ 12,245,246 $ 5,014,744
============ ============ ============
Income taxes................................................ $ 6,937,449 $ 7,590,654 $ 4,988,960
============ ============ ============
Supplemental schedule of noncash investing and financing
activities:
Accrued common stock dividends................................. $ 394,607 $ 389,443 $ 347,859
============ ============ ============
Tax effect of stock option compensation........................ $ 3,532,014 $ 135,000 $ 2,185,000
============ ============ ============
Conversion of note receivable into property, plant and
equipment................................................... $ 1,500,000 $ -- $ --
============ ============ ============
Issuance of common stock pursuant to merger with MEGA.......... $ -- $ -- $ 26,099,788
============ ============ ============
Assumption and issuance of debt associated with merger of
MEGA........................................................ $ -- $ -- $ 46,358,884
============ ============ ============
Assumption and issuance of notes payable associated with
purchase of Centennial Natural Gas Corporation.............. $ -- $ 6,266,285 $ --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 73
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993, 1992 AND 1991
(1) ORGANIZATION AND BASIS OF PRESENTATION
Associated Natural Gas Corporation (the "Company") is engaged in the
business of purchasing, gathering, processing, transporting and marketing
natural gas, natural gas liquids ("NGLs") and crude oil to industrial end users,
local distribution companies, liquid petroleum gas wholesalers and retailers and
refiners. The Company currently owns and operates a significant complex of crude
oil, NGLs and natural gas gathering, processing/fractionation and transportation
facilities situated in major oil and natural gas-producing basins in the Rocky
Mountain, Mid Continent and Gulf Coast regions of the United States.
On June 30, 1994, the Company filed Articles of Merger, to be effective
July 1, 1994, in connection with the Merger between its wholly-owned subsidiary,
Associated Natural Gas, Inc. (ANGI) and Grand Valley Gas Company (Grand Valley),
with ANGI as the surviving entity. Grand Valley is a natural gas marketing
company with sales principally in the Pacific Northwest, Rocky Mountains,
Western Canada and California regions. Under the terms of the merger, the
Company exchanged 1,637,467 shares of its common stock for 100% of Grand
Valley's outstanding common stock. The acquisition has been accounted for under
the pooling of interests method and, accordingly, the Company's consolidated
financial statements have been restated to include the accounts of Grand Valley
for all periods presented. Grand Valley's consolidated financial statements
reported prior to the merger reflected a year end of May 31 as compared to the
Company's fiscal year end of September 30. As a result, the restated
consolidated balance sheets reflect the combination of the historical balance
sheets of the Company as of September 30 and the historical balance sheets of
Grand Valley as of May 31. The restated consolidated statements of operations
reflect the combination of Grand Valley's annual results of operations through
May 31 and the Company's annual results of operations through September 30.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Cash............................................... $21,277,579 $ 9,272,274
Commodity futures margin accounts.................. 4,689,389 5,756,037
Corporate demand notes............................. 37,620,000 29,930,000
----------- -----------
$63,586,968 $44,958,311
=========== ===========
</TABLE>
The portion of the cash balances in commodity futures margin accounts that
represents the minimum margin requirements for open futures positions is
reported as restricted cash.
(c) Natural Gas, Crude Oil and Petroleum Product Inventories
Inventories, consisting principally of natural gas (including pipeline
imbalances), crude oil and NGLs in pipeline and storage facilities, are recorded
at the lower of cost or market using the average cost method.
F-7
<PAGE> 74
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Property, Plant and Equipment
Natural gas and crude oil pipelines and natural gas processing facilities
are being depreciated using the straight-line method over a period between
fifteen and twenty-five years. Beginning in April 1992, the Company revised its
estimate of the useful lives of its natural gas processing facilities and its
larger diameter natural gas and crude oil pipelines. This revision resulted in
an increase in net income of approximately $2,000,000 ($.16 per share) for the
fiscal year ended September 30, 1992. Other equipment is depreciated using a
straight-line method over an estimated useful life of three to five years.
Included in the cost of the facilities are the direct salaries and related
overhead for the construction of natural gas and crude oil pipelines and natural
gas processing/fractionation facilities. The amounts capitalized are
approximately $4,316,000, $5,487,000 and $3,897,000 in 1993, 1992 and 1991
respectively.
(e) Goodwill and Other Intangibles
Goodwill and other intangibles include the difference between the cost of
acquiring natural gas gathering, transmission and processing facilities and
amounts assigned to their tangible assets. Such amounts are generally being
amortized on a straight-line basis over fifteen years.
(f) Notes Receivable from Related Parties
During the year ended September 30, 1993, Grand Valley loaned $499,000 to
three officers and one key employee of Grand Valley in connection with the
exercise of certain stock options. The notes bear interest at an annual rate of
nine percent, are due at the earlier of 90 days after termination of employment
or January 15, 1995 and are secured by shares of the Company's common stock
owned by the officers and employee. The notes receivable are included in other
current assets on the accompanying balance sheet at September 30, 1993.
(g) Interest Costs
Interest cost is capitalized during the construction period of the
facilities. The Company incurred interest cost of approximately $13,713,000,
$12,770,000 and $8,961,000 in 1993, 1992 and 1991, respectively, of which
approximately $558,000, $330,000 and $415,000 was capitalized in 1993, 1992 and
1991, respectively.
(h) Earnings Per Common Share
Earnings per common share is computed by dividing net earnings available to
common shares by the weighted average number of common shares outstanding
(14,627,681, 14,111,316 and 12,595,415 for the years ended September 30, 1993,
1992 and 1991, respectively). Outstanding options to purchase common stock did
not have a material dilutive effect on the calculation of earnings per share for
any period presented.
(i) Revenue Recognition
The Company recognizes revenue on the accrual basis for the sale of natural
gas and petroleum products and transportation revenue as natural gas and
petroleum products are delivered.
(j) Hedging Arrangements
The Company manages the risk associated with fluctuations in the price of
natural gas, NGLs and crude oil primarily through futures contracts and energy
swaps. Gains and losses from futures hedging transactions and energy swaps are
recognized in the period the corresponding sales or purchases are recorded.
F-8
<PAGE> 75
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a Hedge Committee that reviews the Company's hedged
positions on a monthly basis to ensure compliance with the Company's hedging
policies, including the maximum amount of risk to be assumed in conjunction with
such hedging activity. The Company has adopted hedging policies whereby its net
futures positions subject to price risk are not to exceed a net of 100 (1 BCF),
100 (100,000 barrels) and 50 (50,000 barrels) contracts or positions for natural
gas, crude oil and propane, respectively, without the prior approval of the
Hedge Committee.
At September 30, 1993, the Company had 710 natural gas, 627 crude oil and
87 propane futures contracts outstanding, and when offset against long-term
commitments and physical inventory of crude oil, the Company's exposure to the
risk of price fluctuations is reduced to 36, 0 and 0 contracts or positions,
respectively. In addition, the Company is also exposed to credit risk in the
unlikely event the counterparty in all third party agreements were not able to
perform their contractual obligations.
(k) Reclassification
Certain amounts have been reclassified for comparability with the 1993
presentation.
(3) ACQUISITIONS
Centennial
Effective August 12, 1991 Grand Valley acquired all of the outstanding
shares of common stock of Centennial Natural Gas Corporation (Centennial) for
cash and notes totalling approximately $3.9 million. At the acquisition date,
Centennial held interests in four natural gas processing and/or gathering
facilities with aggregate throughput capacity of approximately 35 million cubic
feet per day. In conjunction with the acquisition, Grand Valley entered into
employment agreements with existing employees and consultants of Centennial, and
issued 7,500 shares and granted options to acquire up to an additional 31,500
common shares at an exercise price of $.05 per share to these individuals.
Deferred compensation expense of approximately $1,242,000 was recorded in
connection with the granting of these options. The expense related to the
deferred compensation is being recognized ratably as the employees and
consultants vest in the options and as restrictions lapse through 1995.
Burton Flats
Effective March 1, 1992 Grand Valley acquired for approximately $4.7
million the Burton Flats gas processing plant and associated gathering system
located in New Mexico. This system consists of 51 miles of pipeline and a 15,000
MCF per day natural gas processing facility.
Glenpool
Effective October 1, 1992, the Company purchased for approximately $8.0
million GPM Gas Corporation's Creek natural gas processing plant and associated
low pressure natural gas gathering system (the "Glenpool" system) located in
Creek, Muskogee, Okfuskee, Okmulgee, McIntosh, Tulsa and Wagoner Counties,
Oklahoma. This system consisted of a 25,000 MCF per day natural gas processing
plant and approximately 985 miles of natural gas gathering pipeline connected to
approximately 528 wells.
Osage
Effective December 1, 1992, the Company purchased for approximately $4.0
million, GPM Gas Corporation's Osage natural gas processing plant and associated
low pressure natural gas gathering plant and approximately 905 miles of natural
gas gathering pipeline connected to approximately 290 wells.
F-9
<PAGE> 76
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Evergreen
In June, 1993, the Company acquired for approximately $2.8 million a
natural gas gathering system located in the San Juan Basin in Rio Arriba County,
New Mexico from Evergreen Resources, Inc. This natural gas gathering system,
which was completed by the Company, consists of approximately 26 miles of
natural gas gathering pipeline delivering coal seam natural gas production into
an interstate pipeline.
Bayou South
In July 1993, the Company completed the purchase for approximately $3.0
million, Bayou South Gas Gathering Company's Haynesville/Dykesville natural gas
gathering assets and related facilities in Arkansas and Louisiana. This system
consisted of approximately 60 miles of natural gas gathering pipeline connected
to approximately 16 wells.
All of the Company's acquisitions have been accounted for using the
purchase method of accounting. Accordingly, the results of operations for each
acquisition have been included with those of the Company since the effective
date of the acquisition.
(4) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1993 1992
----------- ------------
<S> <C> <C>
9.55% Senior notes(a)............................ $ 55,000,000 $ 55,000,000
9.90% Senior notes(a)............................ 45,000,000 45,000,000
12.75% Senior notes(b)........................... 12,000,000 12,000,000
Revolving Credit Agreement(c).................... 45,000,000 25,000,000
Convertible senior subordinated notes(d)......... 10,000,000 --
10% supplemental unsecured promissory notes to
MEGA shareholders.............................. -- 4,830,001
------------ ------------
167,000,000 141,830,001
Less: current portion of long-term debt.......... (4,000,000) (4,830,001)
------------ ------------
$163,000,000 $137,000,000
============ ============
</TABLE>
(a) On May 8, 1991, the Company completed a private placement of $100 million of
senior unsecured notes with institutional investors. The 9.55% notes are payable
in four annual installments of $13,750,000 commencing April 30, 1996. The 9.90%
notes are payable in four annual installments of $11,250,000 commencing April
30, 2000. Interest is payable semi-annually on April 30 and October 31 of each
year.
(b) ]On December 31, 1985, the Company issued to The Prudential Insurance
Company of America senior notes in the aggregate principal amount of $12,000,000
bearing interest at 12.75% payable semiannually. The principal of the senior
notes is payable in three annual installments of $4,000,000 commencing December
31, 1993.
(c) Effective June 1, 1992, the Company entered into a $100 million Revolving
Credit Agreement ("Agreement") with certain commercial lending institutions and
Continental Bank N.A., as agent. The Agreement is a three-year unsecured
revolving credit facility which converts into a four-year senior unsecured term
loan. Upon conversion to a term loan, the loan is amortized in 16 equal
quarterly payments beginning August 1, 1995 with a maturity date of May 1, 1999.
The outstanding principal under the Agreement bears interest at an applicable
margin above the adjusted Eurodollar Rate or Base Rate (3.87% at September 30,
F-10
<PAGE> 77
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993). A non-use fee, currently 3/8 of one percent per annum, is charged on the
unused portion of the Facility. At September 30, 1993, the unused committed
amount under the Agreement was approximately $54.3 million. Subsequent to
September 30, 1993, the Company borrowed $50 million under the Agreement to
finance certain acquisitions. The outstanding balance under the Agreement at
December 7, 1993 was $95 million. The Company's ability to borrow under the
Agreement is subject to certain covenants including covenants regarding tangible
net worth; ratio of consolidated current assets to consolidated current
liabilities; consolidated historical operating cash flow (as defined);
restricted payments (including dividends); permitted indebtedness and liens;
environmental provisions and information requirements. At September 30, 1993,
the Company was in compliance with the terms of its debt agreements.
(d) In December 1992, Grand Valley sold $10 million of convertible senior
subordinated notes in a private placement transaction. The notes bear interest
at a rate of 9% with interest payments due semiannually. Annual principal
payments of $1,250,000 begin on December 15, 1997 and continue through December
15, 2004. The notes are convertible at the option of the purchasers into an
aggregate of 240,964 shares of the Company's common stock. This conversion right
also contains various antidilution provisions, including an adjustment to the
conversion price of the Company's common stock if the Company issues shares at
less than the then current market price.
Grand Valley has a revolving credit agreement with First National Bank of
Boston that provides for a maximum commitment of $15 million. The line of credit
provides working capital funding capacity of $15 million and interim funding
capacity for capital expenditures of $10 million. Loans under the $10 million
commitment bear interest at the bank's base rate plus 3/4 percent. Loans under
the $5 million commitment bear interest at the bank's base rate plus one
percent. The bank's base rate at May 31, 1993 was 6%.
On November 15, 1993, the Company entered into a $20 million Line of Credit
("Line") with Continental Bank, N.A. that is due on March 31, 1994. The Line
bears interest at the Eurodollar Rate plus seven eighths of one percent or the
reference rate. At December 7, 1993, there were no outstanding borrowings under
the Line.
Annual principal payments under the debt agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30:
- -------------------------
<S> <C>
1994......................................................... $ 4,000,000
1995......................................................... 6,812,500
1996......................................................... 29,000,000
1997......................................................... 25,000,000
1998......................................................... 26,250,000
Thereafter................................................... 75,937,500
------------
$167,000,000
============
</TABLE>
(5) INCOME TAXES
Effective October 1, 1992 the Company adopted Financial Accounting Standard
No. 109, "Accounting for Income Taxes" which prescribes the asset and liability
method of accounting for income taxes. Prior to that date, the Company accounted
for income taxes using Financial Accounting Standard No. 96, "Accounting for
Income Taxes." The change from Statement No. 96 to Statement No. 109 had no
income statement impact. Under the asset and liability method, deferred income
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. Under
F-11
<PAGE> 78
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The Revenue
Reconciliation Act of 1993, as signed into law on August 10, 1993, increased to
35% the corporate tax rate on income in excess of $10 million. The effect of
this tax increase is included in the reconciliation below.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal...................................... $ 8,882,697 $ 4,675,227 $3,908,545
State........................................ 768,029 409,679 486,541
----------- ----------- ----------
Total current........................ 9,650,726 5,084,906 4,395,086
----------- ----------- ----------
Deferred:
Federal...................................... 4,699,691 3,850,920 3,539,229
State........................................ 1,934,745 1,361,118 (280,583)
----------- ----------- ----------
Total deferred....................... 6,634,436 5,212,038 3,258,646
----------- ----------- ----------
Total income tax expense............. $16,285,162 $10,296,944 $7,653,732
=========== =========== ==========
</TABLE>
Actual tax expense differs from the "expected" tax expense (computed by
applying the U.S. Federal corporate income tax rate of 34% to earnings before
income taxes) as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense................ $13,543,106 $ 8,565,600 $7,240,898
Increase (reduction) in income taxes resulting
from:
State income taxes, net of Federal income tax
benefit................................... 1,493,327 1,168,726 135,932
Increase in corporate tax rate............... 287,045 -- --
Amortization of goodwill and other
intangibles............................... 788,583 703,574 345,997
Other, net................................... 173,101 (140,956) (69,095)
----------- ----------- ----------
$16,285,162 $10,296,944 $7,653,732
=========== =========== ==========
</TABLE>
F-12
<PAGE> 79
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences between the financial statement carrying amounts and
the tax basis of assets and liabilities that give rise to significant portions
of the deferred tax liability at September 30, 1993 and 1992 relate to the
following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit carryforward............ $ 13,785,000 $ 6,747,552
Net operating loss carryforward........................ 1,908,042 6,137,581
------------ ------------
Total gross deferred tax assets................ 15,693,042 12,885,133
------------ ------------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation methods................................ (51,779,042) (42,016,133)
Other.................................................. (1,855,306) (2,981,370)
------------ ------------
Total gross deferred tax liabilities........... (53,634,348) (44,997,503)
------------ ------------
Net deferred tax liability..................... $(37,941,306) $(32,112,370)
============ ============
</TABLE>
At September 30, 1993 the Company has a net operating loss carryforward of
approximately $5,006,000 for income tax purposes which is available to offset
future income taxes, if any, through September 30, 2005. The Company also has an
alternative minimum tax credit carryforward of approximately $13,785,000, which
may be carried forward indefinitely.
During the year ended May 31, 1993, Grand Valley realized an income tax
benefit of approximately $2.7 million upon the lapsing of repurchase
restrictions on shares of common stock issued upon the exercise of certain
nonqualified stock options. The benefit has been recorded as a reduction in
income taxes payable and an increase in additional paid-in capital.
(6) LEASES
The Company leases office space, trucks and trailers under non-cancelable
operating leases expiring at various dates through 2003. Future minimum lease
payments under non-cancelable operating leases as of September 30, 1993 are
approximately:
<TABLE>
<S> <C>
1994............................................................. $3,159,592
1995............................................................. 2,625,825
1996............................................................. 2,167,315
1997............................................................. 1,800,009
1998............................................................. 1,424,000
Thereafter....................................................... 2,014,000
</TABLE>
Total rental expense for operating leases in 1993, 1992, and 1991 was
approximately $3,518,000, $3,447,000 and $3,566,000 respectively.
(7) EQUITY INCENTIVE PLAN
On February 14, 1991 the Company adopted the Equity Incentive Plan
("Incentive Plan"). The Incentive Plan empowers the Company from time-to-time
during a period of ten years to grant to officers and other managerial,
administrative or professional employees of the Company awards of restricted
stock, stock options, stock appreciation rights, performance shares and
performance units or any combination thereof.
F-13
<PAGE> 80
s
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Incentive Plan provides for an initial authorization of 925,000 shares
of common stock for issuance thereunder, plus an additional authorization of
one-half percent of the outstanding shares of common stock as of each succeeding
annual anniversary of the effective date of the Incentive Plan, to be divided
among the various Incentive Plan components as the Company shall determine,
except that a maximum of 500,000 shares shall be cumulatively available for
grant as incentive stock options (tax qualified options) during the life of the
Incentive Plan. Any unused portion of the shares added each anniversary date
shall be carried forward for grant and issuance in subsequent plan years and up
to one hundred percent of the subsequent year's added shares (based upon the
current plan year's allocation) may be borrowed for use in the current plan
year. Such maximum numbers as applied to the various components of the Incentive
Plan are subject to appropriate adjustment in the event of a reorganization,
stock split, stock dividend, combination of shares, merger, consolidation, or
other recapitalization of the Company.
The Company also has a non-qualified stock option plan for directors that
authorizes the issuance of up to 50,000 shares of common stock.
The following is a summary of activity under the Company's previous
non-qualified stock option plan, the directors plan, and the current Equity
Incentive Plan for the year ended September 30, 1993:
<TABLE>
<CAPTION>
OPTION BEGINNING FORFEITED/ END
GRANT DATE PRICE OF YEAR GRANTED EXERCISED OF YEAR EXERCISABLE
------------------------- ------- --------- ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Various dates in 1987.... $11.00 3,000 -- (3,000) -- --
February 17, 1989........ 9.75 4,050 -- (3,750) 300 300
July 5, 1989............. 16.00 104,300 -- (98,800) 5,500 5,500
March 9, 1990............ 19.125 25,000 -- -- 25,000 25,000
February 15, 1991........ 21.00 10,000 -- -- 10,000 10,000
March 22, 1991........... 23.00 300,750 -- (34,949) 265,801 114,176
March 9, 1992............ 19.00 308,700 -- (23,175) 285,525 45,225
May 1, 1993.............. 33.875 -- 10,000 -- 10,000 --
June 15, 1993............ 32.875 -- 249,900 -- 249,900 --
------- ------- -------- ------- -------
755,800 259,900 (163,674) 852,026 200,201
======= ======= ======== ======= =======
</TABLE>
All options, except for the March 22, 1991, March 9, 1992, May 1, 1993 and
June 15, 1993 options, vest at the date of grant and are exercisable over a
five-year period. The March 22, 1991, March 9, 1992, May 1, 1993 and June 15,
1993 options vest 25% per year and are exercisable over a 10 year period. Any
options which remain unexercised at the end of the option period expire. During
the years ended September 30, 1993, 1992 and 1991, options for 155,674, 26,775
and 221,700 shares, respectively, were exercised at prices from $5.53 to $23.00.
Proceeds from the exercise of stock options and related income tax benefits have
been credited to stockholders' equity.
F-14
<PAGE> 81
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1992, Grand Valley adopted its 1992 Stock Option Plan and granted
certain options under the plan. Prior to 1992, Grand Valley had granted
nonincentive stock options to officers, directors, key employees and
consultants. A summary of stock options granted by Grand Valley is as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE RANGE
--------- ----------------
<S> <C> <C>
Options outstanding at May 31, 1990...................... 267,000 $.05 to $4.00
Granted................................................ 55,000 $.05 to $4.48
Exercised.............................................. (70,250) $.05 to $4.00
Cancelled.............................................. (20,000) $0.80
--------
Options outstanding at May 31, 1991...................... 231,750 $.05 to $4.48
Granted................................................ 34,500 $.052 to $34.52
Exercised.............................................. (224,000) $.05 to $4.48
--------
Options outstanding at May 31, 1992...................... 42,250 $.052 to $34.52
Granted................................................ 4,200 $34.00 to $34.52
Exercised.............................................. (21,531) $.052 to $27.52
Cancelled.............................................. (219) $27.52
--------
Options outstanding at May 31, 1993...................... 24,700 $.052 to $34.52
========
</TABLE>
As of May 31, 1993 options granted by Grand Valley to purchase 3,725 shares
were exercisable. During the years ended May 31, 1993, 1992 and 1991, options
for 21,531, 224,000 and 70,250 shares, respectively, were exercised at prices
ranging from $.05 to $27.52.
Grand Valley agreed to issue up to 11,250 shares of common stock as
incentive stock awards to certain employees in connection with certain asset
acquisitions. The shares were issued in part upon acquisition of the assets and
the remaining shares were to be issued when the assets acquired achieved payout.
As of May 31, 1993, 1,611 shares had been issued.
(8) EMPLOYEE RETIREMENT PLAN
Effective January 1986, the Company established an employee retirement plan
(the Plan) covering substantially all of its employees. The Plan is a defined
contribution plan intended to qualify under Internal Revenue Code Section
401(k), and has been approved by the Internal Revenue Service. Under the Plan,
the Company may match employee contributions with such matching being reviewed
and determined annually by the Company's Benefits Committee of the Board of
Directors. Total retirement plan expense for 1993, 1992, and 1991 was $439,000,
$368,000 and $295,000, respectively.
Grand Valley sponsored a Simplified Employee Pension Plan (the "SEP").
Employees of Grand Valley who have completed nine months of service were
eligible to participate in the SEP. The SEP provided for contributions equal to
three percent of income before taxes and bonuses. During the years ended May 31,
1993, 1992 and 1991, Grand Valley made contributions of $187,013, $178,094 and
$141,614, respectively, to the SEP.
F-15
<PAGE> 82
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Operating revenue................ $458,314 $410,486 $447,527 $472,523
Income from operations........... 15,297 14,396 10,468 11,739
Net earnings..................... 7,291 6,703 4,678 4,876
Earnings per common share........ $ .50 $ .46 $ .32 $ .33
1992:
Operating revenue................ $283,490 $275,041 $286,617 $279,887
Income from operations........... 9,799 9,464 8,538 8,225
Net earnings..................... 4,013 3,928 3,644 3,311
Earnings per common share........ $ .30 $ .27 $ .25 $ .24
</TABLE>
F-16
<PAGE> 83
APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PANHANDLE EASTERN CORPORATION
AND
PANHANDLE ACQUISITION TWO, INC.
AND
ASSOCIATED NATURAL GAS CORPORATION
<PAGE> 84
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger........................................................ AI-1
SECTION 1.02. Closing; Closing Date; Effective Time............................. AI-2
SECTION 1.03. Effect of the Merger.............................................. AI-2
SECTION 1.04. Certificate of Incorporation; Bylaws.............................. AI-2
SECTION 1.05. Directors and Officers............................................ AI-2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of Securities... AI-2
SECTION 2.02. Exchange and Surrender of Certificates............................ AI-3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ANGC
SECTION 3.01. Organization and Qualification; Subsidiaries...................... AI-4
SECTION 3.02. Charter and Bylaws................................................ AI-5
SECTION 3.03. Capitalization.................................................... AI-5
SECTION 3.04. Authority......................................................... AI-6
SECTION 3.05. No Conflict; Required Filings and Consents........................ AI-6
SECTION 3.06. Permits; Compliance............................................... AI-7
SECTION 3.07. Reports; Financial Statements..................................... AI-7
SECTION 3.08. Absence of Certain Changes or Events.............................. AI-8
SECTION 3.09. Absence of Litigation............................................. AI-8
SECTION 3.10. Employee Benefit Plans; Labor Matters............................. AI-8
SECTION 3.11. Taxes............................................................. AI-10
SECTION 3.12. Tax Matters; Pooling.............................................. AI-11
SECTION 3.13. Affiliates........................................................ AI-12
SECTION 3.14. Certain Business Practices........................................ AI-12
SECTION 3.15 Environmental Matters............................................. AI-12
SECTION 3.16. Vote Required..................................................... AI-13
SECTION 3.17. Brokers........................................................... AI-13
SECTION 3.18. Insurance......................................................... AI-13
SECTION 3.19. Properties........................................................ AI-13
SECTION 3.20. Certain Contracts and Restrictions................................ AI-13
SECTION 3.21. Easements......................................................... AI-14
SECTION 3.22. Public Utility Holding Company Act, Etc........................... AI-14
SECTION 3.23. Futures Trading and Fixed Price Exposure.......................... AI-14
SECTION 3.24. Information Supplied.............................................. AI-15
SECTION 3.25. Opinion of Financial Advisor...................................... AI-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PEC
SECTION 4.01. Organization and Qualification.................................... AI-15
SECTION 4.02. Charter and Bylaws................................................ AI-15
SECTION 4.03. Capitalization.................................................... AI-15
</TABLE>
AI-i
<PAGE> 85
<TABLE>
<CAPTION>
PAGE
-
<S> <C> <C>
SECTION 4.04. Authority......................................................... AI-16
SECTION 4.05. No Conflict; Required Filings and Consents........................ AI-16
SECTION 4.06. Permits; Compliance............................................... AI-17
SECTION 4.07. Reports; Financial Statements..................................... AI-17
SECTION 4.08. Absence of Certain Changes or Events.............................. AI-18
SECTION 4.09. Absence of Litigation............................................. AI-18
SECTION 4.10. Tax Matters; Pooling.............................................. AI-18
SECTION 4.11. Affiliates........................................................ AI-18
SECTION 4.12. Vote Required..................................................... AI-18
SECTION 4.13. Brokers........................................................... AI-18
SECTION 4.14. Information Supplied.............................................. AI-19
SECTION 4.15. Employee Benefit Plans; Labor Matters............................. AI-19
SECTION 4.16. Taxes............................................................. AI-19
SECTION 4.17. Certain Business Practices........................................ AI-19
SECTION 4.18. Environmental Matters............................................. AI-19
SECTION 4.19. Insurance......................................................... AI-20
SECTION 4.20. Properties........................................................ AI-20
SECTION 4.21. Public Utility Holding Company Act, Etc........................... AI-20
SECTION 4.22. Futures Trading................................................... AI-20
SECTION 4.23. Opinion of Financial Advisor...................................... AI-20
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of ANGC..................................... AI-21
SECTION 5.02. Negative Covenants of ANGC........................................ AI-21
SECTION 5.03. Affirmative and Negative Covenants of PEC......................... AI-23
SECTION 5.04. Access and Information............................................ AI-24
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Meetings of Stockholders.......................................... AI-25
SECTION 6.02. Registration Statement; Proxy Statements.......................... AI-25
SECTION 6.03. Appropriate Action; Consents; Filings............................. AI-26
SECTION 6.04. Affiliates; Pooling; Tax Treatment................................ AI-28
SECTION 6.05. Public Announcements.............................................. AI-28
SECTION 6.06. NYSE Listing...................................................... AI-28
SECTION 6.07. Comfort Letters................................................... AI-28
SECTION 6.08 Employee Benefit Plans............................................ AI-28
SECTION 6.09 Convertible Debt.................................................. AI-29
SECTION 6.10 Merger Sub........................................................ AI-29
SECTION 6.11 Indemnification and Insurance..................................... AI-29
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party Under This Agreement...... AI-30
SECTION 7.02. Additional Conditions to Obligations of the PEC Companies......... AI-30
SECTION 7.03. Additional Conditions to Obligations of ANGC...................... AI-31
</TABLE>
AI-ii
<PAGE> 86
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination....................................................... AI-32
SECTION 8.02. Effect of Termination............................................. AI-33
SECTION 8.03. Amendment......................................................... AI-33
SECTION 8.04. Waiver............................................................ AI-33
SECTION 8.05. Fees, Expenses and Other Payments................................. AI-33
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements....... AI-35
SECTION 9.02. Notices........................................................... AI-35
SECTION 9.03. Certain Definitions............................................... AI-36
SECTION 9.04. Headings.......................................................... AI-37
SECTION 9.05. Severability...................................................... AI-37
SECTION 9.06. Entire Agreement.................................................. AI-37
SECTION 9.07. Assignment........................................................ AI-37
SECTION 9.08. Parties in Interest............................................... AI-37
SECTION 9.09. Specific Performance.............................................. AI-37
SECTION 9.10. Failure or Indulgence Not Waiver; Remedies Cumulative............. AI-37
SECTION 9.11. Governing Law..................................................... AI-37
SECTION 9.12. Counterparts...................................................... AI-37
</TABLE>
EXHIBITS
Exhibit A
Exhibit B
AI-iii
<PAGE> 87
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of October 9, 1994 (this
"Agreement"), is by and among Panhandle Eastern Corporation, a Delaware
corporation ("PEC"), Panhandle Acquisition Two, Inc., a Delaware corporation and
wholly owned subsidiary of PEC ("Merger Sub"), and Associated Natural Gas
Corporation, a Delaware corporation ("ANGC"). PEC and Merger Sub are sometimes
referred to herein as the "PEC Companies."
WHEREAS, Merger Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), will merge with and into ANGC (the "Merger"), and
pursuant thereto, the issued and outstanding shares of common stock, $.05 per
share, of ANGC ("ANGC Common Stock") not owned directly or indirectly by ANGC or
the PEC Companies or their respective subsidiaries will be converted into the
right to receive shares of common stock, $1.00 par value, of PEC and an equal
number of PEC Preferred Stock Purchase Rights, as defined in Section 9.03 hereof
(such common stock of PEC, together (except as the context otherwise requires)
with such PEC Preferred Stock Purchase rights, being referred to herein as the
"PEC Common Stock"), as set forth herein;
WHEREAS, the Board of Directors of ANGC, after actively soliciting and
considering business combination proposals and indications of interest from
other persons, has determined that the Merger is consistent with and in
furtherance of the long-term business strategy of ANGC and is fair to, and in
the best interests of, ANGC and its stockholders and has approved and adopted
this Agreement and the transactions contemplated hereby, and recommended
adoption of this Agreement by the stockholders of ANGC;
WHEREAS, as a condition to the willingness of PEC and Merger Sub to enter
into this Agreement, PEC has required that ANGC agree, and in order to induce
PEC and Merger Sub to enter into this Agreement, ANGC has agreed, to grant to
PEC an option with respect to certain shares of ANGC Common Stock pursuant to
that certain Stock Option Agreement between PEC and ANGC of even date herewith
(the "PEC Option Agreement");
WHEREAS, the Board of Directors of PEC has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of PEC and
is fair to, and in the best interests of, PEC and its stockholders and has
approved and adopted this Agreement and the transactions contemplated hereby,
and recommended approval by the stockholders of PEC of the issuance of PEC
Common Stock in connection with this Agreement;
WHEREAS, the Board of Directors of Merger Sub has approved and adopted this
Agreement and PEC, as the sole stockholder of Merger Sub, will adopt this
Agreement promptly after the execution hereof by the parties hereto;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of interests"
for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as defined in Section 1.02 of this Agreement), Merger Sub shall be merged
with and into ANGC. As a result of the Merger, the separate corporate existence
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of Merger Sub shall cease and ANGC shall continue as the surviving corporation
of the Merger (the "Surviving Corporation"). Certain terms used in this
Agreement are defined in Section 9.03 hereof.
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this Agreement
shall have been terminated pursuant to Section 8.01, and subject to the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the consummation of the Merger and the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas as soon as practicable
(but in any event within two business days) after the satisfaction or, if
permissible, waiver of the conditions set forth in Article VII, or at such other
date, time and place as PEC and ANGC may agree; provided, that the conditions
set forth in Article VII shall have been satisfied or waived at or prior to such
time. The date on which the Closing takes place is referred to herein as the
"Closing Date". As promptly as practicable on the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger with the Secretary of State of the State of Delaware, in such form as
required by, and executed in accordance with the relevant provisions of,
Delaware Law (the date and time of such filing, or such later date or time
agreed upon by PEC and ANGC and set forth therein, being the "Effective Time").
For all Tax purposes, the Closing shall be effective at the end of the day on
the Closing Date.
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
SECTION 1.04. Certificate of Incorporation; Bylaws. At the Effective Time,
the certificate of incorporation of ANGC, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation and thereafter shall continue to be its certificate of incorporation
until amended as provided therein and pursuant to Delaware Law. The bylaws of
ANGC, as in effect immediately prior to the Effective Time, shall be the bylaws
of the Surviving Corporation and thereafter shall continue to be its bylaws
until amended as provided therein and pursuant to Delaware Law.
SECTION 1.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the charter and bylaws of
the Surviving Corporation, and the officers of Merger Sub immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, each to
hold office in accordance with the bylaws of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of the PEC Companies, ANGC or their respective stockholders:
(a) Subject to the other provisions of this Article II, each share of
ANGC Common Stock issued and outstanding immediately prior to the Effective
Time (excluding any ANGC Common Stock described in Section 2.01(b) of this
Agreement) shall be converted into the right to receive a number of shares
of PEC Common Stock calculated by dividing (x) $39.00 by (y) the Average
Daily Price of the PEC Common Stock, with the result rounded down to the
nearest ten thousandth (as adjusted pursuant to the following proviso, the
"Exchange Ratio"); provided, however that if the Average Daily Price of the
PEC Common Stock is less than $20.80, the Exchange Ratio shall be 1.8750,
and if the Average Daily Price of the PEC Common Stock is greater than
$24.80, the Exchange Ratio shall be 1.5725. As used herein, the "Average
Daily Price of the PEC Common Stock" means the average of the closing
prices (or, if the PEC Common Stock should not trade on any trading day,
the average of the bid and asked prices therefor on such day), regular way,
per share of PEC Common Stock as reported on the New York Stock Exchange
Composite Tape during the fifteen consecutive trading days ending on (but
excluding) the third trading day prior to the ANGC Stockholders Meeting.
Notwithstanding the foregoing, if between the date of this Agreement and
the Effective Time the outstanding shares of PEC Common
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Stock or ANGC Common Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(b) Notwithstanding any provision of this Agreement to the contrary,
each share of ANGC Common Stock held in the treasury of ANGC and each share
of ANGC Common Stock owned by PEC or any direct or indirect wholly owned
subsidiary of PEC or of ANGC immediately prior to the Effective Time shall
be cancelled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(c) All shares of ANGC Common Stock shall cease to be outstanding and
shall automatically be cancelled and retired, and each certificate
previously evidencing ANGC Common Stock outstanding immediately prior to
the Effective Time (other than ANGC Common Stock described in Section
2.01(b) of this Agreement) ("Converted Shares") shall thereafter represent
the right to receive, subject to Section 2.02(e) of this Agreement, that
number of shares of PEC Common Stock determined pursuant to the Exchange
Ratio and, if applicable, cash pursuant to Section 2.02(e) of this
Agreement (the "Merger Consideration"). The holders of certificates
previously evidencing Converted Shares shall cease to have any rights with
respect to such Converted Shares except as otherwise provided herein or by
law. Such certificates previously evidencing Converted Shares shall be
exchanged for certificates evidencing whole shares of PEC Common Stock upon
the surrender of such Certificates in accordance with the provisions of
Section 2.02 of this Agreement, without interest. No fractional shares of
PEC Common Stock shall be issued in connection with the Merger and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(e) of this
Agreement.
(d) Each share of common stock, par value $1.00 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock, par value $.05 per share, of the
Surviving Corporation.
SECTION 2.02. Exchange and Surrender of Certificates.
(a) As soon as practicable after the Effective Time, each holder of a
certificate previously evidencing Converted Shares shall be entitled, upon
surrender thereof to PEC or its transfer agent (as specified in the letter
of transmittal described in Section 2.02 (c)), to receive in exchange
therefor a certificate or certificates representing the number of whole
shares of PEC Common Stock into which the Converted Shares so surrendered
shall have been converted as aforesaid, in such denominations and
registered in such names as such holder may request. Each holder of
Converted Shares who would otherwise be entitled to a fraction of a share
of PEC Common Stock shall, upon surrender of the certificates representing
such shares held by such holder as aforesaid, be paid an amount in cash in
accordance with the provisions of Section 2.02 (e). Until so surrendered
and exchanged, each certificate previously evidencing Converted Shares
shall represent solely the right to receive PEC Common Stock and cash in
lieu of fractional shares. Unless and until any such certificates shall be
so surrendered and exchanged, no dividends or other distributions payable
to the holders of record of PEC Common Stock as of any time on or after the
Effective Time shall be paid to the holders of such certificates previously
evidencing Converted Shares; provided, however, that, upon any such
surrender and exchange of such certificates, there shall be paid to the
record holders of the certificates issued and exchanged therefor (i) the
amount, without interest thereon, of dividends and other distributions, if
any, with a record date on or after the Effective Time theretofore paid
with respect to such whole shares of PEC Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions,
if any, with a record date on or after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with
respect to such whole shares of PEC Common Stock. Notwithstanding the
foregoing, no party hereto (or PEC's transfer agent) shall be liable to any
former holder of Converted Shares for any cash, PEC Common Stock or
dividends or distributions thereon delivered to a public official pursuant
to applicable abandoned property, escheat or similar law.
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(b) All shares of PEC Common Stock issued upon the surrender for
exchange of certificates previously representing Converted Shares in
accordance with the terms hereof (including any cash paid pursuant to
Section 2.02 (e)) shall be deemed to have been issued in full satisfaction
of all rights pertaining to such Converted Shares. At and after the
Effective Time, there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the ANGC Common Stock
that was outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates which previously evidenced Converted Shares
are presented to the Surviving Corporation for any reason, they shall be
cancelled and exchanged as provided in this Article II.
(c) As promptly as practicable after the Effective Time, PEC will send
or cause to be sent to each record holder of ANGC Common Stock at the
Effective Time a letter of transmittal and other appropriate materials for
use in surrendering certificates as contemplated hereby.
(d) If any certificate for shares of PEC Common Stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof
that the certificate so surrendered shall be properly endorsed, with
signatures guaranteed, and otherwise in proper form for transfer and that
the person requesting such exchange shall have paid to PEC or its transfer
agent any transfer or other taxes required by reason of the issuance of a
certificate for shares of PEC Common Stock in any name other than that of
the registered holder of the certificate surrendered, or established to the
satisfaction of PEC or its transfer agent that such tax has been paid or is
not payable.
(e) No certificates or scrip evidencing fractional shares of PEC
Common Stock shall be issued upon the surrender for exchange of
certificates, and such fractional share interests will not entitle the
owner thereof to any rights of a stockholder of PEC. In lieu of any such
fractional shares, each holder of a certificate previously evidencing
Converted Shares, upon surrender of such certificate for exchange pursuant
to this Article II, shall be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (a) the per share
closing price as reported on the New York Stock Exchange Composite Tape of
PEC Common Stock on the date of the Effective Time (or, if shares of PEC
Common Stock do not trade on the New York Stock Exchange (the "NYSE") on
such date, the first date of trading of PEC Common Stock on the NYSE after
the Effective Time) by (b) the fractional interest to which such holder
would otherwise be entitled (after taking into account all Converted Shares
held of record by such holder at the Effective Time).
(f) PEC shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former
holder of Converted Shares such amounts as PEC (or any affiliate thereof)
is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by PEC, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the former holder of the Converted Shares in respect of which such
deduction and withholding was made by PEC.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ANGC
ANGC hereby represents and warrants to the PEC Companies that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of ANGC
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
be so duly qualified and in good standing would not have an ANGC Material
Adverse Effect. The term "ANGC Material Adverse Effect" as used in this
Agreement shall mean any change or effect that, individually or when taken
together with all other
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such changes or effects, would be materially adverse to the financial condition,
results of operations or current or future business of ANGC and its
subsidiaries, taken as a whole. Schedule 3.01 of the disclosure schedule
delivered to PEC by ANGC on the date hereof (the "ANGC Disclosure Schedule")
sets forth, as of the date of this Agreement, a true and complete list of all
ANGC's directly or indirectly owned subsidiaries, together with (A) the
jurisdiction of incorporation or organization of each subsidiary and the
percentage of each subsidiary's outstanding capital stock or other equity
interests owned by ANGC or another subsidiary of ANGC, and (B) an indication of
whether each such subsidiary is a "Significant Subsidiary" as defined in Section
9.03(g) of this Agreement. Neither ANGC nor any of its subsidiaries owns an
equity interest in any other partnership or joint venture arrangement or other
business entity that is material to the financial condition, results of
operations or current or future business of ANGC and its subsidiaries, taken as
a whole.
SECTION 3.02. Charter and Bylaws. ANGC has heretofore furnished to PEC
complete and correct copies of the charter and the bylaws or the equivalent
organizational documents, in each case as amended or restated, of ANGC and each
of its subsidiaries. Neither ANGC nor any of its subsidiaries is in violation of
any of the provisions of its charter or any material provision of its bylaws (or
equivalent organizational documents).
SECTION 3.03. Capitalization.
(a) The authorized capital stock of ANGC consists of (i) 40,000,000
shares of ANGC Common Stock, of which as of the date of this Agreement (1)
15,115,320 shares were issued and outstanding (including 101,225 shares of
restricted stock granted pursuant to the Option Plans, as defined below),
(2) no shares were held in treasury by ANGC, (3) 865,343 shares were
reserved for future issuance pursuant to outstanding stock options ("Stock
Options" and, together with restricted stock granted pursuant to the Option
Plans, the "Stock Awards") granted pursuant to the ANGC Equity Incentive
Plan or the ANGC 1989 Non-qualified Stock Option Plan for Directors
(collectively, the "Option Plans" and individually, an "Option Plan"), (4)
240,964 shares were reserved for issuance upon conversion of ANGC's 9%
Convertible Senior Subordinated Notes, and (5) 3,007,948 shares were
reserved for issuance pursuant to the PEC Option Agreement; and (ii)
200,000 shares of preferred stock, par value $1.00 per share ("ANGC
Preferred Stock"), of which no shares are issued and outstanding. Except as
described in this Section 3.03 or in Schedule 3.03(a) of the ANGC
Disclosure Schedule, as of the date of this Agreement, no shares of capital
stock of ANGC are reserved for any purpose. Each of the outstanding shares
of capital stock of, or other equity interests in, each of ANGC and its
subsidiaries is duly authorized, validly issued, and, in the case of shares
of capital stock, fully paid and nonassessable, and has not been issued in
violation of (nor are any of the authorized shares of capital stock of, or
other equity interests in, such entities subject to) any preemptive or
similar rights created by statute, the charter or bylaws (or the equivalent
organizational documents) of ANGC or any of its subsidiaries, or any
agreement to which ANGC or any of its subsidiaries is a party or bound, and
such outstanding shares or other equity interests owned by ANGC or a
subsidiary of ANGC are owned free and clear of all security interests,
liens, claims, pledges, agreements, limitations on ANGC's or such
subsidiaries' voting rights, charges or other encumbrances of any nature
whatsoever.
(b) Except as set forth in Section 3.03(a) above or in Schedule
3.03(b)(i) to the ANGC Disclosure Schedule, there are no options, warrants
or other rights (including registration rights), agreements, arrangements
or commitments of any character to which ANGC or any of its subsidiaries is
a party relating to the issued or unissued capital stock of ANGC or any of
its subsidiaries or obligating ANGC or any of its subsidiaries to grant,
issue or sell any shares of the capital stock of ANGC or any of its
subsidiaries, by sale, lease, license or otherwise. Except as set forth in
Schedule 3.03(b)(ii) to the ANGC Disclosure Schedule, there are no
obligations, contingent or otherwise, of ANGC or any of its subsidiaries to
(i) repurchase, redeem or otherwise acquire any shares of ANGC Common Stock
or other capital stock of ANGC, or the capital stock or other equity
interests of any subsidiary of ANGC; or (ii) (other than advances to
subsidiaries in the ordinary course of business) provide material funds to,
or make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any subsidiary of ANGC or any other person. Except as
described in Schedule 3.03(b)(iii) to the ANGC Disclosure Schedule, neither
ANGC nor any of its
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subsidiaries (x) directly or indirectly owns, (y) has agreed to purchase or
otherwise acquire or (z) holds any interest convertible into or
exchangeable or exercisable for, 5% or more of the capital stock of any
corporation, partnership, joint venture or other business association or
entity (other than the subsidiaries of ANGC set forth in Schedule 3.01 of
the ANGC Disclosure Schedule). Except as set forth in Schedule 3.03(b)(iv)
of the ANGC Disclosure Schedule and except for any agreements, arrangements
or commitments between ANGC and its subsidiaries or between such
subsidiaries, there are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may
be entitled to receive any payment based on the revenues or earnings, or
calculated in accordance therewith, of ANGC or any of its subsidiaries.
There are no voting trusts, proxies or other agreements or understandings
to which ANGC or any of its subsidiaries is a party or by which ANGC or any
of its subsidiaries is bound with respect to the voting of any shares of
capital stock of ANGC or any of its subsidiaries.
(c) ANGC has delivered to PEC complete and correct copies of (i) each
of the Option Plans and the forms of Stock Awards issued pursuant to each
such Option Plan, including all amendments thereto and (ii) all Stock
Awards which are not in the respective forms thereof provided under clause
(i) above. Schedule 3.03(c) to the ANGC Disclosure Schedule sets forth a
complete and correct list of all outstanding Stock Awards, including any
not granted pursuant to the Option Plans, setting forth as of the date
hereof (i) the number and type of Stock Awards outstanding, specifying the
Option Plan under which such Stock Awards were issued, (ii) the exercise
price of each outstanding Stock Option, (iii) the number of Stock Options
exercisable, and (iv) assuming no amendment or waiver of the terms thereof,
the number of Stock Options which will become exercisable, and the number
of shares of restricted stock with respect to which the restrictions will
lapse, on account of the Merger or any other transaction contemplated
hereby.
SECTION 3.04. Authority. ANGC has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the adoption of this Agreement by the stockholders
of ANGC as described in Section 3.16 hereof). The execution and delivery of this
Agreement by ANGC and the consummation by ANGC of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of ANGC are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the adoption of this Agreement by the stockholders
of ANGC as described in Section 3.16 hereof). This Agreement has been duly
executed and delivered by ANGC and, assuming the due authorization, execution
and delivery thereof by the PEC Companies, constitutes the legal, valid and
binding obligation of ANGC.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by ANGC does not, and
the consummation of the transactions contemplated hereby will not (i)
conflict with or violate the charter or bylaws, or the equivalent
organizational documents, in each case as amended or restated, of ANGC or
any of its subsidiaries, (ii) conflict with or violate any federal, state,
foreign or local law, statute, ordinance, rule, regulation, order, judgment
or decree (collectively, "Laws") applicable to ANGC or any of its
subsidiaries or by which any of their respective properties is bound or
subject or (iii) except as described in Schedule 3.05 to the ANGC
Disclosure Schedule, result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or require payment under, or result in the creation of
a lien or encumbrance on any of the properties or assets of ANGC or any of
its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which ANGC or any of its subsidiaries is a party or by or
to which ANGC or any of its subsidiaries or any of their respective
properties is bound or subject, except for any such conflicts or violations
described in clause (ii) or breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation, payment obligations
or liens or encumbrances described in clause (iii) that would not have an
ANGC Material Adverse Effect. The Board of Directors of ANGC has taken all
actions necessary under Delaware Law, including approving the transactions
contemplated
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by this Agreement and taking appropriate actions under Section 203 of
Delaware Law, to ensure that the restrictions on business combinations set
forth in Section 203 of Delaware Law do not, and will not, apply with
respect to or as a result of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by ANGC does not, and
consummation of the transactions contemplated hereby will not, require ANGC
to obtain any consent, license, permit, approval, waiver, authorization or
order of, or to make any filing with or notification to, any governmental
or regulatory authority, domestic or foreign (collectively, "Governmental
Entities"), except (i) for applicable requirements, if any, of the
Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities or blue sky laws ("Blue Sky Laws"), and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
filing and recordation of appropriate merger documents as required by
Delaware Law, and (ii) where the failure to obtain such consents, licenses,
permits, approvals, waivers, authorizations or orders, or to make such
filings or notifications, would not, either individually or in the
aggregate, prevent ANGC from performing its obligations under this
Agreement and would not have an ANGC Material Adverse Effect.
SECTION 3.06. Permits; Compliance. Each of ANGC and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "ANGC Permits"), and there is no
action, proceeding or investigation pending or, to the knowledge of ANGC,
threatened regarding suspension or cancellation of any of the ANGC Permits,
except where the failure to possess, or the suspension or cancellation of, such
ANGC Permits would not have an ANGC Material Adverse Effect. Neither ANGC nor
any of its subsidiaries is in conflict with, or in default or violation of (a)
any Law applicable to ANGC or any of its subsidiaries or by or to which any of
their respective properties is bound or subject or (b) any of the ANGC Permits,
except for any such conflicts, defaults or violations which would not have an
ANGC Material Adverse Effect. During the period commencing on September 30, 1993
and ending on the date hereof, neither ANGC nor any of its subsidiaries has
received from any Governmental Entity any written notification with respect to
possible conflicts, defaults or violations of Laws, except for written notices
relating to possible conflicts, defaults or violations that would not have an
ANGC Material Adverse Effect.
SECTION 3.07. Reports; Financial Statements.
(a) Since September 30, 1991, ANGC and its subsidiaries have filed (i)
all forms, reports, statements and other documents required to be filed
with (A) the Securities and Exchange Commission (the "SEC") including,
without limitation, (1) all Annual Reports on Form 10-K, (2) all Quarterly
Reports on Form 10-Q, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Current Reports on Form
8-K and (5) all other reports, schedules, registration statements or other
documents (collectively referred to as the "ANGC SEC Reports") and (B) any
applicable state securities authorities and (ii) all forms, reports,
statements and other documents required to be filed with any other
applicable federal or state regulatory authorities, except where the
failure to file any such forms, reports, statements or other documents
would not have an ANGC Material Adverse Effect (all such forms, reports,
statements and other documents in clauses (i) and (ii) of this Section
3.07(a) being referred to herein, collectively, as the "ANGC Reports"). The
ANGC Reports, including all ANGC Reports filed after the date of this
Agreement and prior to the Effective Time, (i) were or will be prepared in
all material respects in accordance with the requirements of applicable Law
(including, with respect to ANGC SEC Reports, the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such ANGC SEC Reports) and (ii) did not at the
time they were filed, or will not at the time they are filed, contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in ANGC SEC Reports filed prior
to the Effective Time (i) have been or will be prepared in accordance with
the published rules and regulations of the SEC and generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except (A) to the extent required by changes in generally
accepted accounting principles and (B) with respect to ANGC SEC Reports
filed prior to the date of this Agreement, as may be indicated in the notes
thereto) and (ii) fairly present or will fairly present the consolidated
financial position of ANGC and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated (including reasonable estimates of normal and recurring
year-end adjustments), except that (x) any unaudited interim financial
statements were or will be subject to normal and recurring year-end
adjustments and (y) any pro forma financial statements contained in such
consolidated financial statements are not necessarily indicative of the
consolidated financial position of ANGC and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated.
SECTION 3.08. Absence of Certain Changes or Events. Except as disclosed in
ANGC SEC Reports filed prior to the date of this Agreement or as contemplated by
this Agreement or as set forth in Schedule 3.08 of the ANGC Disclosure Schedule,
since June 30, 1994 ANGC and its subsidiaries have conducted their respective
businesses only in the ordinary course and in a manner consistent with past
practice and there has not been: (i) any material damage, destruction or loss
(whether or not covered by insurance) with respect to any material assets of
ANGC or any of its subsidiaries; (ii) any material change by ANGC or its
subsidiaries in their accounting methods, principles or practices; (iii) except
for dividends by a subsidiary of ANGC to ANGC or another subsidiary of ANGC, any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of ANGC Common Stock (other than regular quarterly dividends
in an amount not exceeding $.03 per share) or the shares of stock of, or other
equity interests in, any subsidiary of ANGC, or any redemption, purchase or
other acquisition by ANGC or any of its subsidiaries of any of ANGC's securities
or any of the securities of any subsidiary of ANGC; (iv) any increase in the
benefits under, or the establishment or amendment of, any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any increase in the compensation
payable or to become payable to directors, officers or employees of ANGC or its
subsidiaries, except for (A) increase in salaries or wages payable or to become
payable in the ordinary course of business and consistent with past practice or
(B) the granting of stock options pursuant to the Option Plans in the ordinary
course of business to employees of ANGC or its subsidiaries who are not
directors or executive officers of ANGC; (v) any revaluation by ANGC or any of
its subsidiaries of any of their assets, including the writing down of the value
of inventory or the writing down or off of notes or accounts receivable, other
than in the ordinary course of business and consistent with past practices; (vi)
any entry by ANGC or any of its subsidiaries into any commitment or transaction
material to ANGC and its subsidiaries, taken as a whole (other than this
Agreement and the transactions contemplated hereby); (vii) any material increase
in indebtedness for borrowed money; or (viii) an ANGC Material Adverse Effect.
SECTION 3.09. Absence of Litigation. Except as disclosed in the ANGC SEC
Reports filed prior to the date of this Agreement or as set forth in Schedule
3.09 of the ANGC Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of ANGC, investigation
of any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of ANGC, threatened against
ANGC or any of its subsidiaries or any properties or rights of ANGC or any of
its subsidiaries (except for claims, actions, suits, litigation, proceedings,
arbitrations or investigations which would not have an ANGC Material Adverse
Effect), and neither ANGC nor any of its subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of ANGC, continuing investigation
by, any Governmental Entity, or any judgment, order, writ, injunction, decree or
award of any Government Entity or arbitrator, including, without limitation,
cease-and-desist or other orders, except for matters which would not have an
ANGC Material Adverse Effect.
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SECTION 3.10. Employee Benefit Plans; Labor Matters.
(a) Schedule 3.10(a) to the ANGC Disclosure Schedule sets forth each
employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan", as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained or contributed to by ANGC or any of its
subsidiaries, or with respect to which ANGC or any of its subsidiaries
could incur liability under Section 4069, 4212(c) or 4204 of ERISA (the
"Benefit Plans"). ANGC has made available to PEC a true and correct copy of
(i) the most recent annual report (Form 5500) filed with the Internal
Revenue Service (the "IRS"), (ii) such Benefit Plan, (iii) each trust
agreement relating to such Benefit Plan, (iv) the most recent summary plan
description for each Benefit Plan for which a summary plan description is
required, (v) the most recent actuarial report or valuation relating to a
Benefit Plan subject to Title IV of ERISA and (vi) the most recent
determination letter, if any, issued by the IRS with respect to any Benefit
Plan qualified under Section 401 of the Code.
(b) With respect to the Benefit Plans, no event has occurred and, to
the knowledge of ANGC, there exists no condition or set of circumstances,
in connection with which ANGC or any of its subsidiaries could be subject
to any liability under the terms of such Benefit Plans, ERISA, the Code or
any other applicable Law which would have an ANGC Material Adverse Effect.
Except as otherwise set forth on Schedule 3.10(b) of the ANGC Disclosure
Schedule,
(i) As to any Benefit Plan intended to be qualified under Section
401 of the Code, such Benefit Plan satisfies the requirements of such
Section and there has been no termination or partial termination of such
Benefit Plan within the meaning of Section 411(d)(3) of the Code;
(ii) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of ANGC, threatened
against, or with respect to, any of the Benefit Plans or their assets;
(iii) All contributions required to be made to the Benefit Plans
pursuant to their terms and provisions have been made timely;
(iv) As to any Benefit Plan subject to Title IV of ERISA, there has
been 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 Code
has been incurred, no notice of intent to terminate the Benefit Plan has
been given under Section 4041 of ERISA, no proceeding has been
instituted under Section 4042 of ERISA to terminate the Plan, and no
liability to the Pension Benefit Guaranty Corporation has been incurred;
and
(v) In connection with the consummation of the transactions
contemplated by this Agreement, no payments have or will be made under
the Benefit Plans or any of the programs, agreements, policies or other
arrangements described in Section 3.10(d) of this Agreement which, in
the aggregate, would result in imposition of the sanctions imposed under
Sections 280G and 4999 of the Code.
(c) Neither ANGC nor any of its subsidiaries is a party to any
collective bargaining or other labor union contracts. No collective
bargaining agreement is being negotiated by ANGC or any of its
subsidiaries. There is no pending or threatened labor dispute, strike or
work stoppage against ANGC or any of its subsidiaries which may interfere
with the respective business activities of ANGC or any of its subsidiaries.
To the knowledge of ANGC, none of ANGC, any of its subsidiaries or any of
their respective representatives or employees has committed any unfair
labor practices in connection with the operation of the respective
businesses of ANGC or its subsidiaries, and there is no pending or
threatened charge or complaint against ANGC or any of its subsidiaries by
the National Labor Relations Board or any comparable state agency.
(d) Neither ANGC nor any of its subsidiaries is a party to or is bound
by any severance agreements, programs or policies. Schedule 3.10(d) of the
ANGC Disclosure Schedule sets forth, and ANGC has
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provided to PEC true and correct copies of, (i) all employment agreements
with officers of ANGC or its subsidiaries; (ii) all agreements with
consultants of ANGC or its subsidiaries obligating ANGC or any subsidiary
to make annual cash payments in an amount exceeding $100,000; (iii) all
non-competition agreements with ANGC or a subsidiary executed by officers
of ANGC; and (iv) all plans, programs, agreements and other arrangements of
ANGC or its subsidiaries with or relating to its employees.
(e) Except as provided in Schedule 3.10(e) of the ANGC Disclosure
Schedule, (x) no Benefit Plan provides retiree medical or retiree life
insurance benefits to any person and (y) neither ANGC nor any of its
subsidiaries is contractually or otherwise obligated (whether or not in
writing) to provide any person with life insurance or medical benefits upon
retirement or termination of employment, other than as required by the
provisions of Sections 601 through 608 of ERISA and Section 4980B of the
Code.
(f) Except as provided in Schedule 3.10(f) of the ANGC Disclosure
Schedule, neither ANGC nor any of its subsidiaries contribute to or has an
obligation to contribute to, and has not within six years prior to the date
of this Agreement contributed to or had an obligation to contribute to, a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(g) ANGC has not amended, or taken any other actions (other than the
acceleration of vesting or waiving of performance criteria permitted
pursuant to the Benefit Plans upon a change in control of ANGC and not
inconsistent with accounting for the Merger as a Pooling Transaction) with
respect to any of the Benefit Plans or any of the plans, programs,
agreements, policies or other arrangements described in Section 3.10(d) of
this Agreement since September 30, 1993.
SECTION 3.11. Taxes.
(a) Except for such matters as would not have an ANGC Material Adverse
Effect, and except as set forth on Schedule 3.11(a) to the ANGC Disclosure
Schedule, (i) all returns and reports ("Tax Returns") of or with respect to
any Tax which is required to be filed on or before the Closing Date by or
with respect to ANGC or any its subsidiaries have been or will be duly and
timely filed, (ii) all items of income, gain, loss, deduction and credit or
other items required to be included in each such Tax Return have been or
will be so included and all information provided in each such Tax Return is
true, correct and complete, (iii) all Taxes which have become or will
become due with respect to the period covered by each such Tax Return have
been or will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to ANGC or any of its subsidiaries have been or
will be satisfied in full in all respects, and (v) no penalty, interest or
other charge is or will become due with respect to the late filing of any
such Tax Return or late payment of any such Tax.
(b) All Tax Returns of or with respect to ANGC or any of its
subsidiaries with unexpired or extended statutes of limitations which have
been audited by the applicable governmental authority are set forth in
Schedule 3.11(b) to the ANGC Disclosure Schedule.
(c) Except as set forth on Schedule 3.11(c) to the ANGC Disclosure
Schedule, there is not in force any extension of time with respect to the
due date for the filing of any Tax Return of or with respect to ANGC or any
its subsidiaries or any waiver or agreement for any extension of time for
the assessment or payment of any Tax of or with respect to ANGC or any of
its Subsidiaries.
(d) There is no claim against ANGC or any of its subsidiaries for any
Taxes, and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to ANGC or any
of its subsidiaries other than those disclosed (and to which are attached
true and complete copies of all audit or similar reports) on Schedule
3.11(d) to the ANGC Disclosure Schedule or which would not have an ANGC
Material Adverse Effect.
(e) The total amounts set up as liabilities for current and deferred
Taxes in the financial statements referred to in Section 3.07 of this
Agreement are sufficient to cover in all material respects the payment of
all Taxes, whether or not assessed or disputed, which are, or are hereafter
found to be, or to have been, due by or with respect to ANGC and any of its
subsidiaries up to and through the periods covered thereby.
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(f) ANGC has previously delivered to PEC true and complete copies of
each written Tax allocation or sharing agreement and a true and complete
description of each unwritten Tax allocation or sharing arrangement
affecting ANGC or any of its subsidiaries.
(g) Except for statutory liens for current Taxes not yet due, no
material liens for Taxes exist upon the assets of any of ANGC or its
subsidiaries.
(h) Neither ANGC nor any of its subsidiaries will be required to
include any amount in income for any taxable period beginning after
September 30, 1993 as a result of a change in accounting method for any
taxable period ending on or before September 30, 1993 or pursuant to any
agreement with any Tax authority with respect to any such taxable period.
(i) Except as set forth on Schedule 3.11(i) to the ANGC Disclosure
Schedule, none of the property of ANGC or any of its subsidiaries is held
in an arrangement for which partnership Tax Returns are being filed, and
neither ANGC nor any of its subsidiaries owns any interest in any
controlled foreign corporation (as defined in section 957 of the Code),
passive foreign investment company (as defined in section 1296 of the Code)
or other entity the income of which is required to be included in the
income of ANGC or such subsidiary.
(j) Except as set forth on Schedule 3.11(j) to the ANGC Disclosure
Schedule, none of the property of ANGC or any of its subsidiaries is
subject to a safe-harbor lease (pursuant to section 168(f)(8) of the
Internal Revenue Code of 1954 as in effect after the Economic Recovery Tax
Act of 1981 and before the Tax Reform Act of 1986) or is "tax-exempt use
property" (within the meaning of section 168(h) of the Code) or "tax-exempt
bond financed property" (within the meaning of section 168(g)(5) of the
Code).
(k) Except as set forth on Schedule 3.11(k) to the ANGC Disclosure
Schedule, none of the transactions contemplated by this Agreement will
result in any Tax liability or the recognition of any item of income or
gain to ANGC or any of its subsidiaries.
(l) Neither ANGC nor any of its subsidiaries has made an election
under section 341(f) of the Code.
SECTION 3.12. Tax Matters; Pooling.
(a) Neither ANGC nor, to the knowledge of ANGC, any of its affiliates
has taken or agreed to take any action that would prevent the Merger from
(a) constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code or (b) being treated for financial accounting
purposes as a "pooling of interests" in accordance with generally accepted
accounting principles and the rules, regulations and interpretations of the
SEC (a "Pooling Transaction").
(b) There is no plan or intention by any stockholder of ANGC who owns
five percent or more of ANGC Common Stock, and to the best knowledge of
ANGC there is no plan or intention on the part of any of the remaining
stockholders of ANGC Common Stock, to sell, exchange or otherwise dispose
of a number of shares of PEC Common Stock to be received in the Merger that
would reduce the ANGC stockholders' ownership of PEC Common Stock to a
number of shares having a value, as of the Effective Time, of less than 50
percent of the value of all of the ANGC Common Stock (including shares of
ANGC Common Stock exchanged for cash in lieu of fractional shares of PEC
Common Stock) outstanding immediately prior to the Effective Time.
(c) Following the Merger, ANGC will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets held immediately prior to the Merger. For
purposes of this representation, amounts used by ANGC to pay Merger
expenses and all redemptions and distributions (except for regular, normal
dividends) made by ANGC will be included as assets of ANGC immediately
prior to the Merger.
(d) ANGC and the holders of ANGC Common Stock will each pay their
respective expenses, if any, incurred in connection with the Merger.
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(e) There is no intercorporate indebtedness existing between ANGC and
PEC or between ANGC and Merger Sub that was issued, acquired, or will be
settled at a discount.
(f) ANGC is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(g) ANGC is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
(h) The total amount of cash to be received by stockholders of ANGC
Common Stock in lieu of fractional shares of PEC Common Stock will not
exceed one percent of the total fair market value of the PEC Common Stock
(as of the Effective Time) to be issued in the Merger.
SECTION 3.13. Affiliates. Schedule 3.13 to the ANGC Disclosure Schedule
identifies all persons who, to the knowledge of ANGC, may be deemed to be
affiliates of ANGC under Rule 145 of the Securities Act, including, without
limitation, all directors and executive officers of ANGC. Concurrently with the
execution and delivery of this Agreement, ANGC has delivered to PEC an executed
letter agreement, substantially in the form of Exhibit A hereto, from certain of
such persons identified on Schedule 3.13 to the ANGC Disclosure Schedule and
will use its reasonable best efforts to deliver to PEC within ten days after the
date of this Agreement an executed letter agreement, substantially in the form
of Exhibit A hereto, from each of the other persons identified on Schedule 3.13.
SECTION 3.14. Certain Business Practices. None of ANGC, any of its
subsidiaries or any directors, officers, agents or employees of ANGC or any of
its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
SECTION 3.15 Environmental Matters. Except for matters disclosed in
Schedule 3.15 of the ANGC Disclosure Letter and except for matters that would
not result, individually or in the aggregate with all other such matters, in
liability to ANGC or any of its subsidiaries in excess of $3,000,000, (i) the
properties, operations and activities of ANGC and its subsidiaries are in
compliance with all applicable Environmental Laws; (ii) ANGC and its
subsidiaries and the properties and operations of ANGC and its subsidiaries are
not subject to any existing, pending or, to the knowledge of ANGC, threatened
action, suit, investigation, inquiry or proceeding by or before any governmental
authority under any Environmental Law; (iii) all notices, permits, licenses, or
similar authorizations, if any, required to be obtained or filed by ANGC or any
of its subsidiaries under any Environmental Law in connection with any aspect of
the business of ANGC or its subsidiaries, including without limitation those
relating to the treatment, storage, disposal or release of a hazardous
substance, have been duly obtained or filed and will remain valid and in effect
after the Merger, and ANGC and its subsidiaries are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations; (iv) ANGC and its subsidiaries have satisfied and are currently
in compliance with all financial responsibility requirements applicable to their
operations and imposed by any governmental authority under any Environmental
Law, and ANGC and its subsidiaries have not received any notice of noncompliance
with any such financial responsibility requirements; (v) to ANGC's knowledge,
there are no physical or environmental conditions existing on any property of
ANGC or its subsidiaries or resulting from ANGC's or such subsidiaries'
operations or activities, past or present, at any location, that would give rise
to any on-site or off-site remedial obligations imposed on ANGC or any of its
subsidiaries under any Environmental Laws; (vi) to ANGC's knowledge, since the
effective date of the relevant requirements of applicable Environmental Laws and
to the extent required by such applicable Environmental Laws, all hazardous
substances generated by ANGC and its subsidiaries have been transported only by
carriers authorized under Environmental Laws to transport such substances and
wastes, and disposed of only at treatment, storage, and disposal facilities
authorized under Environmental Laws to treat, store or dispose of such
substances and wastes; (vii) there has been no exposure of any person or
property to hazardous substances or any pollutant or contaminant, nor has there
been any release of hazardous substances, or any pollutant or contaminant into
the environment by ANGC or its subsidiaries or in connection with their
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properties or operations that could reasonably be expected to give rise to any
claim against ANGC or any of its subsidiaries for damages or compensation; and
(viii) ANGC and its subsidiaries have made available to PEC all non-privileged
internal and external environmental audits and studies and all non-privileged
correspondence on substantial environmental matters in the possession of ANGC or
its subsidiaries relating to any of the current or former properties or
operations of ANGC and its subsidiaries.
For purposes of this Agreement, the term "Environmental Laws" shall mean
any and all laws, statutes, ordinances, rules, regulations, or orders of any
Governmental Entity pertaining to health or the environment currently in effect
in any and all jurisdictions in which the party in question and its subsidiaries
own property or conduct business, including without limitation, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as amended,
the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, the Oil Pollution Act of
1990 ("OPA"), any state laws implementing the foregoing federal laws, and any
state laws pertaining to the handling of oil and gas exploration and production
wastes or the use, maintenance, and closure of pits and impoundments, and all
other environmental conservation or protection laws. For purposes of this
Agreement, the terms "hazardous substance" and "release" have the meanings
specified in CERCLA, and the term "disposal" has the meaning
specified in RCRA; provided, however, that to the extent the laws of the state
in which the property is located establish a meaning for "hazardous substance,"
"release," or "disposal" that is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.
SECTION 3.16. Vote Required. The only vote of the holders of any class or
series of ANGC capital stock necessary to approve the Merger and adopt this
Agreement is the affirmative vote of the holders of a majority of the
outstanding shares of ANGC Common Stock.
SECTION 3.17. Brokers. Except as set forth in Schedule 3.17 to the ANGC
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of ANGC. Prior to the date of this Agreement, ANGC has delivered to
PEC a complete and correct copy of all agreements referenced in Schedule 3.17 to
the ANGC Disclosure Schedule pursuant to which such firm will be entitled to any
payment relating to the transactions contemplated by this Agreement.
SECTION 3.18. Insurance. ANGC and each of its subsidiaries are currently
insured, and during each of the past five calendar years have been insured, for
reasonable amounts against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured.
SECTION 3.19. Properties. Except for liens arising in the ordinary course
of business after the date hereof and properties and assets disposed of in the
ordinary course of business after the date of the most recent balance sheet
contained in the Form 10-Q referred to below, ANGC and its subsidiaries have
defensible title (or, with respect to pipelines, equipment, other tangible
personal property, easements, rights of way, servitudes, permits, surface leases
and other similar assets and rights used in connection with ANGC's natural gas
gathering, processing and storage operations (collectively, "Pipeline Assets"),
title to or interest in the applicable Pipeline Asset sufficient to enable ANGC
and its subsidiaries to conduct their business with respect thereto without
material interference as it is currently being conducted or as described in the
ANGC SEC Reports), free and clear of all liens, the existence of which would
have an ANGC Material Adverse Effect, to all their material properties and
assets, whether tangible or intangible, real, personal or mixed, reflected in
ANGC's most recent consolidated balance sheet contained in ANGC's most recent
ANGC SEC Report on Form 10-Q filed prior to the date hereof as being owned by
ANGC and its subsidiaries as of the date thereof or purported to be owned on the
date hereof. All buildings, and all fixtures, equipment and other property and
assets which are material to its business on a consolidated basis, held under
leases by any of ANGC or its subsidiaries are held under valid instruments
enforceable by ANGC or its subsidiaries in accordance with their
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respective terms. Substantially all of ANGC's and its subsidiaries' equipment in
regular use has been well maintained and is in good and serviceable condition,
reasonable wear and tear excepted.
SECTION 3.20. Certain Contracts and Restrictions.
(a) Schedule 3.20(a) to the ANGC Disclosure Schedule lists, as of the
date of this Agreement, each agreement, contract or commitment to which
ANGC or any of its subsidiaries is a party or by which ANGC or any of its
subsidiaries is bound (i) involving consideration during the previous
twelve months in excess of $4,000,000 (for on system agreements, contracts
or commitments) or $8,000,000 (for off system agreements, contracts or
commitments), or which is otherwise material to the financial condition,
results of operations or current or future business of ANGC and its
subsidiaries, taken as a whole, of a duration in excess of one month for
the receiving, storing, processing, purchasing, transporting, gathering,
exchanging or sale of Hydrocarbons (either for the account of ANGC or a
subsidiary thereof or on behalf of third parties), identifying separately
(with respect to sales, purchase, transportation, storage, gathering and
exchange agreements, contracts or commitments) which agreements, contracts
or commitments are firm or interruptible delivery or transportation or (ii)
which is a swap, exchange or futures contract. As used in clause (i) in
reference to any sales, purchase, transportation, storage or exchange
agreement, contract or commitment, the term "interruptible" means that
neither ANGC nor any of its subsidiaries will be liable for any damages
(including, without limitation, consequential damages) if it elects to not
purchase, sell, transport or exchange hydrocarbons in connection with such
agreement, contract or commitment, and the term "firm" means that such
agreement, contract or commitment does not meet the foregoing definition of
"interruptible".
(b) Except as set forth on Schedule 3.20(b) to the ANGC Disclosure
Schedule, there is nothing in any contract, agreement or commitment between
ANGC or any of its subsidiaries and any third party or in applicable Law or
orders of Governmental Entities having jurisdiction to which ANGC or any of
its subsidiaries or any of the assets or services thereof may be subject
which following the Effective Time (i) would preclude PEC from charging and
collecting, without the necessity for approvals of any Governmental Entity
and without refund obligation, market based rates for receiving, storing,
processing, purchasing, transporting, gathering, exchanging or selling
Hydrocarbons; (ii) would preclude PEC from releasing or brokering on a
permanent or temporary basis its capacity or contract rights in third party
Hydrocarbon facilities; (iii) would preclude PEC from constructing
additions to, modifications of, or interconnections with third parties of
its transportation, storage, processing or gathering facilities; or (iv)
may require PEC to make refunds of amounts collected for sales or services.
(c) The term "Hydrocarbons" means crude oil, natural gas, natural gas
liquids and other hydrocarbons produced from crude oil or natural gas.
SECTION 3.21. Easements. The business of ANGC and its subsidiaries has been
operated in a manner which does not violate the material terms of any easements,
rights of way, permits, servitudes, licenses, leasehold estates and similar
rights relating to real property used by ANGC and its subsidiaries in such
business (collectively, "Easements") material to such business. All material
Easements are valid and enforceable and grant the rights purported to be granted
thereby and all rights necessary thereunder for the current operation of such
business. There are no spacial gaps in the Easements which would materially
impair the conduct of such business, and no material part of the Pipeline Assets
is located on property which is not owned in fee by ANGC or a subsidiary or
subject to an Easement in favor of ANGC or a subsidiary.
SECTION 3.22. Public Utility Holding Company Act, Etc. None of ANGC or any
of its subsidiaries is a "public utility company" or a "holding company" or a
"subsidiary company" of a "holding company", or an affiliate of a "holding
company" or a "subsidiary company" of a "holding company", in each case within
the meaning of the Public Utility Holding Company Act of 1935, as amended, and
none of ANGC or any of its subsidiaries is a utility under federal or any state
law.
SECTION 3.23. Futures Trading and Fixed Price Exposure. None of ANGC or any
of its subsidiaries engages in any natural gas or other futures or options
trading or is a party to any price swaps, hedges, futures or similar
instruments, except for transactions and agreements entered into primarily to
hedge contracts for the
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purchase or sale of Hydrocarbons to which ANGC or one of its subsidiaries is a
party. Schedule 3.23(i) to the ANGC Disclosure Schedule sets forth a true and
correct statement of the position, as of the date hereof, of ANGC and its
subsidiaries with respect to obligations under Fixed Price Contracts (including,
with respect to each Fixed Price Contract, location of delivery and variations
in the obligation to take or deliver) and related Hydrocarbon price swaps,
hedges, futures or similar instruments to which ANGC or any of its subsidiaries
is a party. As used herein, "Fixed Price Contracts" means any contracts,
commitments or agreements for the purchase or sale of Hydrocarbons (i) having,
as of October 6, 1994, a remaining term of two months or more, wherein the
purchase or sales price thereunder throughout all or part of the life of such
contract, commitment or agreement is a fixed amount or an amount that is
otherwise reasonably determinable as of the date hereof pursuant to the terms of
such contract, commitment or agreement, or (ii) which ANGC or any subsidiary
thereof has hedged with futures contracts or otherwise; provided, that the term
Fixed Price Contracts will not include any contract, commitment or agreement
wherein the purchase or sales price thereunder throughout all of the life of the
contract, commitment or agreement is based on a market responsive reference
price for a Hydrocarbon.
SECTION 3.24. Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of ANGC and no statement by ANGC or other information contained in the ANGC
Disclosure Schedule or any document incorporated therein by reference or
delivered by ANGC to PEC since the date of the Confidentiality Agreement, as of
the date of such representation, warranty, statement or document, contains or
contained any untrue statement of material fact, or, at the date thereof, omits
or omitted to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such statements are
or were made, not misleading.
SECTION 3.25. Opinion of Financial Advisor. ANGC has received the opinion
of Dillon, Read & Co. Inc. to the effect that, as of the date of delivery of
such opinion, the Merger Consideration to be received by the holders of ANGC
Common Stock in the Merger is fair, from a financial point of view, to such
holders. ANGC will promptly deliver to PEC a true and complete written copy of
such opinion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PEC
The PEC Companies hereby represent and warrant to ANGC that:
SECTION 4.01. Organization and Qualification. Each of the PEC Companies is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary, other than where the failure to be so duly qualified and in good
standing would not have a PEC Material Adverse Effect. The term "PEC Material
Adverse Effect" as used in this Agreement shall mean any change or effect that,
individually or when taken together with all such other changes or effects,
would be materially adverse to the financial condition, results of operations or
current or future business of PEC and its subsidiaries, taken as a whole.
SECTION 4.02. Charter and Bylaws. PEC has heretofore furnished to ANGC a
complete and correct copy of the charter and bylaws, as amended or restated, of
each of the PEC Companies. None of the PEC Companies is in violation of any of
the provisions of its charter or any material provision of its bylaws.
SECTION 4.03. Capitalization.
(a) The authorized capital stock of PEC consists of (i) 300,000,000
shares of PEC Common Stock, of which (x) as of October 6, 1994, 120,704,441
shares were issued and outstanding, (y) as of October 6, 1994, no shares
were held in treasury by PEC and (z) as of September 30, 1994, 2,084,393
shares were reserved for future issuance pursuant to outstanding stock
options and conditional stock units; and (ii) 3,000,000 shares of preferred
stock, par value $1.00 per share ("PEC Preferred Stock"), of which no
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shares are issued and outstanding, and, as of the date hereof, 1,000,000
shares of Participating Preferred Stock were reserved for issuance pursuant
to PEC Preferred Stock Purchase Rights. Except as described in this Section
4.03 or in Schedule 4.03(a) of the PEC Disclosure Schedule, as of the date
of this Agreement, no shares of capital stock of PEC are reserved for any
purpose. The outstanding shares of capital stock of PEC are duly
authorized, validly issued, fully paid and nonassessable, and have not been
issued in violation of (nor are any of the authorized shares of capital
stock of PEC subject to) any preemptive or similar rights created by
statute, the charter or bylaws of PEC, or any agreement to which PEC is a
party or bound.
(b) Except as set forth in Section 4.03(a) above or in Schedule
4.03(b)(i) to the PEC Disclosure Schedule, there are no options, warrants
or other rights (including registration rights), agreements, arrangements
or commitments of any character to which PEC is a party relating to the
issued or unissued capital stock of PEC or obligating PEC to grant, issue
or sell any shares of the capital stock of PEC, by sale, lease, license or
otherwise. Except as set forth in Schedule 4.03(b)(ii) to the PEC
Disclosure Schedule, there are no obligations, contingent or otherwise, of
PEC or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of PEC Common Stock or other capital stock of PEC. There are no
voting trusts, proxies or other agreements or understandings to which PEC
is a party or by which PEC is bound with respect to the voting of any
shares of capital stock of PEC.
(c) The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $1.00 per share ("Merger Sub Common
Stock"). As of the date of this Agreement, 1,000 shares of Merger Sub
Common Stock were issued and outstanding and held by PEC, all of which are
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, Merger Sub's charter or
bylaws or any agreement to which Merger Sub is a party or is bound.
(d) The shares of PEC Common Stock to be issued pursuant to the Merger
(i) will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, PEC's charter or
bylaws or any agreement to which PEC is a party or is bound and (ii) will,
when issued, be registered under the Securities Act and the Exchange Act
and registered or exempt from registration under applicable Blue Sky Laws
and listed on the NYSE.
SECTION 4.04. Authority. Each of the PEC Companies has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated hereby
(subject to, with respect to the issuance of the PEC Common Stock in the Merger,
the approval thereof by the holders of the PEC Common Stock as described in
Section 4.12). The execution and delivery of this Agreement by each of the PEC
Companies and the consummation by each of the PEC Companies of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no other corporate proceedings on the part of any of the PEC Companies are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (subject to, with respect to the issuance of the PEC Common
Stock in the Merger, the approval thereof by the holders of the PEC Common Stock
as described in Section 4.12). This Agreement has been duly executed and
delivered by each of the PEC Companies and, assuming the due authorization,
execution and delivery thereof by ANGC, constitutes the legal, valid and binding
obligation of each of the PEC Companies.
SECTION 4.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by each of the PEC
Companies does not, and the consummation of the transactions contemplated
hereby will not (i) conflict with or violate the charter or bylaws, or the
equivalent organizational documents, in each case as amended or restated,
of PEC or any of PEC's subsidiaries, (ii) conflict with or violate any Laws
applicable to PEC or any of PEC's subsidiaries or by which any of their
properties is bound or subject, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a
lien or encumbrance on any of the properties or assets of PEC or any of
PEC's subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which PEC or any of PEC's subsidiaries is a party or by or
to which
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PEC or any of PEC's subsidiaries or any of their respective properties is
bound or subject, except for any such conflicts or violations described in
clause (ii) or breaches, defaults, events, rights of termination,
amendment, acceleration or cancellation or liens or encumbrances described
in clause (iii) that would not have a PEC Material Adverse Effect.
(b) The execution and delivery of this Agreement by each of the PEC
Companies does not, and the consummation of the transactions contemplated
hereby will not, require any of the PEC Companies to obtain any consent,
license, permit, approval, waiver, authorization or order of, or to make
any filing with or notification to, any Governmental Entities, except (i)
for applicable requirements, if any, of the Securities Act, the Exchange
Act, Blue Sky Laws and the HSR Act and the filing and recordation of
appropriate merger documents as required by Delaware Law, and (ii) where
the failure to obtain such consents, licenses, permits, approvals, waivers,
authorizations or orders, or to make such filings or notifications, would
not, either individually or in the aggregate, prevent any of the PEC
Companies from performing its obligations under this Agreement and would
not have a PEC Material Adverse Effect.
SECTION 4.06. Permits; Compliance. As of the date of this Agreement, each
of PEC and its subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "PEC Permits"), and there is no action, proceeding or
investigation pending or, to the knowledge of PEC, threatened regarding
suspension or cancellation of any of the PEC Permits, except where the failure
to possess, or the suspension or cancellation of, such PEC Permits would not
have a PEC Material Adverse Effect. Neither PEC nor any of its subsidiaries is
in conflict with, or in default or violation of (a) any Law applicable to PEC or
any of its subsidiaries or by or to which any of their respective properties is
bound or subject or (b) any of the PEC Permits, except for any such conflicts,
defaults or violations described in the PEC SEC Reports filed prior to the date
hereof or which would not have a PEC Material Adverse Effect. During the period
commencing on December 31, 1993 and ending on the date hereof, neither PEC nor
any of its subsidiaries has received from any Governmental Entity any written
notification with respect to possible conflicts, defaults or violations of Laws,
except for written notices relating to possible conflicts, defaults or
violations described in the PEC SEC Reports filed prior to the date hereof or
that would not have a PEC Material Adverse Effect.
SECTION 4.07. Reports; Financial Statements.
(a) Since December 31, 1991, PEC and its subsidiaries have filed (i)
all forms, reports, statements and other documents required to be filed
with (A) the SEC, including, without limitation, (1) all Annual Reports on
Form 10-K, (2) all Quarterly Reports on Form 10-Q, (3) all proxy statements
relating to meetings of stockholders (whether annual or special), (4) all
Current Reports on Form 8-K and (5) all other reports, schedules,
registration statements or other documents (collectively, the "PEC SEC
Reports") and (B) any applicable state securities authorities and (ii) all
forms, reports, statements and other documents required to be filed with
any other applicable federal or state regulatory authorities, except where
the failure to file any such forms, reports, statements or other documents
would not have a PEC Material Adverse Effect (all such forms, reports,
statements and other documents in clauses (i) and (ii) of this Section
4.07(a) being referred to herein, collectively, as the "PEC Reports"). The
PEC Reports, including all PEC Reports filed after the date of this
Agreement and prior to the Effective Time (x) were or will be prepared in
all material respects in accordance with the requirements of applicable Law
(including, with respect to the PEC SEC Reports, the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such PEC SEC Reports) and (y) did not at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the PEC SEC Reports filed
prior to the Effective Time (i) have been or will be prepared in accordance
with the published rules and regulations of the SEC and generally accepted
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accounting principles applied on a consistent basis throughout the periods
involved (except (A) to the extent required by changes in generally
accepted accounting principles and (B) with respect to PEC SEC Reports
filed prior to the date of this Agreement, as may be indicated in the notes
thereto) and (ii) fairly present or will fairly present the consolidated
financial position of PEC and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated (including reasonable estimates of normal and recurring
year-end adjustments), except that (x) any unaudited interim financial
statements were or will be subject to normal and recurring year-end
adjustments and (y) any pro forma financial information contained in such
consolidated financial statements is not necessarily indicative of the
consolidated financial position of PEC and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated.
SECTION 4.08. Absence of Certain Changes or Events. Except as disclosed in
the PEC SEC Reports filed prior to the date of this Agreement or as contemplated
by this Agreement or as set forth in Schedule 4.08 to the PEC Disclosure
Schedule, since June 30, 1994, each of PEC and its subsidiaries have conducted
their respective businesses only in the ordinary course and in a manner
consistent with past practice, and there has not been: (i) any material damage,
destruction or loss (whether or not covered by insurance) with respect to any
material assets of PEC or any of its subsidiaries; (ii) any material change by
PEC or its subsidiaries in their accounting methods, principles or practices;
(iii) except for dividends by a subsidiary of PEC to PEC or another subsidiary
of PEC, any declaration, setting aside or payment of any dividends or
distributions in respect of shares of PEC Common Stock (other than regular
quarterly dividends in an amount not exceeding $.21 per share) or the shares of
stock of, or other equity interests in, any subsidiary of PEC, or any
redemption, purchase or other acquisition by PEC or any of PEC's subsidiaries of
any of PEC's securities or any of the securities of any subsidiary of PEC; or
(iv) a PEC Material Adverse Effect.
SECTION 4.09. Absence of Litigation. Except as disclosed in the PEC SEC
Reports filed prior to the date of this Agreement or as set forth in Schedule
4.09 to the PEC Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of PEC, investigation
of any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge or PEC, threatened against PEC
or any of its subsidiaries or any properties or rights of PEC or any of its
subsidiaries (except for claims, actions, suits, litigation, proceedings,
arbitrations or investigations which would not have a PEC Material Adverse
Effect) and neither PEC nor any of its subsidiaries is subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with, or, to the knowledge of PEC, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or award
of any Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders, except for matters which would not have a PEC
Material Adverse Effect.
SECTION 4.10. Tax Matters; Pooling. None of the PEC Companies nor, to the
knowledge of PEC, any of their affiliates has taken or agreed to take any action
that would prevent the Merger (a) from constituting a reorganization qualifying
under the provisions of Section 368(a) of the Code or (b) from being treated as
a Pooling Transaction for financial accounting purposes.
SECTION 4.11. Affiliates. Schedule 4.11 to the PEC Disclosure Schedule
identifies all persons who, to the knowledge of PEC, may be deemed to be
affiliates of PEC under Rule 1-02 of Regulation S-X of the SEC, including,
without limitation, all directors and executive officers of PEC. Concurrently
with the execution and delivery of this Agreement, PEC has delivered to ANGC an
executed letter agreement, substantially in the form of Exhibit B hereto, from
each such person so identified on Schedule 4.11 to the PEC Disclosure Schedule.
SECTION 4.12. Vote Required. The only vote of the holders of any class or
series of PEC capital stock necessary to approve the issuance of the PEC Common
Stock in the Merger is, pursuant to the Rule 312 of the NYSE, the affirmative
vote of the holders of a majority of the outstanding shares of PEC Common Stock
voted on the proposal to so issue the PEC Common Stock; provided that the total
vote cast on such proposal represents over 50% in interest of the outstanding
PEC Common Stock. No vote of the holders or any class or
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series of PEC capital stock is required to approve the Merger and adopt this
Agreement. PEC, as the sole stockholder of Merger Sub, will promptly vote to
approve the Merger and adopt this Agreement.
SECTION 4.13. Brokers. Except as set forth on Schedule 4.13 to the PEC
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any of the PEC Companies.
SECTION 4.14. Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of the PEC Companies and no statement by the PEC Companies or other information
contained in the PEC Disclosure Schedule or any document incorporated therein by
reference or delivered by PEC to ANGC since the date of the Confidentiality
Agreement, as of the date of such representation, warranty, statement or
document, contains or contained any untrue statement of material fact, or, at
the date thereof, omits or omitted to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which such statements are or were made, not misleading.
SECTION 4.15. Employee Benefit Plans; Labor Matters. With respect to each
employee benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan", as defined in Section 3(3) of ERISA),
maintained or contributed to by PEC or any of its subsidiaries, or with respect
to which PEC or any of its subsidiaries could incur liability under Section
4069, 4212(c) or 4204 of ERISA (the "PEC Benefit Plans"), no event has occurred
and, to the knowledge of PEC, there currently exists no condition or set of
circumstances, in connection with which PEC or any of its subsidiaries could be
subject to any liability under the terms of the PEC Benefit Plans, ERISA, the
Code or any other applicable Law which would have a PEC Material Adverse Effect.
There is no pending or threatened labor dispute, strike or work stoppage against
PEC or any of its subsidiaries which would have a PEC Material Adverse Effect.
SECTION 4.16. Taxes. (a) There is no claim against PEC or any of its
subsidiaries for any Taxes, and no assessment, deficiency or adjustment has been
asserted or proposed with respect to any Tax Return of or with respect to PEC or
any of its subsidiaries other than those disclosed on Schedule 4.16 to the PEC
Disclosure Schedule or which would not have a PEC Material Adverse Effect.
(b) The total amounts set up as liabilities for current and deferred Taxes
in the financial statements referred to in Section 4.07 of this Agreement are
sufficient to cover in all material respects the payment of all Taxes, whether
or not assessed or disputed, which are, or are hereafter found to be, or to have
been, due by or with respect to PEC and any of its subsidiaries up to and
through the periods covered thereby.
SECTION 4.17. Certain Business Practices. None of PEC, any of its
subsidiaries or any directors, officers, agents or employees of PEC or any of
its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
SECTION 4.18. Environmental Matters. Except for matters disclosed in the
PEC SEC Reports filed prior to the date hereof or disclosed in Schedule 4.18 of
the PEC Disclosure Schedule, and except for matters that would not, individually
or in the aggregate, result in a PEC Material Adverse Effect, (i) the
properties, operations and activities of PEC and its subsidiaries are in
compliance with all applicable Environmental Laws; (ii) PEC and its subsidiaries
and the properties and operations of PEC and its subsidiaries are not subject to
any existing, pending or, to the knowledge of PEC, threatened action, suit,
investigation, inquiry or proceeding by or before any governmental authority
under any Environmental Law; (iii) all notices, permits, licenses, or similar
authorizations, if any, required to be obtained or filed by PEC or any of its
subsidiaries under any Environmental Law in connection with any aspect of the
business of PEC or its subsidiaries, including without limitation those relating
to the treatment, storage, disposal or release of a hazardous substance, have
been duly obtained or filed and will remain valid and in effect after the
Merger, and PEC and its subsidiaries are in compliance with the terms and
conditions of all such notices, permits, licenses and
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similar authorizations; (iv) PEC and its subsidiaries have satisfied and are
currently in compliance with all financial responsibility requirements
applicable to their operations and imposed by any governmental authority under
any Environmental Law, and PEC and its subsidiaries have not received any notice
of noncompliance with any such financial responsibility requirements; (v) to
PEC's knowledge, there are no physical or environmental conditions existing on
any property of PEC or its subsidiaries or resulting from PEC's or such
subsidiaries' operations or activities, past or present, at any location, that
would give rise to any on-site or off-site remedial obligations imposed on PEC
or any of its subsidiaries under any Environmental Laws; (vi) to PEC's
knowledge, since the effective date of the relevant requirements of applicable
Environmental Laws and to the extent required by such applicable Environmental
Laws, all hazardous substances generated by PEC and its subsidiaries have been
transported only by carriers authorized under Environmental Laws to transport
such substances and wastes, and disposed of only at treatment, storage, and
disposal facilities authorized under Environmental Laws to treat, store or
dispose of such substances and wastes; (vii) there has been no exposure of any
person or property to hazardous substances or any pollutant or contaminant, nor
has there been any release of hazardous substances or any pollutant or
contaminant into the environment by PEC or its subsidiaries or in connection
with their properties or operations that could reasonably be expected to give
rise to any claim against PEC or any of its subsidiaries for damages or
compensation; and (viii) PEC and its subsidiaries have made available to ANGC
all non-privileged internal and external environmental audits and studies and
all non-privileged correspondence on substantial environmental matters in the
possession of PEC or its subsidiaries relating to any of the current or former
properties or operations of PEC and its subsidiaries.
SECTION 4.19. Insurance. PEC and each of its subsidiaries are currently
insured, and during each of the past five calendar years have been insured, for
reasonable amounts against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured.
SECTION 4.20. Properties. Except for liens arising in the ordinary course
of business after the date hereof and properties and assets disposed of in the
ordinary course of business after the date of the most recent balance sheet
contained in the Form 10-Q referred to below, PEC and its subsidiaries have
defensible title (or, with respect to pipelines, equipment, other tangible
personal property, easements, rights of way, servitudes, permits, surface leases
and other similar assets and rights used in connection with PEC's pipeline
operations (collectively, "PEC Pipeline Assets"), title to or interest in the
applicable PEC Pipeline Asset sufficient to enable PEC and its subsidiaries to
conduct their business with respect thereto without material interference as it
is currently being conducted or as described in the PEC SEC Reports), free and
clear of all liens, the existence of which would have a PEC Material Adverse
Effect, to all their material properties and assets, whether tangible or
intangible, real, personal or mixed, reflected in PEC's most recent consolidated
balance sheet contained in PEC's most recent PEC SEC Report on Form 10-Q filed
prior to the date hereof as being owned by PEC and its subsidiaries as of the
date thereof or purported to be owned on the date hereof. All buildings, and all
fixtures, equipment and other property and assets which are material to its
business on a consolidated basis, held under leases by any of PEC or its
subsidiaries are held under valid instruments enforceable by PEC or its
subsidiaries in accordance with their respective terms.
SECTION 4.21. Public Utility Holding Company Act, Etc. None of PEC or any
of its subsidiaries is a "public utility company" or a "holding company" or a
"subsidiary company" of a "holding company", or an affiliate of a "holding
company" or a "subsidiary company" of a "holding company", in each case within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
SECTION 4.22. Futures Trading. Except as set forth on Schedule 4.22 to the
PEC Disclosure Schedule, none of PEC or any of its subsidiaries engages in any
natural gas or other futures or options trading or is a party to any price
swaps, hedges, futures or similar instruments, except for transactions and
agreements entered into primarily to hedge contracts for the purchase or sale of
Hydrocarbons to which PEC or one of its subsidiaries is a party.
SECTION 4.23. Opinion of Financial Advisor. PEC has received the opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated to the effect that, as of the
date of delivery of such opinion, the Exchange Ratio is fair, from a financial
point of view, to the holders of PEC Common Stock. PEC will promptly deliver to
ANGC a true and complete written copy of such opinion.
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ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of ANGC. ANGC hereby covenants and
agrees that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by PEC, ANGC will and
will cause its subsidiaries to:
(a) operate its business in all material respects in the usual and
ordinary course consistent with past practices;
(b) use all reasonable efforts to preserve substantially intact its
business organization, maintain its material rights and franchises, retain
the services of its respective officers and key employees and maintain its
relationships with its material customers and suppliers;
(c) maintain and keep its material properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with its
customary business practice; and
(d) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
SECTION 5.02. Negative Covenants of ANGC. Except as expressly contemplated
by this Agreement or otherwise consented to in writing by PEC, from the date of
this Agreement until the Effective Time, ANGC will not do, and will not permit
any of its subsidiaries to do, any of the foregoing:
(a) (i) increase the compensation payable to or to become payable to
any director or executive officer, except for increases in salary or wages
payable or to become payable in the ordinary course of business and
consistent with past practice; (ii) grant any severance or termination pay
(other than pursuant to the normal severance policy of ANGC or its
subsidiaries as in effect on the date of this Agreement) to, or enter into
or amend any employment or severance agreement with, any director, officer
or employee; (iii) establish, adopt or enter into any employee benefit plan
or arrangement; or (iv) except as may be required by applicable law and
actions that are not inconsistent with the provisions of Section 6.08 of
this Agreement, amend, or take any other actions (other than the
acceleration of vesting or waiving of performance criteria permitted
pursuant to the Benefit Plans upon a change in control of ANGC and not
inconsistent with accounting for the Merger as a Pooling Transaction) with
respect to, any of the Benefit Plans or any of the plans, programs,
agreements, policies or other arrangements described in Section 3.10(d) of
this Agreement;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, except for dividends by a
wholly owned subsidiary of ANGC to ANGC or another wholly owned subsidiary
of ANGC and except for regular quarterly dividends with respect to ANGC
Common Stock in an amount not to exceed $.03 per share;
(c) (i) except as described in Schedule 3.03(b)(ii) of the ANGC
Disclosure Schedule, redeem, purchase or otherwise acquire any shares of
its or any of its subsidiaries' capital stock or any securities or
obligations convertible into or exchangeable for any shares of its or its
subsidiaries' capital stock (other than any such acquisition directly from
any wholly owned subsidiary of ANGC in exchange for capital contributions
or loans to such subsidiary), or any options, warrants or conversion or
other rights to acquire any shares of its or its subsidiaries' capital
stock or any such securities or obligations (except in connection with the
exercise of outstanding Stock Options in accordance with their terms); (ii)
effect any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of its or its subsidiaries' capital
stock;
(d) (i) except as described in Schedule 3.03(b)(i) of the ANGC
Disclosure Schedule and except as contemplated by the PEC Option Agreement,
issue, deliver, award, grant or sell, or authorize or propose the issuance,
delivery, award, grant or sale (including the grant of any security
interests, liens,
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claims, pledges, limitations in voting rights, charges or other
encumbrances) of, any shares of any class of its or its subsidiaries'
capital stock (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any such shares, or any
rights, warrants or options to acquire any such shares (except as permitted
pursuant to Section 6.08 of this Agreement or for the issuance of shares
upon the exercise of outstanding Stock Options or the vesting of restricted
stock in accordance with the terms of outstanding Stock Awards); (ii) amend
or otherwise modify the terms of any such rights, warrants or options the
effect of which shall be to make such terms more favorable to the holders
thereof; (iii) take any action to optionally accelerate the exercisability
of Stock Options;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with past practice) in each case which are material,
individually or in the aggregate, to ANGC and its subsidiaries, taken as a
whole;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any of its material assets or any material assets
of any of its subsidiaries, except for dispositions of inventories and of
assets in the ordinary course of business and consistent with past
practice;
(g) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Competing Transaction (as defined below), or
enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize or permit any
of the officers, directors or employees of ANGC or any of its subsidiaries
or any investment banker, financial advisor, attorney, accountant or other
representative retained by ANGC or any of ANGC's subsidiaries to take any
such action, and ANGC shall promptly notify PEC of all relevant terms of
any such inquiries and proposals received by ANGC or any of its
subsidiaries or by any such officer, director, investment banker, financial
advisor, attorney, accountant or other representative relating to any of
such matters and if such inquiry or proposal is in writing, ANGC shall
promptly deliver or cause to be delivered to PEC a copy of such inquiry or
proposal; provided, however, that nothing contained in this subsection (g)
shall prohibit the Board of Directors of ANGC from (i) furnishing
information to, or entering into discussions or negotiations with, any
person or entity in connection with an unsolicited bona fide proposal in
writing by such person or entity to acquire ANGC pursuant to a merger,
consolidation, share exchange, business combination or other similar
transaction or to acquire a substantial portion of the assets of ANGC or
any of its Significant Subsidiaries, if, and only to the extent that (A)
the Board of Directors of ANGC, after consultation with and based upon the
advice of independent legal counsel (who may be ANGC's regularly engaged
independent legal counsel), determines in good faith that such action is
necessary for such Board of Directors to comply with its fiduciary duties
to stockholders under applicable law and (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such
person or entity ANGC (x) provides written notice to PEC to the effect that
it is furnishing information to, or entering into discussions or
negotiations with, such person or entity and (y) enters into with such
person or entity a confidentiality agreement in reasonably customary form
on terms not more favorable to such person or entity than the terms
contained in that certain Confidentiality Agreement dated as of September
8, 1994 between PEC and ANGC (the "Confidentiality Agreement"); (ii)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to
a Competing Transaction; or (iii) failing to make or withdrawing or
modifying its recommendation referred to in Section 6.02(a) if there exists
a Competing Transaction and the Board of Directors of ANGC, after
consultation with and based upon the advice of independent legal counsel
(who may be ANGC's regularly engaged independent legal counsel), determines
in good faith that such action is necessary for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law. For
purposes of this Agreement, "Competing Transaction" shall mean any of the
following (other than the transactions contemplated by this
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Agreement) involving ANGC or any of its subsidiaries: (i) any merger,
consolidation, share exchange, business combination or similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 20% or more of the assets of ANGC and its subsidiaries,
taken as a whole, (iii) any tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of ANGC or the filing of a
registration statement under the Securities Act in connection therewith;
(iv) any person having acquired beneficial ownership of, or any group (as
such term is defined under Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 20%
or more of the outstanding shares of capital stock of ANGC; or (v) any
public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing;
(h) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a Competing
Transaction or otherwise under any confidentiality or other agreement, or
fail to fully enforce any such agreement;
(i) adopt or propose to adopt any amendments to its charter or bylaws,
which would alter the terms of its capital stock or would have an adverse
impact on the consummation of the transactions contemplated by this
Agreement;
(j) (A) change any of its methods of accounting in effect at June 30,
1994, or (B) make or rescind any express or deemed election relating to
Taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes (except where the amount of such settlements or controversies,
individually or in the aggregate, does not exceed $500,000), or change any
of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ending September 30, 1993, except, in each
case, as may be required by Law or generally accepted accounting
principles;
(k) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business consistent
with past practice and in no event in excess of $5,000,000 in the
aggregate, and except for borrowings under ANGC's working capital revolving
credit facility of up to $40,000,000 for use for working capital needs;
(l) enter into any material arrangement, agreement or contract with
any third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or is
substantially more restrictive on ANGC or substantially less advantageous
to ANGC than arrangements, agreements or contracts existing on the date
hereof;
(m) take (and will use reasonable efforts to prevent any affiliate of
ANGC from taking) any action that, in the judgment of KPMG Peat Marwick
would cause the Merger not to be treated as a "pooling of interests" for
financial accounting purposes; or
(n) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03. Affirmative and Negative Covenants of PEC.
(a) PEC hereby covenants and agrees that, prior to the Effective Time,
unless otherwise expressly contemplated by this Agreement or consented to
in writing by ANGC, PEC will and will cause its subsidiaries to:
(i) operate its business in all material respects in the usual and
ordinary course consistent with past practices;
(ii) use all reasonable efforts to preserve substantially intact
its business organization, maintain its material rights and franchises,
retain the services of its respective officers and key employees and
maintain its relationships with its material customers and suppliers;
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(iii) maintain and keep its material properties and assets in as
good repair and condition as at present, ordinary wear and tear
excepted, and maintain supplies and inventories in quantities consistent
with its customary business practice; and
(iv) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
(b) Except as expressly contemplated by this Agreement or otherwise
consented to in writing by ANGC, from the date of this Agreement until the
Effective Time, PEC will not do, and will not permit any of its
subsidiaries to do, any of the following:
(i) knowingly take any action which would result in a failure to
maintain the trading of the PEC Common Stock on the NYSE;
(ii) declare or pay any dividend on, or make any other distribution
in respect of, outstanding shares of capital stock, except for dividends
by a wholly owned subsidiary of PEC to PEC or another wholly owned
subsidiary of PEC and except for regular quarterly dividends with
respect to PEC Common Stock in an amount not to exceed $.21 per share;
(iii) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets from suppliers or vendors in the
ordinary course of business and consistent with past practice), which,
in each case, would materially delay or prevent the consummation of the
transactions contemplated by this Agreement;
(iv) adopt or propose to adopt any amendments to its charter or
bylaws, which would have an adverse impact on the consummation of the
transactions contemplated by this Agreement;
(v) take (and will use reasonable efforts to prevent any affiliate
of PEC from taking) any action that, in the judgment of KPMG Peat
Marwick, would cause the Merger not to be treated as a "pooling of
interests" for financial accounting purposes; or
(vi) agree in writing or otherwise to do any of the foregoing.
SECTION 5.04. Access and Information.
(a) ANGC shall, and shall cause its subsidiaries to (i) afford to PEC
and its officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, the "PEC
Representatives") reasonable access at reasonable times, upon reasonable
prior notice, to the officers, employees, agents, properties, offices and
other facilities of ANGC and its subsidiaries and to the books and records
thereof and (ii) furnish promptly to PEC and the PEC Representatives such
information concerning the business, properties, contracts, records and
personnel of ANGC and its subsidiaries (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by PEC.
(b) PEC shall, and shall cause its subsidiaries to (i) afford to ANGC
and its officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, the "ANGC
Representatives") reasonable access at reasonable times, upon reasonable
prior notice, to the officers, employees, accountants, agents, properties,
offices and other facilities of PEC and its subsidiaries and to the books
and records thereof and (ii) furnish promptly to ANGC and the ANGC
Representatives such information concerning the business, properties,
contracts, records and personnel of PEC and its subsidiaries (including,
without limitation, financial, operating and other data and information) as
may be reasonably requested, from time to time, by ANGC.
(c) Notwithstanding the foregoing provisions of this Section 5.04,
neither party shall be required to grant access or furnish information to
the other party to the extent that such access or the furnishing of such
information is prohibited by law. No investigation by the parties hereto
made heretofore or hereafter
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shall affect the representations and warranties of the parties which are
herein contained and each such representation and warranty shall survive
such investigation.
(d) The information received pursuant to Section 5.04 (a) and (b)
shall be deemed to be "Confidential Information" for purposes of the
Confidentiality Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Meetings of Stockholders.
(a) ANGC shall, promptly after the date of this Agreement, take all
actions necessary in accordance with Delaware Law and its charter and
bylaws to convene a special meeting of ANGC's stockholders to act on this
Agreement (the "ANGC Stockholders Meeting"), and ANGC shall consult with
PEC in connection therewith. ANGC shall use its best efforts to solicit
from stockholders of ANGC proxies in favor of the approval and adoption of
this Agreement and to secure the vote of stockholders required by Delaware
Law and its charter and bylaws to approve and adopt this Agreement, unless
otherwise necessary due to the applicable fiduciary duties of the directors
of ANGC, as determined by such directors in good faith after consultation
with and based upon the advice of independent legal counsel (who may be
ANGC's regularly engaged independent legal counsel).
(b) PEC shall, promptly after the date of this Agreement, take all
actions necessary in accordance with Delaware Law and its charter and
bylaws to convene a special meeting of PEC's stockholders to approve the
issuance of the PEC Common Stock in connection with the Merger pursuant to
the requirements of Rule 312 of the NYSE (the "PEC Stockholders Meeting").
PEC shall use its best efforts to solicit from stockholders of PEC proxies
in favor of the approval of such issuance of PEC Common Stock and to secure
the vote of stockholders required by Rule 312 of the NYSE.
SECTION 6.02. Registration Statement; Proxy Statements.
(a) As promptly as practicable after the execution of this Agreement,
PEC shall prepare and file with the SEC a registration statement on Form
S-4 (such registration statement, together with any amendments thereof or
supplements thereto, being the "Registration Statement"), containing a
proxy statement/prospectus for stockholders of ANGC (the "ANGC Proxy
Statement/Prospectus") and a proxy statement and form of proxy for
stockholders of PEC (together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to PEC's stockholders,
the "PEC Proxy Statement"), in connection with the registration under the
Securities Act of the offer and sale of PEC Common Stock to be issued in
the Merger and the other transactions contemplated by this Agreement. As
promptly as practicable after the execution of this Agreement, ANGC shall
prepare and file with the SEC a proxy statement that will be the same as
the ANGC Proxy Statement/Prospectus, and a form of proxy, in connection
with the vote of ANGC's stockholders with respect to the Merger (such proxy
statement and form of proxy, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to ANGC's
stockholders, being the "ANGC Proxy Statement"). Each of PEC and ANGC will
use its best efforts to cause the Registration Statement to be declared
effective as promptly as practicable, and shall take any action required to
be taken under any applicable federal or state securities laws in
connection with the issuance of shares of PEC Common Stock in the Merger.
Each of PEC and ANGC shall furnish to the other all information concerning
it and the holders of its capital stock as the other may reasonably request
in connection with such actions. As promptly as practicable after the
Registration Statement shall have been declared effective, ANGC shall mail
the ANGC Proxy Statement to its stockholders entitled to notice of and to
vote at the ANGC Stockholders Meeting and PEC shall mail the PEC Proxy
Statement to its stockholders entitled to notice of and to vote at the PEC
Stockholders Meeting. The ANGC Proxy Statement shall include the
recommendation of ANGC's Board of Directors in favor of the Merger and
adoption of this Agreement, unless otherwise necessary due to the
applicable fiduciary duties of the directors of ANGC, as determined by such
directors in good faith after consultation with and based upon the advice
of independent legal counsel
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(who may be ANGC's regularly engaged independent legal counsel). The PEC
Proxy Statement shall include the recommendation of PEC's Board of
Directors in favor of approval of the issuance of the PEC Common Stock in
the Merger.
(b) The information supplied by ANGC for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, 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 not misleading. The information supplied by
ANGC for inclusion in (i) the ANGC Proxy Statement to be sent to the
stockholders of ANGC in connection with the ANGC Stockholders Meeting shall
not, at the date the ANGC Proxy Statement (or any supplement thereto) is
first mailed to stockholders, at the time of the ANGC Stockholders Meeting
or at the Effective Time and (ii) the PEC Proxy Statement to be sent to the
stockholders of PEC in connection with the PEC Stockholders Meeting shall
not, at the date the PEC Proxy Statement (or any supplement thereto) is
first mailed to stockholders, at the time of the PEC Stockholders Meeting
or at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to ANGC or
any of its affiliates, or its or their respective officers or directors,
should be discovered by ANGC that should be set forth in an amendment to
the Registration Statement or a supplement to the ANGC Proxy Statement or
the PEC Proxy Statement, ANGC shall promptly inform PEC thereof in writing.
All documents that ANGC is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form
in all material respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and the Exchange Act and the
rules and regulations thereunder.
(c) The information supplied by PEC for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, 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 not misleading. The information supplied by PEC
for inclusion in (i) the ANGC Proxy Statement to be sent to the
stockholders of ANGC in connection with the ANGC Stockholders Meeting shall
not, at the date the ANGC Proxy Statement (or any supplement thereto) is
first mailed to stockholders, at the time of the ANGC Stockholders Meeting
or at the Effective Time and (ii) the PEC Proxy Statement to be sent to the
stockholders of PEC in connection with the PEC Stockholders Meeting shall
not, at the date the PEC Proxy Statement (or any supplement thereto) is
first mailed to stockholders, at the time of the PEC Stockholders Meeting
or at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to PEC or
any of its affiliates, or to their respective officers or directors, should
be discovered by PEC that should be set forth in an amendment to the
Registration Statement or a supplement to the ANGC Proxy Statement or the
PEC Proxy Statement, PEC shall promptly inform ANGC thereof in writing. All
documents that PEC is responsible for filing with the SEC in connection
with the transactions contemplated hereby will comply as to form in all
material respects with the applicable requirements of the Securities Act
and the rules and regulations thereunder and the Exchange Act and the rules
and regulations thereunder.
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) ANGC and PEC shall each use, and shall cause each of their
respective subsidiaries to use, all reasonable efforts to (i) take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this
Agreement, (ii) obtain from any Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by PEC or ANGC or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including,
without limitation, the Merger, (iii) make all necessary filings, and
thereafter make any other required
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submissions, with respect to this Agreement and the Merger required under
(A) the Securities Act (in the case of PEC) and the Exchange Act and the
rules and regulations thereunder, and any other applicable federal or state
securities laws, (B) the HSR Act and (C) any other applicable Law; provided
that PEC and ANGC shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such
documents to the nonfiling party and its advisors prior to filings and, if
requested, shall accept all reasonable additions, deletions or changes
suggested in connection therewith. ANGC and PEC shall furnish all
information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law (including all
information required to be included in the ANGC Proxy Statement, the PEC
Proxy Statement or the Registration Statement) in connection with the
transactions contemplated by this Agreement. PEC and ANGC shall request
early termination of the waiting period with respect to the Merger under
the HSR Act.
(b) PEC and ANGC agree to cooperate with respect to, and shall cause
each of their respective subsidiaries to cooperate with respect to, and
agree to use all reasonable efforts vigorously to contest and resist, any
action, including legislative, administrative or judicial action, and to
have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order (whether temporary, preliminary or permanent) (an
"Order") of any Governmental Entity that is in effect and that restricts,
prevents or prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement, including, without limitation,
by vigorously pursuing all available avenues of administrative and judicial
appeal and all available legislative action. Each of PEC and ANGC also
agree to take any and all actions, including, without limitation, the
disposition of assets or the withdrawal from doing business in particular
jurisdictions, required by regulatory authorities as a condition to the
granting of any approvals required in order to permit the consummation of
the Merger or as may be required to avoid, lift, vacate or reverse any
legislative or judicial action which would otherwise cause any condition to
Closing not to be satisfied; provided, however, that in no event shall
either party take, or be required to take, any action that would or could
reasonably be expected to have a PEC Material Adverse Effect, and ANGC
shall not be required to take any action which would be consummated prior
to the Effective Time and which would or could reasonably be expected to
have an ANGC Material Adverse Effect .
(c) (i) Each of ANGC and PEC shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, all reasonable efforts to
obtain any third party consents (A) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, (B) otherwise
required under any contracts, licenses, leases or other agreements in
connection with the consummation of the transactions contemplated hereby or
(C) required to prevent an ANGC Material Adverse Effect from occurring
prior to the Effective Time or a PEC Material Adverse Effect from occurring
after the Effective Time.
(ii) In the event that any party shall fail to obtain any third party
consent described in subsection (c)(i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by
the other parties, to limit the adverse effect upon ANGC and PEC, their
respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
(d) Each of PEC and ANGC shall promptly notify the other of (w) any
material change in its current or future business, financial condition or
results of operations, (x) any complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any
Governmental Entities with respect to its business or the transactions
contemplated hereby, (y) the institution or the threat of material
litigation involving it or any of its subsidiaries or (z) any event or
condition that might reasonably be expected to cause any of its
representations, warranties, covenants or agreements set forth herein not
to be true and correct at the Effective Time. As used in the preceding
sentence, "material litigation" means any case, arbitration or adversary
proceeding or other matter which would have been required to be disclosed
on the ANGC Disclosure Schedule pursuant to Section 3.09 or the PEC
Disclosure Schedule pursuant to Section 4.09, as the case may be, if in
existence on the date hereof, or in respect of which the legal fees and
other costs to ANGC or PEC (or their respective subsidiaries), as the case
may be, might reasonably be expected to exceed $250,000 over the life of
the matter.
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SECTION 6.04. Affiliates; Pooling; Tax Treatment.
(a) ANGC shall use all reasonable efforts to obtain from any person
who may be deemed to have become an affiliate of ANGC after the date of
this Agreement and on or prior to the Effective Time a written agreement
substantially in the form of Exhibit A hereto as soon as practicable after
attaining such status.
(b) PEC shall use all reasonable efforts to obtain from any person who
may be deemed to have become an affiliate of PEC after the date of this
Agreement and on or prior to the Effective Time a written agreement
substantially in the form of Exhibit B hereto as soon as practicable after
obtaining such status.
(c) PEC shall not be required to maintain the effectiveness of the
Registration Statement for the purpose of resale by stockholders of ANGC
who may be affiliates of ANGC or PEC pursuant to Rule 145 under the
Securities Act.
(d) Each party hereto shall use all reasonable efforts to cause the
Merger to be treated for financial accounting purposes as a Pooling
Transaction, and shall not take, and shall use all reasonable efforts to
prevent any affiliate of such party from taking, any actions which could
prevent the Merger from being treated for financial accounting purposes as
a Pooling Transaction.
(e) Each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not take, and shall use all reasonable efforts
to prevent any affiliate of such party from taking, any actions which could
prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368(a) of the Code.
SECTION 6.05. Public Announcements. PEC and ANGC shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger and shall not issue any such press release or make
any such public statement prior to such consultation. The press release
announcing the execution and delivery of this Agreement shall be a joint press
release of PEC and ANGC.
SECTION 6.06. NYSE Listing. PEC shall use all reasonable efforts to cause
the shares of PEC Common Stock to be issued in the Merger to be approved for
listing (subject to official notice of issuance) on the NYSE prior to the
Effective Time.
SECTION 6.07. Comfort Letters.
(a) ANGC shall use all reasonable efforts to cause KPMG Peat Marwick
to deliver a letter dated as of the date of the ANGC Proxy Statement, and
addressed to itself and PEC and their respective Boards of Directors, in
form and substance reasonably satisfactory to PEC and customary in scope
and substance for agreed upon procedures letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Registration Statement and the ANGC Proxy
Statement.
(b) PEC shall use all reasonable efforts to cause KPMG Peat Marwick to
deliver a letter dated as of the date of the PEC Proxy Statement, and
addressed to itself and ANGC and their respective Boards of Directors, in
form and substance reasonably satisfactory to ANGC and customary in scope
and substance for agreed upon procedures letters delivered by independent
public accounts in connection with registration statements and proxy
statements similar to the Registration Statement and the PEC Proxy
Statement.
SECTION 6.08. Employee Benefit Plans.
(a) Option Plans. PEC and ANGC shall take such actions not
inconsistent with the Merger being accounted for financial accounting
purposes as a Pooling Transaction, including (with respect to ANGC) the
amendment of the Option Plans and Stock Options, to permit PEC to assume,
and PEC shall assume, effective at the Effective Time, each Stock Option
that remains unexercised in whole or in part as of the Effective Time and
substitute shares of PEC Common Stock for the shares of ANGC Common
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Stock purchasable under each such assumed option ("Assumed Option"), which
assumption and substitution shall be effected as follows:
(i) the Assumed Option shall not give the optionee additional
benefits which such optionee did not have under the Stock Option before
such assumption and shall be assumed on the same terms and conditions as
the Stock Option being assumed, subject to Section 6.08(a)(ii) and (iii)
below;
(ii) the number of shares of PEC Common Stock purchasable under the
Assumed Option shall be equal to the number of shares of PEC Common
Stock that the holder of the Stock Option being assumed would have
received (without regard to any vesting schedule) upon consummation of
the Merger had such Stock Option been exercised in full immediately
prior to consummation of the Merger; and
(iii) the per share exercise price of such Assumed Option shall be
an amount equal to the per share exercise price of the Stock Option
being assumed divided by the Exchange Ratio.
(b) Registration. PEC shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of PEC Common Stock for
delivery upon exercise of the Assumed Options, and, as soon as practicable
after the Effective Time, PEC shall file a registration statement on Form
S-8 (or other appropriate form) with respect to the shares of PEC Common
Stock subject to the Assumed Options, and shall use its best efforts to
maintain the effectiveness of such registration statement for so long as
any of the Assumed Options remain outstanding.
(c) Certain Agreements. ANGC shall enter into amendments, in form and
substance acceptable to PEC, providing that PEC Common Stock shall be
substituted for securities issuable pursuant to the terms of employment
agreements entered into between Grand Valley Gas Company and certain
employees of Grand Valley Gas Company.
(d) Benefit Plans. PEC shall keep the Benefit Plans (or benefit plans
providing reasonably comparable benefits), other than the Option Plans, in
effect for a period of at least 50 weeks after the Effective Time. PEC
shall assure that ANGC employees' benefits under health plans, during such
period from and after the Effective Time, will not be subject to any
exclusions for pre-existing conditions otherwise covered by such health
plans, and that credit will be received for any deductibles or out-of-
pocket amounts previously paid with respect to the applicable plan year.
Any employee of ANGC whose employment is terminated by ANGC during such
period after the Effective Time shall be entitled to (i) a severance
benefit equal to two month's base salary plus the product of one-half of a
month's base salary multiplied by the number of such employee's full or
partial years of service with ANGC or any successor and (ii) the
continuance of such employee's health benefits for six months after such
termination on the same basis as immediately prior to such termination.
SECTION 6.09. Convertible Debt. ANGC shall take such action as is required
pursuant to that certain Amendment, Restatement and Assumption of Note Agreement
dated as of July 1, 1994 relating to the $10,000,000 aggregate principal amount
of ANGC's 9% Convertible Senior Subordinated Notes due December 15, 2004 in
connection with, and as a result of, the Merger.
SECTION 6.10. Merger Sub. Prior to the Effective Time, Merger Sub shall not
conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than a de
minimis amount of cash paid to Merger Sub for the issuance of its stock to PEC)
or liabilities.
SECTION 6.11. Indemnification and Insurance. For a period of five years
after the Effective Time, (i) PEC shall not amend or otherwise modify Article IX
of the charter of ANGC or Article XII of the bylaws of ANGC (in each case as in
effect on the date hereof) in a manner that would adversely affect the rights
thereunder of any individuals who at any time prior to the Effective Time were
directors or officers of ANGC in respect of acts or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), unless such amendment or modification is
required by law, (ii) PEC shall guarantee the performance by ANGC of its
obligations under Article IX of the charter of ANGC and Article XII of the
bylaws of ANGC to the extent of the excess, if any, of (A) the net worth of
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ANGC as of the Effective Time over (B) the net worth of ANGC as of the date of
any claim under such provisions of the charter and bylaws of ANGC by a person
referred to in the foregoing clause (i), and (iii) PEC shall cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by ANGC (or substitute policies providing at least the same
coverage and limits and containing terms and conditions which are not materially
less advantageous) with respect to claims arising from facts or events which
occurred before the Effective Time; provided, however that in no event shall PEC
be required to expend more than 200% of the current annual premiums paid by ANGC
for such insurance. This Section 6.11 is intended to be for the benefit of, and
shall be enforceable by, the persons referred to in clause (i) of the foregoing
sentence, their heirs and personal representatives, and shall be binding on PEC
and its successors and assigns.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party Under This Agreement.
The respective obligations of each party to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by the parties hereto, in whole or in part, to the extent
permitted by applicable law:
(a) Effectiveness of the Registration Statement; Blue Sky. The
Registration Statement shall have been declared effective by the SEC under
the Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated by the SEC. PEC shall have
received all Blue Sky permits and other authorizations necessary to
consummate the transactions contemplated by this Agreement.
(b) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of
ANGC, and the issuance of the PEC Common Stock in the Merger shall have
been approved by the requisite vote of the stockholders of PEC.
(c) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(d) HSR Act. The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
(e) Pooling of Interests. PEC and ANGC shall have been advised in
writing by KPMG Peat Marwick on the Closing Date that the Merger should be
treated for financial accounting purposes as a Pooling Transaction.
SECTION 7.02. Additional Conditions to Obligations of the PEC Companies.
The obligations of the PEC Companies to effect the Merger and the other
transactions contemplated hereby are also subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by PEC, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. Each of the representations and
warranties of ANGC contained in this Agreement shall be true and correct as
of the Closing Date as though made on and as of the Closing Date (except to
the extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall be
true and correct as of such earlier date). The PEC Companies shall have
received a certificate of the President and the Chief Financial Officer of
ANGC, dated the Closing Date, to such effect.
(b) Agreements and Covenants. ANGC shall have performed or complied
with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing
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Date. The PEC Companies shall have received a certificate of the President
and the Chief Financial Officer of ANGC, dated the Closing Date, to that
effect.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the current or
future business, financial condition or results of operations of ANGC or
any of its subsidiaries having or reasonably likely to have, individually
or in the aggregate, a material adverse effect on the financial condition,
results of operations or current or future business of ANGC and its
subsidiaries, taken as a whole. The PEC Companies shall have received a
certificate of the President and the Chief Financial Officer of ANGC, dated
the Closing Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, by any Governmental Entity in
connection with the grant of a regulatory approval necessary, in the
reasonable business judgment of PEC, to the continuing operation of the
current or future business of ANGC, which imposes any condition or
restriction upon the PEC Companies or the business or operations of ANGC
which, in the reasonable business judgment of PEC, would be materially
burdensome in the context of the transactions contemplated by this
Agreement.
(e) Tax Opinion. Vinson & Elkins L.L.P. shall have delivered to PEC
its written opinion as of the date that the PEC Proxy Statement is first
mailed to PEC stockholders substantially to the effect that (x) the Merger
will constitute a reorganization within the meaning of Section 368(a) of
the Code, (y) PEC, Merger Sub and ANGC will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (z)
PEC, Merger Sub and ANGC will not recognize any gain or loss for U.S.
federal income tax purposes as a result of the Merger, and such opinion
shall not have been withdrawn or modified in any material respect.
(f) Employment Agreements. The employees of ANGC set forth in a letter
from PEC to ANGC delivered on or prior to the date of this Agreement shall
have entered into employment agreements with PEC or the Surviving
Corporation, effective as of the Effective Time, in form and substance
reasonably acceptable to PEC.
SECTION 7.03. Additional Conditions to Obligations of ANGC. The obligations
of ANGC to effect the Merger and the other transactions contemplated hereby are
also subject to the satisfaction at or prior to the Closing Date of the
following conditions, any or all of which may be waived in writing by ANGC, in
whole or in part, to the extent permitted by applicable law:
(a) Representations and Warranties. Each of the representations and
warranties of the PEC Companies contained in this Agreement shall be true
and correct as of the Closing Date as though made on and as of the Closing
Date (except to the extent such representations and warranties specifically
relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date). ANGC shall
have received a certificate of the President and the Chief Financial
Officer of each of the PEC Companies, dated the Closing Date, to such
effect.
(b) Agreements and Covenants. The PEC Companies shall have performed
or complied with all agreements and covenants required by this Agreement to
be performed or complied with by them on or prior to the Closing Date. ANGC
shall have received a certificate of the President and the Chief Financial
Officer of each of the PEC Companies, dated the Closing Date, to that
effect.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the current or
future business, financial condition or results of operations of PEC or any
of its subsidiaries having or reasonably likely to have, individually or in
the aggregate, a material adverse effect on the financial condition,
results of operations or current or future business of PEC and its
subsidiaries, taken as a whole. ANGC shall have received a certificate of
the President and the Chief Financial Officer of each of the PEC Companies,
dated the Closing Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, by any Governmental
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Entity in connection with the grant of a regulatory approval necessary, in
the reasonable business judgment of ANGC, to the continuing operation of
the current or future business of PEC, which imposes any condition or
restriction upon PEC or the business or operations of PEC which, in the
reasonable business judgment of ANGC, would be materially burdensome in the
context of the transactions contemplated by this Agreement.
(e) New York Stock Exchange Listing. The shares of PEC Common Stock to
be issued in the Merger shall have been approved for listing (subject to
official notice of issuance) on the NYSE.
(f) Tax Opinion. Holme Roberts & Owen LLC shall have delivered to ANGC
its written opinion as of the date that the ANGC Proxy Statement is first
mailed to ANGC stockholders substantially to the effect that (x) the Merger
will constitute a reorganization within the meaning of Section 368(a) of
the Code, (y) PEC, Merger Sub and ANGC will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (z) no
gain or loss for U.S. federal income tax purposes will be recognized by the
holders of ANGC Common Stock upon receipt of shares of PEC Common Stock in
the Merger, except with respect to any cash received in lieu of a
fractional share interest in PEC Common Stock, and such opinion shall not
have been withdrawn or modified in any material respect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of ANGC:
(a) by mutual consent of PEC and ANGC;
(b) by PEC, upon a breach of any representation, warranty, covenant or
agreement on the part of ANGC set forth in this Agreement, or if any
representation or warranty of ANGC shall have become untrue, in either case
such that the conditions set forth in Section 7.02(a) or Section 7.02(b) of
this Agreement, as the case may be, would be incapable of being satisfied
by March 31, 1995 (or as otherwise extended as described in Section
8.01(e)); provided, that in any case, a wilful breach shall be deemed to
cause such conditions to be incapable of being satisfied for purposes of
this Section 8.01(b);
(c) by ANGC, upon a breach of any representation, warranty, covenant
or agreement on the part of the PEC Companies set forth in this Agreement,
or if any representation or warranty of the PEC Companies shall have become
untrue, in either case such that the conditions set forth in Section
7.03(a) or Section 7.03(b) of this Agreement, as the case may be, would be
incapable of being satisfied by March 31, 1995 (or as otherwise extended as
described in Section 8.01(e)); provided, that in any case, a wilful breach
shall be deemed to cause such conditions to be incapable of being satisfied
for purposes of this Section 8.01(c);
(d) by either PEC or ANGC, if there shall be any Order which is final
and nonappealable preventing the consummation of the Merger, except if the
party relying on such Order to terminate this Agreement has not complied
with its obligations under Section 6.03(b) of this Agreement;
(e) by either PEC or ANGC, if the Merger shall not have been
consummated before March 31, 1995; provided, however, that this Agreement
may be extended by written notice of either PEC or ANGC to a date not later
than June 30, 1995, if the Merger shall not have been consummated as a
direct result of ANGC or the PEC Companies having failed by March 31, 1995
to receive all required regulatory approvals or consents with respect to
the Merger;
(f) by either PEC or ANGC, if this Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the stockholders
of ANGC at the ANGC Stockholders Meeting or if the issuance of the PEC
Common Stock in connection with the Merger shall fail to receive the
requisite vote for approval by the stockholders of PEC at the PEC
Stockholders Meeting;
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(h) by PEC, if (i) the Board of Directors of ANGC withdraws, modifies
or changes its recommendation of this Agreement or the Merger in a manner
adverse to PEC or shall have resolved to do any of the foregoing; (ii) the
Board of Directors of ANGC shall have recommended to the stockholders of
ANGC any Competing Transaction or shall have resolved to do so; (iii) a
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of ANGC is commenced, and the Board of Directors of ANGC does
not recommend that stockholders not tender their shares into such tender or
exchange offer or; (iv) any person (other than PEC or an affiliate thereof)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder),
shall have been formed which beneficially owns, or has the right to acquire
beneficial ownership of, 20% or more of the then outstanding shares of
capital stock of ANGC; or
(i) by ANGC, if the Board of Directors of ANGC (x) fails to make or
withdraws its recommendation referred to in Section 6.02(a) if there exists
at such time a Competing Transaction (as defined in Section 5.02(g)), or
(y) recommends to ANGC's stockholders approval or acceptance of a Competing
Transaction, in each case only if the Board of Directors of ANGC, after
consultation with and based upon the advice of independent legal counsel
(who may be ANGC's regularly engaged independent legal counsel), determines
in good faith that such action is necessary for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 8.02. Effect of Termination. Except as provided in Section 8.05 or
Section 9.01 of this Agreement, in the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability on the part of the PEC Companies or ANGC to the
other and all rights and obligations of any party hereto shall cease, except
that nothing herein shall relieve any party of any liability for (i) any breach
of such party's covenants or agreements contained in this Agreement, or (ii) any
willful breach of such party's representations or warranties contained in this
Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of ANGC, (i) no amendment, which under
applicable law may not be made without the approval of the stockholders of ANGC,
may be made without such approval, and (ii) no amendment, which under the
applicable rules of the NYSE, may not be made without the approval of the
stockholders of PEC, may be made without such approval. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby. For purposes of this Section 8.04, the
PEC Companies as a group shall be deemed to be one party.
SECTION 8.05. Fees, Expenses and Other Payments.
(a) Except as provided in Section 8.05(c) of this Agreement, all
Expenses (as defined in paragraph (b) of this Section 8.05) incurred by the
parties hereto shall be borne solely and entirely by the party which has
incurred such Expenses; provided, however, that the allocable share of the
PEC Companies as a group and ANGC for all Expenses related to printing,
filing and mailing the Registration Statement, the ANGC Proxy Statement and
the PEC Proxy Statement and all SEC and other regulatory filing fees
incurred in connection with the Registration Statement, the ANGC Proxy
Statement and the
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PEC Proxy Statement shall be one-half each; and provided further that PEC
may, at its option, pay any Expenses of ANGC, and PEC shall pay all SEC
filing fees.
(b) "Expenses" as used in this Agreement shall include all
out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on
its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement, the ANGC Proxy
Statement and the PEC Proxy Statement, the solicitation of stockholder
approvals and all other matters related to the consummation of the
transactions contemplated hereby.
(c) ANGC agrees that if this Agreement is terminated pursuant to:
(i) Section 8.01(b) and (x) such termination is the result of a
wilful breach of any representation, warranty, covenant or agreement of
ANGC contained herein, (y) ANGC shall have had contacts or entered into
negotiations relating to a Competing Transaction, in any such case at
any time within the period commencing on the date of this Agreement
through the date of termination of this Agreement, and (z) within twelve
months after the date of termination of this Agreement, and with respect
to any person or group with whom the contacts or negotiations referred
to in clause (y) have occurred, a Business Combination (as defined in
Section 8.05(e)) shall have occurred or ANGC shall have entered into a
definitive agreement providing for a Business Combination; or
(ii) Section 8.01(f) because this Agreement and the Merger shall
fail to receive the requisite vote for approval and adoption by the
stockholders of ANGC at the ANGC Stockholders Meeting and at the time of
such meeting there shall exist a Competing Transaction; or
(iii) Section 8.01(h)(i) and at the time of the withdrawal,
modification or change (or resolution to do so) of its recommendation by
the Board of Directors of ANGC, there shall exist a Competing
Transaction; or
(iv) Sections 8.01(h)(ii) or (iii); or
(v) Section 8.01(i);
then ANGC shall pay to PEC an amount equal to $20,000,000, which amount is
inclusive of all of PEC's Expenses.
(d) Any payment required to be made pursuant to Section 8.05(c) of
this Agreement shall be made as promptly as practicable but not later than
three business days after termination of this Agreement, and shall be made
by wire transfer of immediately available funds to an account designated by
PEC, except that any payment to be made as the result of an event described
in Section 8.05(c)(i) shall be made as promptly as practicable but not
later than three business days after the occurrence of the Business
Combination or the execution of the definitive agreement providing for a
Business Combination.
(e) For purposes of this Section 8.05, the term "Business Combination"
means (i) a merger, consolidation, share exchange, business combination or
similar transaction involving ANGC, (ii) a sale, lease, exchange, transfer
or other disposition of 20% or more of the assets of ANGC and its
subsidiaries, taken as a whole, in a single transaction or a series of
transactions, or (iii) the acquisition, by a person (other than PEC or any
affiliate thereof) or group (as such term is defined under Section 13(d) of
the Exchange Act and the rules and regulations thereunder) of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of 20% or more
of the ANGC Common Stock whether by tender or exchange offer or otherwise.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 9.01(b) of this Agreement, the
representations, warranties and agreements of each party hereto shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Article VIII, except that the agreements set forth in
Articles I and II and IX and Sections 6.08 and 6.11 shall survive the
Effective Time and those set forth in Sections 5.04(d), 8.02 and 8.05 and
Article IX hereof shall survive termination. Nothing herein shall be
construed to cause the Confidentiality Agreement to terminate upon the
termination of this Agreement pursuant to Article VIII.
SECTION 9.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to any of the PEC Companies, to:
Panhandle Eastern Corporation
5400 Westheimer Court
P.O. Box 1642
Houston, Texas 77251-1642
Attention: General Counsel
Telecopier No.: (713) 627-4691
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: Bruce R. Bilger
Telecopier No.: (713) 758-2346
(b) If to ANGC, to:
Associated Natural Gas Corporation
370 17th Street, Suite 900
Denver, Colorado 80202
Attention: General Counsel
Telecopier No.: (303) 595-0480
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with a copy to:
Holme Roberts & Owen LLC
1700 Lincoln
Suite 4100
Denver, Colorado 80203
Attention: Joseph W. Morrisey, Jr.
Telecopier No.: (303) 866-0200
SECTION 9.03. Certain Definitions. For the purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) a person shall be deemed a "beneficial owner" of or to have
"beneficial ownership" of ANGC Common Stock or PEC Common Stock, as the
case may be, in accordance with the interpretation of the term "beneficial
ownership" as defined in Rule 13d-3 under the Exchange Act, as in effect on
the date hereof; provided that a person shall be deemed to be the
beneficial owner of, and to have beneficial ownership of, ANGC Common Stock
or PEC Common Stock, as the case may be, that such person or any affiliate
of such person has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
(c) "business day" means any day other than a day on which banks in
the State of New York are authorized or obligated to be closed;
(d) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the ownership of
stock or as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "knowledge" or "known" shall mean, with respect to any matter in
question, if an executive officer of ANGC or PEC, as the case may be, has
actual knowledge of such matter;
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(g) "Significant Subsidiary" means any subsidiary of ANGC or PEC, as
the case may be, that would constitute a Significant Subsidiary of such
party within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(h) "subsidiary" or "subsidiaries" of ANGC, PEC, the Surviving
Corporation or any other person, means any corporation, partnership, joint
venture or other legal entity of which ANGC, PEC, the Surviving Corporation
or any such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or
more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity;
(i) "Tax" or "Taxes" shall mean any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation,
(x) income, franchise, profits, gross receipts, minimum, alternative
minimum, estimated, ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding,
disability, employment, social security, workers compensation, unemployment
compensation, utility, severance, excise, stamp, windfall profits, transfer
and gains taxes, (y) customs, duties, imposts, charges, levies or other
similar assessments of any kind, and (z) interest, penalties and additions
to tax imposed with respect thereto; and
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(j) "PEC Preferred Stock Purchase Rights" shall mean those preferred
stock purchase rights issued or issuable pursuant to that certain Rights
Agreement, dated as of March 11, 1986, between PEC and Continental Stock
Transfer & Trust Company, as successor Rights Agent to Texas Commerce Bank
National Association, as successor to First City National Bank of Houston.
SECTION 9.04. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.06. Entire Agreement. This Agreement (together with the Exhibits,
the ANGC Disclosure Schedule and the PEC Disclosure Schedule), the
Confidentiality Agreement and the PEC Option Agreement constitute the entire
agreement of the parties, and supersede all prior agreements and undertakings,
both written and oral, among the parties or between any of them, with respect to
the subject matter hereof. ANGC agrees that nothing contained in this Agreement,
the PEC Option Agreement, the proxies granted by certain officers and directors
of ANGC to PEC on or about the date hereof or the transactions contemplated
hereby or thereby shall be deemed to violate the Confidentiality Agreement, and
that such agreements and proxies have been entered into or granted with the
prior written consent of ANGC.
SECTION 9.07. Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
SECTION 9.08. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied (other than as contemplated by Section 6.08 and Section
6.11), is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
SECTION 9.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 9.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 9.12. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
PANHANDLE EASTERN CORPORATION
By: /s/ PAUL M. ANDERSON
President
PANHANDLE ACQUISITION TWO, INC.
By: /s/ PAUL M. ANDERSON
President
ASSOCIATED NATURAL GAS CORPORATION
By: /s/ DONALD H. ANDERSON
President
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EXHIBIT A
ANGC AFFILIATE'S AGREEMENT
Panhandle Eastern Corporation
5400 Westheimer Court
P.O. Box 1642
Houston, Texas 77251-1642
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of Associated Natural Gas Corporation, a Delaware corporation
("ANGC"), as that term is defined for purposes of paragraphs (c) and (d) of Rule
145 of the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act").
Pursuant to the terms and subject to the conditions of that certain
Agreement and Plan of Merger by and among Panhandle Eastern Corporation, a
Delaware corporation ("PEC"), Panhandle Acquisition Two, Inc., a Delaware
corporation and a wholly owned subsidiary of PEC ("Merger Sub"), and ANGC dated
as of October 9, 1994 (the "Merger Agreement"), providing for, among other
things, the merger of Merger Sub with and into ANGC (the "Merger"), I will be
entitled to receive shares of common stock, par value $1.00 per share, of PEC
("PEC Common Stock"), in exchange for shares of common stock, par value $.05 per
share, of ANGC ("ANGC Common Stock") owned by me at the Effective Time (as
defined in the Merger Agreement) of the Merger as determined pursuant to the
Merger Agreement.
I further understand that the Merger will be treated for financial
accounting purposes as a "pooling of interests" in accordance with generally
accepted accounting principles and that the staff of the SEC has issued certain
guidelines that should be followed to ensure the pooling of the entities.
In consideration of the agreements contained herein, PEC's reliance on this
letter in connection with the consummation of the Merger and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale, transfer or other disposition of ANGC Common Stock owned by me during the
period commencing 30 days before the Effective Time and ending at the earlier of
the Effective Time and the termination of the Merger Agreement, and (ii) I will
not make any sale, transfer or other disposition of PEC Common Stock owned by me
after the Effective Time until such time as financial statements that include at
least 30 days of combined operations of ANGC and PEC after the Merger shall have
been publicly reported, unless I shall have delivered to PEC prior to any such
sale, transfer or other disposition, a written opinion from KPMG Peat Marwick,
independent public accountants for PEC, or a written no-action letter from the
accounting staff of the SEC, in either case in form and substance reasonably
satisfactory to PEC, to the effect that such sale, transfer or other disposition
will not cause the Merger not to be treated as a "pooling of interests" for
financial accounting purposes in accordance with generally accepted accounting
principles and the rules, regulations and interpretations of the SEC and (iii) I
will not make any sale, transfer or other disposition of any shares of PEC
Common Stock received by me pursuant to the Merger in violation of the
Securities Act or the Rules and Regulations. I have been advised that the
issuance of the shares of PEC Common Stock pursuant to the Merger will have been
registered with the SEC under the Securities Act on a Registration Statement on
Form S-4. However, I have also been advised, and I agree, that since I may be
deemed to be an affiliate of ANGC at the time the Merger is submitted for a vote
of the stockholders of ANGC, the PEC Common Stock received by me pursuant to the
Merger can be sold by me only (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 promulgated by the SEC under the Securities Act, or
(iii) in reliance upon an exemption from registration that is available under
the Securities Act.
I also understand and agree that stop transfer instructions will be given
to PEC's transfer agent with respect to the PEC Common Stock to be received by
me pursuant to the Merger and that there will be placed
AI-39
<PAGE> 126
on the certificates representing such shares of PEC Common Stock, or any
substitutions therefor, a legend stating in substance as follows:
"These shares were issued in a transaction to which Rule 145
promulgated under the Securities Act of 1933 applies. These shares may
only be transferred in accordance with the terms of such Rule and an
Affiliate's Agreement between the original holder of such shares and
Panhandle Eastern Corporation, a copy of which agreement is on file at
the principal offices of Panhandle Eastern Corporation."
It is understood and agreed that the legend set forth above shall be removed
upon surrender of certificates bearing such legend by delivery of substitute
certificates without such legend if I shall have delivered to PEC an opinion of
counsel, in form and substance reasonably satisfactory to PEC, to the effect
that (i) the sale or disposition of the shares represented by the surrendered
certificates may be effected without registration of the offering, sale and
delivery of such shares under the Securities Act, and (ii) the shares to be so
transferred may be publicly offered, sold and delivered by the transferee
thereof without compliance with the registration provisions of the Securities
Act.
By its execution hereof, PEC agrees that it will, as long as I own any PEC
Common Stock to be received by me pursuant to the Merger which remains subject
to Rule 145 under the Securities Act, take all reasonable efforts to make timely
filings with the SEC of all reports required to be filed by it pursuant to the
Securities Exchange Act of 1934, as amended, and will promptly furnish upon
written request of the undersigned a written statement confirming that such
reports have been so timely filed.
If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.
Very truly yours,
By: _______________________________
Name:
Title:
Date:
Address:
ACCEPTED this day
of , 1994
Panhandle Eastern Corporation
By: ________________________________
Name:
Title:
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<PAGE> 127
EXHIBIT B
PEC AFFILIATE'S AGREEMENT
Panhandle Eastern Corporation
5400 Westheimer Court
Houston, Texas 77251
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of Panhandle Eastern Corporation, a Delaware corporation ("PEC"), as
that term is defined in Rule 1-02 of Regulation S-X of the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"SEC").
I understand that, pursuant to the terms and subject to the conditions of
that certain Agreement and Plan of Merger dated as of October 9, 1994 (the
"Merger Agreement") by and among PEC, Panhandle Acquisition Two, Inc., a
Delaware corporation and a wholly owned subsidiary of PEC ("Merger Sub"), and
Associated Natural Gas Corporation, a Delaware corporation ("ANGC"), Merger Sub
will be merged with and into ANGC (the "Merger") at the Effective Time ( as
defined in the Merger Agreement).
I further understand that the Merger will be treated for financial
accounting purposes as a "pooling of interests" in accordance with generally
accepted accounting principles and that the staff of the SEC has issued certain
guidelines that should be followed to ensure the pooling of the entities.
In consideration of the agreements contained herein, PEC's reliance on this
letter in connection with the consummation of the Merger and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale, transfer or other disposition of PEC Common Stock (as defined in the
Merger Agreement) owned by me during the period commencing 30 days before the
Effective Time and ending at the earlier of the Effective Time and the
termination of the Merger Agreement, and (ii) I will not make any sale, transfer
or other disposition of PEC Common Stock owned by me after the Effective Time
until such time as financial statements that include at least 30 days of
combined operations of ANGC and PEC after the Merger shall have been publicly
reported, unless I shall have delivered to PEC prior to any such sale, transfer
or other disposition, a written opinion from KPMG Peat Marwick, independent
public accountants for PEC, or a written no-action letter from the accounting
staff of the SEC, in either case in form and substance reasonably satisfactory
to PEC, to the effect that such sale, transfer or other disposition will not
cause the Merger not to be treated as a "pooling of interests" for financial
accounting purposes in accordance with generally accepted accounting principles
and the rules, regulations and interpretations of the SEC.
Very truly yours,
By: ______________________________
Name:
Title:
Date:
Address:
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<PAGE> 128
APPENDIX II
INVESTMENT BANKING GROUP
One Houston Center
1221 McKinney
Suite 2700
Houston, Texas 77010
713 759-2500
[MERRILL LYNCH LOGO]
October 8, 1994
Board of Directors
Panhandle Eastern Corporation
5400 Westheimer Court
Houston, Texas 77056
Gentlemen and Madam:
Panhandle Eastern Corporation, a Delaware Corporation, (the "Company"),
Panhandle
Acquisition Two, Inc., a Delaware Corporation and a wholly owned subsidiary of
the Company (the "Merger Sub") and Associated Natural Gas Corporation, a
Delaware Corporation, (the "Subject Company") propose to enter into an Agreement
and Plan of Merger to be dated as of October 9, 1994 (the "Agreement") pursuant
to which the Merger Sub will merge with and into the Subject Company (the
"Merger"). We understand that pursuant to the terms of the Agreement each share
of the Subject Company's common stock, par value $0.05 per share (the "Shares"),
will be converted into the right to receive between 1.5725 and 1.8750 shares
(the "Exchange Ratio") of the common stock, par value $1.00 per share, of the
Company (the "Company Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair
to the holders of the Company's common stock from a financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed the Subject Company's Annual Reports, Forms 10-K and
related financial information for the five fiscal years ended
September 30, 1993 and the Subject Company's Forms 10-Q and
the related unaudited financial information for the quarterly
periods ending December 31, 1993, March 31, 1994 and June 30,
1994;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December
31, 1993 and the Company's Forms 10-Q and the related
unaudited financial information for the quarterly periods
ending March 31, 1994, and June 30, 1994.
(3) Reviewed certain information, including financial forecasts
relating to the business, earnings, cash flow, assets and
prospects of the Subject Company and of the Company, furnished
to us by the Subject Company and the Company, respectively;
(4) Conducted discussions with members of senior management of the
Subject Company and the Company concerning their respective
businesses and prospects;
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<PAGE> 129
[MERRILL LYNCH LOGO]
(5) Reviewed the historical market prices and trading activity for
the Shares and the Company Shares and compared them with that
of certain publicly traded companies which we deemed to be
reasonably similar to the Subject Company and the Company,
respectively;
(6) Compared the results of operations of the Subject Company and
the Company with those of certain companies which we deemed to
be reasonably similar to the Subject Company and the Company,
respectively;
(7) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of
certain other mergers and acquisitions which we deemed to be
relevant;
(8) Considered the pro forma effect of the Merger on the Company's
capitalization ratios and earnings and cash flow per share;
(9) Reviewed a draft of the Agreement dated October 8, 1994; and
(10) Reviewed such other financial studies and analyses and
performed such other investigations and took into account such
other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Subject Company and the Company, respectively, and we have not independently
verified such information or undertaken an independent appraisal of the assets
of the Subject Company or the Company. We have also assumed that the Merger and
the exchange of shares contemplated thereby will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended and that the Merger will be treated for financial accounting
purposes as a pooling of interests. With respect to the financial forecasts
furnished by the Subject Company and the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Subject Company's or the Company's management as to the expected
future financial performance of the Subject Company or the Company, as the case
may be.
On the basis of, and subject to the foregoing, we are of the opinion
that the Exchange Ratio is fair to the holders of the Company's common stock
from a financial point of view.
Very truly yours,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By /s/ RICHARD K. GORDON
Richard K. Gordon
Vice Chairman
Investment Banking
Group
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<PAGE> 130
APPENDIX III
[DILLON READ & CO. INC. LOGO]
535 Madison Avenue
New York, New York 10022
212-906-7000
October 9, 1994
The Board of Directors
Associated Natural Gas Corporation
900 Republic Plaza
370 Seventeenth Street
Denver, CO 80202
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Shareholders") of shares of common stock, par value
$0.05 per share ("ANGC Common Stock"), of Associated Natural Gas Corporation
("ANGC") of the consideration to be received by the Shareholders pursuant to the
Agreement and Plan of Merger, dated as of October 9, 1994 (the "Merger
Agreement"), by and among Panhandle Eastern Corporation ("PEC"), Panhandle
Acquisition Two, Inc., a wholly-owned subsidiary of PEC ("Merger Sub"), and
ANGC, pursuant to which Merger Sub will be merged with and into ANGC (the
"Merger") and ANGC will become a wholly-owned subsidiary of PEC.
In the event the Merger is consummated, each issued and outstanding share of
ANGC Common Stock, other than shares of ANGC Common Stock to be cancelled
pursuant to the Merger Agreement, shall be converted into that number (the
"Exchange Ratio") of shares of PEC Common Stock, par value $1.00 ("PEC Shares"),
equal to the quotient obtained by dividing $39.00 by the Average Daily Price of
the PEC Common Stock (as defined in the Merger Agreement) during the fifteen
consecutive trading days ending on (but excluding) the third trading day prior
to the ANGC Stockholders Meeting (as defined in the Merger Agreement); provided
however, that the Exchange Ratio shall not exceed 1.8750, nor be less than
1.5725. The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
AIII-1
<PAGE> 131
[DILLON READ & CO. INC. LOGO]
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of Directors
of ANGC in connection with the Merger and will receive a fee upon the
consummation thereof in addition to the fee it is receiving for rendering this
opinion. In addition, we have performed investment banking services for, and
received compensation from, ANGC from time to time. Dillon Read has also
provided investment banking services for, and received compensation from, PEC
from time to time. These services have included acting as a manager or agent for
various securities offerings of ANGC, PEC, and various subsidiaries of PEC.
In arriving at our opinion we have reviewed the Merger Agreement and certain
business and financial information relating to ANGC and its subsidiaries,
including certain financial projections, estimates and analyses provided to us
by ANGC, and have reviewed and discussed the businesses and prospects of ANGC
and its subsidiaries with representatives of ANGC's management. We have
considered certain financial and stock market data of ANGC and have compared
that information to similar data for other publicly-held companies in businesses
similar to that of ANGC.
We have also reviewed certain publicly available business and financial
information relating to PEC, including certain financial projections, estimates
and analyses provided to us by PEC, and have had discussions with certain
representatives of management of PEC. We have considered certain financial and
stock market data of PEC and have compared that information to similar data for
publicly-held companies in businesses similar to that of PEC.
In arriving at our opinion, we have also considered the financial terms of
certain other mergers and acquisitions which we believe to be generally
comparable to the Merger and have considered such other information, financial
studies and analyses, and financial, economic and market criteria as we deemed
relevant.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in all
material respects. We have not made an independent evaluation or appraisal of
any assets or liabilities (contingent or otherwise) of ANGC or PEC or any of
their respective subsidiaries, nor have we been furnished with any such
evaluation or appraisal that has not been publicly disclosed. With respect to
the financial projections, estimates and analyses provided to us by ANGC and by
PEC, we have assumed, with your permission, that such information was reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management of ANGC and of PEC as to future financial performance.
Our opinion is based on economic, monetary and market conditions existing on the
date hereof.
In rendering this opinion, we are not rendering any opinion as to the value of
PEC or making
any recommendation to the shareholders in respect of the advisability of
disposing of or
AIII-2
<PAGE> 132
[DILLON READ & CO. INC. LOGO]
retaining PEC Shares received pursuant to the Merger. In addition, we are not
making any recommendation regarding whether or not it is advisable for
Shareholders to vote in favor of the Merger. In the ordinary course of business,
we have traded securities of ANGC and PEC for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the date
hereof, that the consideration to be received by the Shareholders pursuant to
the Merger Agreement is fair, from a financial point of view, to the
Shareholders.
Very truly yours,
/s/ DILLON, READ & CO. INC.
DILLON, READ & CO. INC.
AIII-3
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents in
connection with threatened, pending or completed actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in right of the corporation), brought against them by reason of the fact
that they were or are such directors, officers, employees or agents, against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in any such action, suit or proceeding. Article IX of
Panhandle's Bylaws provides for indemnification of each person who is or was or
is threatened to be made a party to any threatened, pending or completed civil,
administrative or investigative action, suit or proceeding because such person
is or was a director, advisory director or employee of Panhandle or is or was
serving at the request of Panhandle as a director, advisory director, officer,
or employee of another corporation or of a partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, fines, amounts
paid in settlement, reasonable expenses and other liabilities arising in
connection with such action, suit or proceeding, to the fullest extent to which
indemnity may lawfully be provided pursuant to a by-law under applicable law.
Panhandle also maintains policies of directors and officers liability insurance.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Article Tenth of Panhandle's Restated Certificate of
Incorporation contains such a provision.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger dated October 9, 1994 among Panhandle
Eastern Corporation, Panhandle Acquisition Two, Inc. and Associated
Natural Gas Corporation (included as Appendix I to the Joint Proxy
Statement/Prospectus)
2.2 -- Stock Option Agreement dated as of October 9, 1994 between Panhandle
Eastern Corporation and Associated Natural gas Corporation
(incorporated by reference to Exhibit 99.2 to the Statement on
Schedule 13D dated October 10, 1994 of Panhandle)
2.3 -- Form of Irrevocable Proxy executed by directors and executive
officers of Associated Natural Gas Corporation (incorporated by
reference to Exhibit 99.3 to the Statement on Schedule 13D dated
October 10, 1994 of Panhandle)
4.1 -- Restated Certificate of Incorporation of Panhandle Eastern
Corporation (incorporated by reference to Exhibit 3.1 to Form S-3
Registration Statement of Panhandle, dated May 14, 1990, File Number
33-34886)
4.2 -- By-Laws of Panhandle Eastern Corporation effective July 8, 1986
(incorporated by reference to Exhibit 19(a) to Form 10-Q of Panhandle
for quarter ended September 30, 1986, File Number 1-8157)
</TABLE>
II-1
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<S> <C>
4.3 -- Rights Agreement, dated March 11, 1986, between Panhandle Eastern
Corporation and First City National Bank of Houston (incorporated by
reference to Exhibit 1 to Form 8-A Registration Statement of
Panhandle dated March 12, 1986, File Number 1-8157)
4.4 -- Amendment to Rights Agreement, dated May 6, 1993, among Panhandle
Eastern Corporation, Texas Commerce Bank National Association (as
successor to First City National Bank of Houston), and Continental
Stock Transfer & Trust Company (incorporated by reference to Exhibit
4.1 to Form 8-K of Panhandle dated May 28, 1993, File Number 1-8157)
5.1 -- Opinion of Vinson & Elkins L.L.P regarding the legality of the
securities
8.1 -- Opinion of Holme Roberts & Owen LLC regarding tax matters
23.1 -- Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1)
23.2 -- Consent of Holme Roberts & Owen LLC (set forth in Exhibit 8.1)
*23.3 -- Consent of KPMG Peat Marwick LLP (Panhandle)
*23.4 -- Consent of KPMG Peat Marwick LLP (ANGC)
*23.5 -- Consent of Arthur Andersen LLP
23.6 -- Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.7 -- Consent of Dillon, Read & Co. Inc.
24.1 -- Powers of Attorney for Directors of the Company
*99.1 -- Form of Panhandle Proxy
*99.2 -- Form of ANGC Proxy
*99.3 -- Report of Arthur Andersen LLP
</TABLE>
- ---------------
* Filed herewith. All other Exhibits have been previously filed.
(b) Financial Statement Schedules:
None required.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(2) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form;
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
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<PAGE> 135
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective; and
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on November 14, 1994.
PANHANDLE EASTERN CORPORATION
By: /s/ JAMES B. HIPPLE
(James B. Hipple,
Senior Vice President and
Chief Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities indicated on November 14, 1994.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
(i) Principal executive officer:
/s/ DENNIS R. HENDRIX Chairman and Chief Executive Officer
(Dennis R. Hendrix)
(ii) Principal financial officer:
/s/ JAMES B. HIPPLE Senior Vice President and Chief Financial
(James B. Hipple) Officer
(iii) Principal Accounting officer:
/s/ SANDRA P. MEYER Controller
(Sandra P. Meyer)
(iv) Directors:*
/s/ PAUL M. ANDERSON
(Paul M. Anderson)
/s/ MILTON CARROLL
(Milton Carroll)
/s/ ROBERT CIZIK
(Robert Cizik)
/s/ CHARLES W. DUNCAN, JR.
(Charles W. Duncan, Jr.)
/s/ HARRY E. EKBLOM
(Harry E. Ekblom)
/s/ WILLIAM T. ESREY
(William T. Esrey)
/s/ ANN MAYNARD GRAY
(Ann Maynard Gray)
/s/ DENNIS R. HENDRIX
(Dennis R. Hendrix)
</TABLE>
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<PAGE> 137
<TABLE>
<CAPTION>
NAME AND SIGNATURE
- ---------------------------------------------
<S> <C>
/s/ HAROLD S. HOOK
(Harold S. Hook)
/s/ LEO E. LINBECK, JR.
(Leo E. Linbeck, Jr.)
/s/ GEORGE L. MAZANEC
(George L. Mazanec)
/s/ RALPH S. O'CONNOR
(Ralph S. O'Connor)
</TABLE>
- ---------------
* Signed on behalf of each of these persons:
By: /s/ ROBERT W. REED
(Robert W. Reed,
Attorney-in-Fact)
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<PAGE> 138
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated October 9, 1994 among
Panhandle Eastern Corporation, Panhandle Acquisition Two,
Inc. and Associated Natural Gas Corporation (included as
Appendix I to the Joint Proxy Statement/Prospectus)
2.2 -- Stock Option Agreement dated as of October 9, 1994
between Panhandle Eastern Corporation and Associated
Natural gas Corporation (incorporated by reference to
Exhibit 99.2 to the Statement on Schedule 13D dated
October 10, 1994 of Panhandle)
2.3 -- Form of Irrevocable Proxy executed by directors and
executive officers of Associated Natural Gas Corporation
(incorporated by reference to Exhibit 99.3 to the
Statement on Schedule 13D dated October 10, 1994 of
Panhandle)
4.1 -- Restated Certificate of Incorporation of Panhandle
Eastern Corporation (incorporated by reference to Exhibit
3.1 to Form S-3 Registration Statement of Panhandle,
dated May 14, 1990, File Number 33-34886)
4.2 -- By-Laws of Panhandle Eastern Corporation effective July
8, 1986 (incorporated by reference to Exhibit 19(a) to
Form 10-Q of Panhandle for quarter ended September 30,
1986, File Number 1-8157)
4.3 -- Rights Agreement, dated March 11, 1986, between Panhandle
Eastern Corporation and First City National Bank of
Houston (incorporated by reference to Exhibit 1 to Form
8-A Registration Statement of Panhandle dated March 12,
1986, File Number 1-8157)
4.4 -- Amendment to Rights Agreement, dated May 6, 1993, among
Panhandle Eastern Corporation, Texas Commerce Bank
National Association (as successor to First City National
Bank of Houston), and Continental Stock Transfer & Trust
Company (incorporated by reference to Exhibit 4.1 to Form
8-K of Panhandle dated May 28, 1993, File Number 1-8157)
5.1 -- Opinion of Vinson & Elkins L.L.P regarding the legality
of the securities
8.1 -- Opinion of Holme Roberts & Owen LLC regarding tax matters
23.1 -- Consent of Vinson & Elkins L.L.P. (set forth in Exhibit
5.1)
23.2 -- Consent of Holme Roberts & Owen LLC (set forth in Exhibit
8.1)
*23.3 -- Consent of KPMG Peat Marwick LLP (Panhandle)
*23.4 -- Consent of KPMG Peat Marwick LLP (ANGC)
*23.5 -- Consent of Arthur Andersen LLP
23.6 -- Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
23.7 -- Consent of Dillon, Read & Co. Inc.
24.1 -- Powers of Attorney for Directors of the Company
*99.1 -- Form of Panhandle Proxy
*99.2 -- Form of ANGC Proxy
*99.3 -- Report of Arthur Andersen LLP
</TABLE>
- ---------------
* Filed herewith. All other Exhibits have been previously filed.
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Panhandle Eastern Corporation:
We consent to the use in this registration statement on Form S-4 of our
reports on the consolidated financial statements and financial statement
schedules of Panhandle Eastern Corporation and subsidiaries incorporated by
reference herein and to the reference to our firm under the heading "Experts" in
the prospectus. Such report covering the consolidated financial statements
refers to changes in the method of accounting for income taxes and
postretirement benefits other than pensions.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
November 14, 1994
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Associated Natural Gas Corporation:
We consent to incorporation by reference in the registration statement on
Form S-4 of Panhandle Eastern Corporation of our reports dated December 7, 1993,
relating to the consolidated balance sheets of Associated Natural Gas
Corporation as of September 30, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended September 30, 1993, and all related
schedules, which reports appear in the September 30, 1993 annual report on Form
10-K of Associated Natural Gas Corporation, and to the use of our report dated
July 1, 1994 on the supplemental consolidated balance sheets of Associated
Natural Gas Corporation as of September 30, 1993 and 1992, and the related
supplemental consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended September 30,
1993. The supplemental consolidated financial statements give retroactive effect
to the merger with Grand Valley Gas Company effective July 1, 1994. Our opinion
on the supplemental consolidated financial statements is based in part on the
report of other auditors. We also consent to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Denver, Colorado
November 11, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement on Form S-4 of Panhandle Eastern Corporation of our
report dated July 30, 1993 with respect to the consolidated balance sheets of
Grand Valley Gas Company and Subsidiaries as of May 31, 1993 and 1992, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended May 31, 1993, which financial
statements are not presented separately in this Registration Statement, and to
all references to our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
November 11, 1994
<PAGE> 1
EXHIBIT 99.1
PROXY PLEASE MARK VOTE /X/ OR / /
PANHANDLE EASTERN CORPORATION
P.O. Box 1642, Houston, Texas 77251-1642
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS ON DECEMBER 15, 1994.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1 BELOW.
As evidenced by the signature(s) on the reverse side hereof, the
undersigned hereby appoints James B. Hipple, Carl B. King and Robert
W. Reed, and any one of them, as Proxies, each with full power of
substitution, to represent and vote all shares of the Common Stock
of Panhandle Eastern Corporation (the "Company") which the
undersigned would be entitled to vote if personally present at the
Special Meeting of Stockholders of the Company to be held at the
Sheraton Grand Hotel, 2525 West Loop South, Houston, Texas, on
December 15, 1994, at 10:00 A.M., and at any adjournments thereof,
with all power the undersigned would possess if personally present.
This card also provides voting instructions for shares, if any, held
in the Company's Dividend Reinvestment and Stock Purchase Plan and,
if applicable, shares held in the various employee benefit plans.
ITEM 1-- APPROVAL OF THE ISSUANCE AND RESERVATION FOR ISSUANCE BY
PANHANDLE EASTERN CORPORATION OF SHARES OF ITS COMMON STOCK
PURSUANT TO THE AGREEMENT AND PLAN OF MERGER AMONG PANHANDLE
EASTERN CORPORATION, PANHANDLE ACQUISITION TWO, INC. AND
ASSOCIATED NATURAL GAS CORPORATION.
FOR AGAINST ABSTAIN
/ / / / / /
ITEM 2--ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 2
THIS PROXY WILL BE VOTED AS DIRECTED,
OR IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" ITEM 1.
Dated , 1994
-----------------
-------------------------------------
Signature(s) of Stockholder(s)
-------------------------------------
Signature(s) of Stockholder(s)
When signing as attorney, executor,
administrator, trustee, or guardian,
or in other representative capacities,
please give your full title as such.
A Proxy for shares held in joint
ownership should be signed by EACH
owner. If account is registered in the
name of a corporation, partnership or
other entity, a duly authorized
individual must sign on its behalf
and give title.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ABOVE, MARK ANY ADDRESS
CORRECTION, DATE, AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE.
<PAGE> 1
EXHIBIT 99.2
PROXY
ASSOCIATED NATURAL GAS CORPORATION
PROXY FOR SPECIAL STOCKHOLDERS MEETING TO BE HELD ON DECEMBER 15, 1994
The undersigned hereby appoints Cortlandt S. Dietler and Harold R. Logan,
Jr., and each of them proxies (to act by majority decision if more than one
shall act), with full power of substitution, to vote all shares of stock of
Associated Natural Gas Corporation which the undersigned would be entitled to
vote if personally present at the Special Meeting of Stockholders to be held at
the Brown Palace Hotel, 321 17th Street, Denver, Colorado on December 15, 1994
at 9:00 a.m., local time, and at any adjournment thereof, upon the matters
described in the accompanying Joint Proxy Statement/Prospectus and upon such
other business that may properly come before the meeting or any adjournment
thereof. Said proxies are directed to vote as instructed on the matters set
forth below and otherwise at their discretion. Receipt of a copy of the Notice
of said meeting and Joint Proxy Statement/Prospectus is hereby acknowledged. The
Board of Directors recommends a vote "FOR" the proposal to approve and adopt the
Merger Agreement.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
/X/ Please mark votes as in this example.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN THE ABSENCE OF DIRECTION,
THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND IN THE DISCRETION OF THE WITHIN NAMED PROXIES WITH RESPECT TO
OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
1. Proposal to approve and adopt the Agreement and Plan of Merger dated as of
October 9, 1994, among Panhandle Eastern Corporation, Panhandle Acquisition
Two, Inc. and Associated Natural Gas Corporation.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as name appears on this Proxy. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
- ----------------------------------- -----------------
Signature: Date
- ----------------------------------- -----------------
Signature: Date
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 1
EXHIBIT 99.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grand Valley Gas Company and Subsidiaries:
We have audited the consolidated balance sheets of Grand Valley Gas Company
(a Utah corporation) and subsidiaries as of May 31, 1993 and 1992, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended May 31, 1993 (not presented
separately herein). These financial statements are the responsibility of Grand
Valley Gas Company and subsidiaries' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the financial
position of Grand Valley Gas Company and subsidiaries as of May 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended May 31, 1993 in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 30, 1993
