<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ATRION CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No Filing Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
--------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LETTERHEAD OF ATRION APPEARS HERE]
April 23, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 annual meeting of stockholders
of Atrion Corporation, which will be held at our offices in St. Petersburg,
Florida on Thursday, May 29, 1997 at 10:00 a.m., Eastern Time. A notice of the
annual meeting and the Company's Proxy Statement, together with a proxy card,
accompany this letter. Also enclosed is a copy of our 1996 Annual Report.
This year, in addition to the election of directors and the ratification of
the Board of Directors' appointment of Arthur Andersen LLP as independent
accountants, you are being asked to consider and vote on (i) the sale by the
Company of all the outstanding capital stock of its natural gas pipeline and
marketing subsidiaries (the "Sale Transaction") and (ii) the Atrion Corporation
1997 Stock Incentive Plan.
If the Sale Transaction is approved, the Company will sell its natural gas
pipeline and marketing subsidiaries to Midcoast Energy Resources, Inc. for
approximately $39.4 million in cash. YOUR BOARD OF DIRECTORS HAS DETERMINED
THAT THE SALE TRANSACTION IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS
THAT STOCKHOLDERS APPROVE THE SALE TRANSACTION. The Board of Directors'
approval and recommendation were based upon a number of factors described in
the enclosed Proxy Statement, including the opinion of Raymond James &
Associates, Inc. that the consideration to be received by the Company in the
Sale Transaction is fair, from a financial point of view, to the Company. The
written opinion of Raymond James & Associates is attached to the accompanying
Proxy Statement and should be read carefully.
The 1997 Stock Incentive Plan provides the Company with increased flexibility
in making stock-based awards to key employees and provides for automatic stock
option grants to outside directors. If the 1997 Stock Incentive Plan is
approved by stockholders, the number of shares of common stock to be awarded
each year to each outside director of the Company under the Company's
Restricted Shares Plan for Non-Employee Directors will be reduced from 600
shares to 400 shares. The Board of Directors believes that the new plan will
further promote the alignment of the interests of officers, directors and key
employees with the interests of the stockholders, and unanimously recommends
that stockholders approve the 1997 Stock Incentive Plan.
The matters to be considered at the annual meeting, and especially the Sale
Transaction, are of great importance in the continuing growth of your Company.
Before casting your vote, please read carefully the enclosed Proxy Statement,
which provides you with a description of the terms of the proposed Sale
Transaction, and a copy of the Asset Purchase Agreement between the Company and
Midcoast, which is attached to the Proxy Statement.
We hope that you will attend the meeting in person. However, whether or not
you plan to be personally present, we urge you to read the accompanying Proxy
Statement carefully and then complete, date and sign the enclosed proxy card
and return it promptly in the envelope provided herewith. This will ensure
representation of your shares of common stock if you are unable to attend the
meeting.
Sincerely,
/s/ Jerry A. Howard
------------------------
Jerry A. Howard
<PAGE>
ATRION CORPORATION
Post Office Box 3869
Muscle Shoals, Alabama 35662-3869
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Atrion Corporation:
Notice is hereby given that the annual meeting of stockholders of Atrion
Corporation (the "Company") will be held at the offices of Halkey-Roberts
Corporation, a Company subsidiary, 11600 Ninth Street North, St. Petersburg,
Florida on Thursday, May 29, 1997 at 10:00 a.m., Eastern Time, for the
following purposes:
1. To elect three directors.
2. To consider and vote upon a proposal to approve the sale by the Company
of its natural gas pipeline and marketing subsidiaries (the "Sale
Transaction") to Midcoast Energy Resources, Inc. ("Midcoast") pursuant
to an Asset Purchase Agreement dated March 19, 1997, between the Company
and Midcoast (the "Agreement").
3. To consider and vote upon a proposal to approve the Company's 1997 Stock
Incentive Plan.
4. To ratify the Board of Directors' appointment of Arthur Andersen LLP as
independent accountants to audit the Company's financial statements for
the year 1997.
5. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on April 21, 1997 as
the record date for the determination of stockholders entitled to notice of
and to vote at the annual meeting and at any adjournment thereof.
By Order of the Board of Directors
Jeffery Strickland
Vice President and Chief Financial
Officer, Secretary and Treasurer
April 23, 1997
IMPORTANT
YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED HEREWITH. IF YOU ATTEND THE MEETING, YOU
MAY, IF YOU WISH, WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION........................................................ 1
Purpose of the Meeting................................................... 1
Voting Securities and Record Date........................................ 1
Required Vote............................................................ 2
Solicitation of Proxies.................................................. 2
SECURITIES OWNERSHIP....................................................... 3
Securities Ownership of Certain Beneficial Owners........................ 3
Securities Ownership of Management....................................... 4
Section 16(a) Beneficial Ownership Reporting Compliance.................. 5
ELECTION OF DIRECTORS...................................................... 5
Nominees for Election as Directors....................................... 5
Directors Continuing in Office........................................... 6
Information Regarding Board of Directors and Committees.................. 7
PROPOSAL TO APPROVE THE SALE OF THE COMPANY'S NATURAL GAS SUBSIDIARIES..... 8
Introduction; Description of the Company's Natural Gas Business.......... 8
Information Concerning Midcoast.......................................... 8
Purchase Price; Use of Proceeds.......................................... 8
Background and Reasons for the Sale Transaction.......................... 9
Opinion of Raymond James................................................. 12
Effect of the Sale Transaction on the Company's Stockholders............. 17
Certain Factors to be Considered......................................... 17
Description of the Agreement............................................. 19
Regulatory Approvals..................................................... 24
Interests of Certain Persons in the Sale Transaction..................... 24
Accounting Treatment..................................................... 24
Certain Federal Income Tax Consequences.................................. 25
No Appraisal Rights...................................................... 25
Recommendation........................................................... 25
CERTAIN FINANCIAL INFORMATION.............................................. 25
Selected Historical and Pro Forma Consolidated Financial Data............ 25
Unaudited Pro Forma Condensed Consolidated Financial Information......... 27
PROPOSAL TO APPROVE THE COMPANY'S 1997 STOCK INCENTIVE PLAN................ 29
Background and Purpose................................................... 29
Description of the 1997 Stock Incentive Plan............................. 29
Federal Income Tax Consequences.......................................... 33
Participation in and Benefits Under the 1997 Stock Incentive Plan........ 34
New Plan Benefits........................................................ 35
Recommendation........................................................... 35
RATIFICATION OF APPOINTMENT OF AUDITORS.................................... 35
Recommendation........................................................... 35
EXECUTIVE COMPENSATION..................................................... 35
Summary Compensation Table............................................... 36
Information Concerning Stock Options..................................... 36
Long-Term Incentive Plans--Awards in Last Fiscal Year.................... 38
Retirement Plans......................................................... 39
Severance Compensation Agreement......................................... 39
Compensation Committee Report on Executive Compensation.................. 40
Performance of Common Stock.............................................. 43
STOCKHOLDER PROPOSALS...................................................... 43
OTHER BUSINESS............................................................. 44
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 44
APPENDICES:
Appendix A: Asset Purchase Agreement A-1 A-1
Appendix B: Opinion of Raymond James & Associates, Inc. B-1 B-1
</TABLE>
<PAGE>
ATRION CORPORATION
Post Office Box 3869
Muscle Shoals, Alabama 35662-3869
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 29, 1997
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of Atrion
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the annual meeting of
stockholders to be held at the offices of Halkey-Roberts Corporation, a
Company subsidiary, 11600 Ninth Street North, St. Petersburg, Florida on
Thursday, May 29, 1997 at 10:00 a.m., Eastern Time, and at any adjournment of
such meeting. This Proxy Statement and the accompanying form of proxy are
being first sent or given to stockholders on or about April 23, 1997. The 1996
Annual Report of the Company is being mailed to stockholders with this Proxy
Statement.
The Company was formed in 1996 as a wholly-owned subsidiary of ATRION
Corporation, an Alabama corporation (the "Predecessor Corporation"), as a part
of the Predecessor Corporation's plan to reincorporate in Delaware. The
proposal to approve such reincorporation was approved at a special meeting of
shareholders of the Predecessor Corporation on February 21, 1997, and the
reincorporation was completed on February 25, 1997 through the merger of the
Predecessor Corporation with and into the Company, with the Company continuing
as the surviving corporation and the successor to the Predecessor Corporation.
In connection with the reincorporation, all of the directors and executive
officers of the Predecessor Corporation became directors and executive
officers of the Company, serving in the same capacities. Unless the context
otherwise requires, references in this Proxy Statement to the Company, Board
of Directors and executive officers of the Company prior to February 25, 1997
shall mean the Predecessor Corporation and its Board of Directors and
executive officers.
PURPOSE OF THE MEETING
At the annual meeting, the Company's stockholders will consider and vote
upon the following matters: (i) the election of three directors; (ii) a
proposal to approve the sale by the Company of its natural gas pipeline and
marketing subsidiaries (the "Sale Transaction") to Midcoast Energy Resources,
Inc. ("Midcoast") pursuant to an Asset Purchase Agreement dated March 19,
1997, between the Company and Midcoast (the "Agreement"); (iii) a proposal to
approve the Company's 1997 Stock Incentive Plan; and (iv) a proposal to ratify
the Board of Directors' appointment of Arthur Andersen LLP as independent
accountants to audit the Company's financial statements for the year 1997.
VOTING SECURITIES AND RECORD DATE
Stockholders of record at the close of business on April 21, 1997 (the
"Record Date") will be entitled to notice of, and to vote at, the annual
meeting and at any adjournment thereof. At the close of business on the Record
Date, the Company had outstanding 3,206,954 shares of common stock, the only
voting securities of the Company. Holders of record of shares of common stock
outstanding on the Record Date will be entitled to one vote for each share
held of record on that date upon each matter presented to the stockholders to
be voted upon at the meeting.
<PAGE>
Shares of common stock of the Company represented by properly executed
proxies received in time for the annual meeting, unless previously revoked,
will be voted at the annual meeting as specified by the stockholders on the
proxies. If no such specification is made, shares represented by such proxies
will be voted as recommended by the Board of Directors. A proxy may be revoked
at any time before it is voted at the meeting by delivering to the Company a
later-dated proxy, by voting by ballot at the meeting or by filing with the
Inspectors of Election an instrument of revocation.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the
shares of common stock outstanding on the Record Date is necessary to
constitute a quorum at the annual meeting. Abstentions and broker non-votes
will be counted as present and represented at the annual meeting for purposes
of determining a quorum. Directors will be elected at the annual meeting by a
plurality of the votes cast by the stockholders present in person or by proxy
and entitled to vote. Abstentions and broker non-votes will have no effect on
the outcome of the election of directors. The affirmative vote of the holders
of a majority of the outstanding common stock of the Company entitled to vote
at the annual meeting is required to approve the Sale Transaction. Abstentions
and broker non-votes will have the same effect as a vote against the Sale
Transaction. Approval of all other matters will require the affirmative vote
of the holders of a majority of the shares of common stock of the Company
present in person or represented by proxy at the annual meeting and entitled
to vote thereon. Abstentions will have the same effect as a vote against and
broker non-votes will have no effect on the outcome of the vote with respect
to such other matters to be acted upon.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone by
the directors, officers and employees of the Company without additional
compensation. Brokerage firms, nominees, fiduciaries and other custodians will
be requested to forward soliciting materials to the beneficial owners of the
common stock of the Company held in their names or in those of their nominees
and their reasonable expenses will be reimbursed upon request. In addition,
Georgeson & Company, Inc. has been engaged to solicit proxies on behalf of the
Company for a fee of $7,000 plus reasonable out-of-pocket expenses.
2
<PAGE>
SECURITIES OWNERSHIP
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of shares of common stock of the Company as of February 28, 1997 by
the only persons known by the Company to be the beneficial owners of more than
5% of the outstanding common stock of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (A)
- ------------------- ------------------ ----------
<S> <C> <C>
Dimensional Fund Advisors
Inc.(b) 190,650 (b) 5.7%
1299 Ocean Avenue
Suite 650
Santa Monica, California 90401
T. Rowe Price Associates, Inc.(c) 275,400 (c) 8.3%
</TABLE>
100 E. Pratt Street
Baltimore, Maryland 21202
- --------
(a) For purposes of this table, the percentage of class beneficially owned has
been computed, in accordance with Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on the basis of
3,215,654 shares of common stock outstanding on February 28, 1997, plus
101,525 shares of common stock issuable pursuant to options exercisable on
February 28, 1997 or within 60 days thereafter. All information with
respect to the beneficial ownership of shares has been adjusted to reflect
a three-for-two stock split which was effected on December 2, 1996.
(b) Based upon a Schedule 13G filed with the Securities and Exchange
Commission (the "Commission") and furnished to the Company by Dimensional
Fund Advisors Inc. ("Dimensional"), a registered investment adviser,
reporting that Dimensional is deemed to have beneficial ownership of said
190,650 shares of common stock of the Company and that all of said shares
are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager. In
said Schedule 13G, Dimensional has reported that it has sole power to vote
or direct the vote of 112,200 shares of common stock of the Company
included in said 190,650 shares listed above, that persons who are
officers of Dimensional also serve as officers of DFA Investment
Dimensions Group Inc. and the DFA Investment Trust Company and, in such
capacity, have the power to vote or direct the vote of 78,450 shares of
common stock of the Company held by such investment companies and included
in the 190,650 shares listed above, and that Dimensional has the sole
power to dispose or direct the disposition of said 190,650 shares of
common stock of the Company. Dimensional has disclaimed beneficial
ownership of all such shares.
(c) Based upon a Schedule 13G filed with the Commission and furnished to the
Company by T. Rowe Price Associates, Inc. ("Price Associates") and T. Rowe
Price Small Cap Value Fund, Inc. reporting that T. Rowe Price Small Cap
Value Fund, Inc. has sole power to vote or direct the vote of such shares
of common stock and that Price Associates, which serves as investment
adviser for T. Rowe Price Small Cap Value Fund, Inc., has sole power to
dispose or direct the disposition of such shares. For purposes of the
reporting requirements of the Exchange Act, Price Associates is deemed to
be a beneficial owner of such shares of common stock; however, Price
Associates has disclaimed beneficial ownership of all such shares.
3
<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of common stock of the Company as of February 28, 1997 by
(i) each of the directors of the Company, three of whom are also the nominees
for election as directors at the annual meeting; (ii) the executive officers
of the Company who are named in the Summary Compensation Table herein; and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED(A) OF CLASS(A)
- ---- --------------------- ----------
<S> <C> <C>
Emile A. Battat.............................. 63,900 1.9%
Jerry A. Howard.............................. 59,193(b) 1.8%
Richard O. Jacobson.......................... 77,000 2.3%
Jerome J. McGrath............................ 3,900 *
John H. P. Maley............................. 600
Hugh J. Morgan, Jr........................... 33,100 1.0%
J. Kenneth Smith............................. 4,320(c) *
Roger F. Stebbing............................ 2,400 *
John P. Stupp, Jr............................ 138,600(d) 4.2%
George G. Petty (e).......................... 0 *
Jeffery Strickland (e)....................... 15,393(f) *
Dick Rabenau................................. 6,000(g) *
Gus Magrini.................................. 12,750(h) *
All directors and executive officers as a
group........................................ 418,956(i) 12.6%
</TABLE>
- --------
*Less than 1% of class outstanding
(a) The above information is based upon information furnished by the persons
listed. For purposes of this table, the percentage of class beneficially
owned has been computed, in accordance with Rule 13d-3(d)(1) under the
Exchange Act, on the basis of 3,215,654 shares of common stock outstanding
on February 28, 1997 plus 101,525 shares of common stock issuable pursuant
to options exercisable on February 28, 1997 or within 60 days thereafter.
Except as otherwise indicated in the notes to this table, beneficial
ownership includes sole voting and investment power. All information with
respect to the beneficial ownership of shares has been adjusted to reflect
a three-for-two stock split which was effected on December 2, 1996.
(b) Includes 3,054 shares held in Mr. Howard's account under the Atrion
Corporation Thrift Plan and 38,100 shares issuable to Mr. Howard pursuant
to options exercisable on February 28, 1997 or within 60 days thereafter.
(c) Includes 630 shares held under usufruct as to which Mr. Smith has voting
power but no dispositive power.
(d) Includes 135,000 shares held by Stupp Bros., Inc. as to which shares Mr.
Stupp shares voting power and investment power as a director and executive
officer of, and as a voting trustee of a voting trust which owns 100% of
the stock of, Stupp Bros., Inc.
(e) Upon Mr. Petty's retirement effective February 1, 1997, Mr. Strickland was
elected Vice President and Chief Financial Officer, Secretary and
Treasurer of the Company.
(f) Includes 1,225 shares owned jointly with his wife and 14,150 shares
issuable to Mr. Strickland pursuant to options exercisable on February 28,
1997 or within 60 days thereafter.
(g) Includes 3,000 shares issuable to Mr. Rabenau pursuant to options
exercisable on February 28, 1997 or within 60 days thereafter.
(h) Consists of 12,750 shares issuable to Mr. Magrini pursuant to options
exercisable on February 28, 1997 or within 60 days thereafter.
(i) See notes (b)-(h) above. Includes 1,800 shares owned by one executive
officer who is not listed above.
4
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors to file initial reports of ownership and reports of changes of
ownership of the Company's common stock with the Commission. Executive
officers and directors are required to furnish the Company with copies of
Section 16(a) forms that they file. Based upon a review of these filings and
written representations from the Company's directors and executive officers
regarding the filing of such reports, the Company believes that its directors
and executive officers complied with all applicable Section 16(a) filing
requirements during 1996.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes: Class I,
Class II and Class III. Three Class II directors are to be elected at the
annual meeting to serve until the annual meeting of stockholders to be held in
2000 and until the election and qualification of their respective successors
in office. Each of the three nominees for election as a Class II director
currently is a member of the Board of Directors and was elected by the
shareholders to the Board of Directors of the Predecessor Corporation. If any
of the nominees listed below, each of whom has indicated his willingness to
serve as a director if elected, is not a candidate when the election occurs,
proxies will be voted for election of the remaining nominees and may be voted
for the election of any substitute nominee.
The following information is furnished with respect to each nominee for
election as a director and each director whose term will continue after the
annual meeting.
Name, Age, Service as a Director of the Company (or the Predecessor
Corporation),(a)
Principal Occupation, Positions and Offices, Other Directorships and Business
Experience
NOMINEES FOR ELECTION AS DIRECTORS
Class II--Term Ending in 2000
RICHARD O. JACOBSON
Mr. Jacobson, age 60, has been a director since 1992. Mr. Jacobson is
President and Chief Executive Officer of Jacobson Warehouse Company, Inc.,
a company engaged in public warehousing and distribution, and has served in
such capacities for 29 years. He is a director of Allied Group, Inc.,
FelCor Suite Hotels Inc. and Heartland Express, Inc.
JEROME J. MCGRATH
Mr. McGrath, age 74, has been a director since 1988. Mr. McGrath is Of
Counsel to the law firm of Gallagher, Boland, Meiburger & Brosnan and has
held such position since January 1988. From January 1978 through December
1987, Mr. McGrath served as President of the Interstate Natural Gas
Association of America.
HUGH J. MORGAN, JR.
Mr. Morgan, age 68, has been a director since 1988. Mr. Morgan is Chairman
of the Board of National Bank of Commerce of Birmingham and has served in
such position since February 1990. From May 1987 to February 1990, he was
Vice Chairman of the Board of said bank. Mr. Morgan was employed for many
years by Sonat Inc., a diversified energy holding company, or by Southern
Natural Gas Company, a natural gas pipeline company and a wholly owned
subsidiary of Sonat Inc., and immediately prior to his retirement in 1987
served as Vice Chairman of the Board of Sonat Inc. and as Chairman of the
Board of Southern Natural Gas Company.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE
Class III--Term Ending in 1998
JERRY A. HOWARD
Mr. Howard, age 54, has been a director since 1985. He is Chairman of the
Board, President and Chief Executive Officer of the Company and of Alabama-
Tennessee Natural Gas Company and is Chairman of the Board or President of
each of the Company's other subsidiaries. Mr. Howard joined the Company as
President in December 1984 and was elected to the additional positions of
Chief Executive Officer of the Company and Chairman of the Board and Chief
Executive Officer of Alabama-Tennessee Natural Gas Company in May 1985,
President of Alabama-Tennessee Natural Gas Company in May 1986, Chairman of
the Board or President of the Company's other subsidiaries at various times
in the period from May 1985 to May 1996 and Chairman of the Board of the
Company in January 1991.
ROGER F. STEBBING
Mr. Stebbing, age 56, has been a director since 1992. Mr. Stebbing is
President and Chief Executive Officer of Marlboro Enterprises, Inc., a
company engaged in chemical plant engineering, design, construction and
operation, and has served in such capacities since 1976. He is also
President and Chief Executive Officer of Stebbing and Associates, Inc., an
engineering consulting company, and has served in such capacities since
1986.
JOHN P. STUPP, JR.
Mr. Stupp, age 47, has been a director since 1985. He is the Executive Vice
President of Stupp Bros., Inc., a structural steel fabrication company, and
has served in such capacity since December 1989. From January 1992 to
August 1995, Mr. Stupp also served as President and since August 1995 he
has served as Chief Executive Officer of Stupp Corporation, a division of
Stupp Bros., Inc.
Class I--Term Ending in 1999
EMILE A. BATTAT
Mr. Battat, age 59, has been a director since 1987. Mr. Battat is President
and Chief Executive Officer of Piedmont Enterprises, Inc., a consulting
firm, and has served in such position since March 1994. Mr. Battat served
as the President and Chief Executive Officer of Minemet, Inc., a company
engaged in international trade, from August 1978 until February 1994. He is
a director of Advanced Oxygen Technologies, Inc.
JOHN H. P. MALEY
Mr. Maley, age 62, has been a director since February 1996. Mr. Maley has
been a consultant since January 1995. He is also Chairman of Magister
Corporation, a company which manufactures orthopedic and consumer
healthcare products, and has served in such capacity since July 1995. From
1976 to December 1994 he was Chairman and Chief Executive Officer of
Chattanooga Group, Inc., a manufacturer of physical therapy equipment. He
is a director of Rehabilicare, Inc.
J. KENNETH SMITH
Mr. Smith, age 69, has been a director since 1982. Preceding his retirement
in 1986, Mr. Smith was the Director--Government Relations of Oryx Energy
Company, a company engaged in oil and gas production.
- --------
(a) Each director also has served as a director of Alabama-Tennessee Natural
Gas Company, a Company subsidiary, since first becoming a director of the
Predecessor Corporation, except that Mr. Smith began serving as a director
of Alabama-Tennessee Natural Gas Company in 1975, preceding the
organization of the Predecessor Corporation in 1982.
6
<PAGE>
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held five meetings during 1996. Each director
attended at least 75% of the aggregate of the number of meetings of the Board
of Directors and the number of meetings of all committees on which he served
held in 1996 during the time he served as a director or as a member of such
committees.
The Board of Directors has three standing committees, the Executive
Committee, the Compensation Committee and the Audit Committee. The Executive
Committee is currently comprised of Jerry A. Howard, Hugh J. Morgan, Jr. and
J. Kenneth Smith. The Compensation Committee, which is currently comprised of
Emile A. Battat, Richard O. Jacobson, Hugh J. Morgan, Jr., J. Kenneth Smith
and John P. Stupp, Jr., makes recommendations to the Board of Directors as to
the remuneration of all executive officers of the Company and administers the
Atrion Corporation 1990 Stock Option Plan (the "1990 Stock Option Plan"), the
Atrion Corporation 1994 Key Employee Stock Incentive Plan (the "1994 Stock
Incentive Plan"), the Atrion Medical Products, Inc. Short Term Incentive
Compensation Plan, the Atrion Medical Products, Inc. Long Term Incentive
Compensation Plan, the Halkey-Roberts Corporation Short Term Incentive
Compensation Plan and the Halkey-Roberts Corporation Long Term Incentive
Compensation Plan and will administer the Atrion Corporation 1997 Stock
Incentive Plan if it is approved by stockholders. The Compensation Committee
met five times in 1996. The Audit Committee, the current members of which are
John H. P. Maley, Jerome J. McGrath, Roger F. Stebbing and John P. Stupp, Jr.,
has the responsibility of reviewing the Company's financial results, the scope
and result of audits and internal accounting controls. The Audit Committee
also recommends to the Board of Directors the appointment of the Company's
independent auditors. The Audit Committee met two times in 1996.
Alabama-Tennessee Natural Gas Company, a subsidiary of the Company, pays
each director of said subsidiary who is not an employee of the Company or any
of its subsidiaries a fee of $1,000 per month and $750 for each meeting of the
Board of Directors of said subsidiary at which he is in attendance. Alabama-
Tennessee Natural Gas Company also reimburses each such director for travel
and out-of-pocket expenses incurred in connection with attending such
meetings. Each of the directors of the Company also serves as a director of
Alabama-Tennessee Natural Gas Company.
Alabama-Tennessee Natural Gas Company has a deferred compensation plan
pursuant to which its outside directors (directors who are not employees of
the Company or any subsidiary) may elect to defer receipt of all or a portion
of their monthly fees and meeting fees. Such election may be made during
certain periods of each year and the percentages specified in such election
may be changed prospectively once each year. Alabama-Tennessee Natural Gas
Company is to maintain certain bookkeeping accounts to which it is to credit
the amount of such fees which each outside director has elected to defer for
each year, together with interest. The balances in such accounts are payable
within 30 days after the earlier of the date specified by the outside director
and the date on which he ceases to be an outside director.
Pursuant to the Company's Restricted Shares Compensation Plan for Non-
Employee Directors (the "Restricted Shares Plan"), which was approved by the
Board of Directors and the shareholders of the Predecessor Corporation in
1991, the Company is to issue on July 10 of each year 600 shares of common
stock of the Company to each person who was serving as an outside director of
the Company on the day before the immediately preceding annual meeting of
stockholders and who had been elected to such position at least 11 months
prior to such date. The aggregate number of shares of common stock of the
Company that may be awarded pursuant to the Restricted Shares Plan may not
exceed 52,500; however, such number will be adjusted to give proper effect to
any change in the shares of common stock of the Company by reason of a
recapitalization, stock split, stock dividend or other change in
capitalization affecting the common stock. The Restricted Shares Plan provides
that the shares of common stock awarded to an outside director may not be
sold, assigned, transferred, pledged or otherwise encumbered until the
earliest of (i) the outside director's death, (ii) the outside director's
permanent and total disability or (iii) the date which is 12 months from the
date on which such shares were issued. The Board of Directors has approved an
amendment to the Restricted Shares Plan, subject to stockholder approval of
the 1997 Stock Incentive Plan described herein, to reduce the number of shares
of common stock to be issued annually to each outside director from 600 shares
to 400 shares. Such reduction will be effective as of the date of approval by
stockholders of the 1997 Stock Incentive Plan.
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PROPOSAL TO APPROVE THE SALE OF
THE COMPANY'S NATURAL GAS SUBSIDIARIES
INTRODUCTION; DESCRIPTION OF THE COMPANY'S NATURAL GAS BUSINESS
The Company is the sole owner of Alabama-Tennessee Natural Gas Company
("Alabama-Tennessee"), Tennessee River Intrastate Gas Company, Inc. ("TRIGAS")
and AlaTenn Energy Marketing Company, Inc. ("ATEMCO"), through which the
Company conducts its natural gas operations. Alabama-Tennessee is engaged in
the transportation of natural gas in the lower Tennessee Valley. Its main
pipeline extends from Selmer, Tennessee approximately 130 miles across
northern Mississippi and Alabama to Huntsville, Alabama. The pipeline system
includes approximately 288 miles of pipeline and two compressor stations.
TRIGAS owns 39 miles of pipeline in northern Alabama, through which it
transports natural gas to industrial customers. ATEMCO purchases natural gas
primarily on the spot market and sells that natural gas to customers on the
interstate and intrastate pipeline systems described above, as well as to off-
system customers, and provides related natural gas services. The wholly owned
subsidiaries described above are collectively referred to herein as the
"Natural Gas Subsidiaries" and the operations conducted by such subsidiaries
are collectively referred to herein as the "Natural Gas Business." For the
year ended December 31, 1996, the Natural Gas Business contributed
approximately 72% of the Company's consolidated operating income and at
December 31, 1996 represented approximately 36% of the Company's consolidated
net book value.
The Company has entered into the Agreement for the purpose of enhancing
stockholder value through (i) the disposition of the Natural Gas Business and
(ii) the utilization of the net proceeds from such sale to accelerate the
Company's strategic shift to medical products, as described herein. In
accordance with the terms and conditions of the Agreement, the Company is to
sell all of the shares of capital stock of each of the Natural Gas
Subsidiaries to Midcoast for approximately $39.4 million in cash, subject to
adjustment and certain contingent deferred payments as described herein. See
"Purchase Price; Use of Proceeds." The Board of Directors of the Company
believes that the Sale Transaction is in the best interests of the Company and
its stockholders. See "Background and Reasons for the Sale Transaction."
Accordingly, the Board of Directors has unanimously approved the Agreement and
the Sale Transaction and unanimously recommends that the stockholders vote for
approval of the Sale Transaction.
The following description of the Sale Transaction and the Agreement is
qualified in its entirety by reference to the full text of the Agreement,
which is included herewith as Appendix A. Stockholders are urged to read the
following description of the Sale Transaction and the Agreement, as well as
Appendix A, in its entirety.
INFORMATION CONCERNING MIDCOAST
Midcoast is a pipeline company primarily engaged in the construction,
acquisition, disposition and operation of pipelines for end-users. It owns or
operates 47 intrastate pipeline systems in Alabama, Alaska, Kansas, Louisiana,
Mississippi, New York, Oklahoma, Tennessee and Texas. Midcoast's principal
executive offices are located at Suite 2950, 1100 Louisiana Street, Houston,
Texas 77002. There are no affiliations among Midcoast and its affiliates, on
the one hand, and the Company and its affiliates, on the other hand.
PURCHASE PRICE; USE OF PROCEEDS
If the Sale Transaction is consummated, the Company will receive at the
closing sales proceeds of approximately $39.4 million in cash. See
"Description of the Agreement; Purchase Price; Payment." Such amount may be
subject to adjustment subsequent to the closing of the Sale Transaction,
depending upon the final determination of the consolidated net book value of
the Natural Gas Subsidiaries, as described herein. See "Description of the
Agreement; Purchase Price Adjustment." In addition, during the eight-year
period beginning in 1999 the Company may receive additional contingent annual
payments, which will be treated as deferred purchase price, not to exceed
$250,000 per year, the amount each year to be dependent upon revenues received
by Midcoast from certain gas transportation contracts.
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The Company presently intends to use the proceeds from the Sale Transaction
for (i) acquisitions of businesses or product lines in the medical products
industry; (ii) investment in the Company's existing medical products business;
(iii) acquisitions of businesses or product lines in related industries; (iv)
the repayment of all indebtedness under the Company's revolving credit
facility; and (v) general corporate purposes. While the Company has reviewed
and is continuing to review certain business opportunities, and has engaged in
preliminary discussions with prospective acquisition candidates, as described
elsewhere herein, the Company currently does not have any commitments with
respect to any such acquisitions. See "Certain Factors to be Considered;
Unascertainable Risks in Connection with Future Business Acquisitions."
Consistent with the Company's ongoing plan to expand its operations in the
medical products industry, as described herein, in November 1996 the Company
engaged Raymond James & Associates, Inc. ("Raymond James"), a nationally
recognized investment banking firm which is actively engaged in health care
financing and acquisition transactions, to act as financial advisor to the
Company in connection with possible acquisition transactions from time to time
in the medical products industry.
Pending an acquisition or business combination, the proceeds from the Sale
Transaction will be invested as management of the Company deems prudent, which
may include, but will not be limited to, certificates of deposit, money-market
accounts, bonds, United States Government or municipal securities or other
short-term instruments; provided, however, that the Company will attempt to
invest the proceeds in a manner which will not result in the Company being
deemed to be an investment company under the Investment Company Act of 1940
(the "Investment Company Act"). In this regard, while the foregoing
investments are intended to be temporary (i.e., pending use of the proceeds as
outlined above), any such investments deemed by the Commission not to be
temporary may result in the Company being required to register as an
investment company. See "Certain Factors to be Considered; Investment Company
Act Considerations."
BACKGROUND AND REASONS FOR THE SALE TRANSACTION
Beginning in early 1993, in light of competitive pressures in the natural
gas industry and because the Board of Directors believed that there were
opportunities in other industries that held greater profit potential than
comparable investments in the natural gas industry, the Company began to
explore and seek opportunities for growth in other industries.
Toward that goal, over the past three years, the Company has invested more
than $26 million in companies engaged in the design, development,
manufacturing, marketing and distribution of medical and related products and
in medical product lines. Through such acquisitions the Company has added
executives with considerable expertise and has gained significant experience
in the medical products industry. The first of these acquisitions took place
during 1994 when the Company acquired the business of Ryder International
Corporation, which is now operated under the name Atrion Medical Products,
Inc. ("Atrion Medical Products"), for approximately $14.3 million. Atrion
Medical Products is principally engaged in the design, development,
manufacture, marketing and distribution of proprietary products for the
medical products industry. In 1995, the Company purchased, for approximately
$500,000, exclusive worldwide marketing and manufacturing rights to a newly
developed line of products to be used in a patented ophthalmic surgical
procedure for treating excessive tearing of the eye. In May 1996, the Company
expanded its medical products segment further through the purchase of Halkey-
Roberts Corporation ("Halkey-Roberts"), a company which designs, develops,
manufactures and markets proprietary medical components and related products
used to control the flow of fluids and gases. The purchase price for Halkey-
Roberts was approximately $11.7 million.
In late August 1995, while the Company was in the process of making the
above-described acquisitions in the medical products industry, the Company
learned that the cities of Decatur and Huntsville, Alabama were considering a
proposal by Southern Natural Gas Company, a subsidiary of Sonat Inc., to build
a natural gas pipeline to serve such municipalities. At a meeting of the Board
of Directors on September 21, 1995, the directors discussed, among other
things, the impact that a loss of Decatur and Huntsville as customers could
have on the Company, the various steps which could be taken by the Company to
lessen such impact and the advantages and disadvantages of exploring a sale of
the pipeline system and of initiating discussions with prospective purchasers.
At such meeting, the Board of Directors authorized management to explore, on a
confidential basis, a sale of the Natural Gas Subsidiaries with prospective
purchasers.
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Thereafter, during the three-month period beginning in late September 1995
and consistent with such directive from the Board of Directors, management of
the Company identified five interstate pipeline companies and two distribution
companies, and later two gas marketing companies, which the Company viewed as
logical strategic buyers. Management communicated with those companies,
offering to furnish them with public information about the Natural Gas
Business and with confidentiality agreements for such parties to execute and
return to the Company if they were interested in discussing a possible
transaction. Such companies were at that time either not interested in
executing confidentiality agreements or were not interested in pursuing
discussions with the Company once they had received information from the
Company.
From late 1995 until April 1996 the Company had little contact with any
prospective buyers. In April and May 1996, the Company communicated with five
companies, which management viewed as possible buyers, engaged in various
aspects of the natural gas industry and one financial investor. Upon signing
confidentiality agreements, those prospective buyers were provided
confidential information regarding the Natural Gas Business. Preliminary
discussions with certain of those companies and with one interstate pipeline
company which had been provided with confidential information in the Fall of
1995 took place intermittently during the Summer of 1996. Based upon such
preliminary discussions, management concluded that it was unlikely that a
transaction could be consummated at that time on favorable terms with any of
such parties.
At various times during the period from September 1996 through January 1997,
the Company entered into confidentiality agreements with, and supplied
confidential information to, four additional companies engaged in various
aspects of the natural gas industry, including Midcoast, and had contacts with
several other prospective purchasers with which the Company had engaged in
earlier discussions. In January 1997, the Company had further discussions with
six of these prospective purchasers, requesting them to provide the Company
with indications of interest in purchasing the Natural Gas Subsidiaries. In
late January 1997 the Company received four nonbinding indications of interest
from prospective purchasers and on February 1, 1997 delivered to such
prospective purchasers a bid package which included (i) guidelines with
respect to the acquisition process; (ii) specific bidding procedures; and
(iii) a draft of a definitive acquisition agreement prepared by the Company
and its legal counsel, together with a request for substantive comments
thereon. The specific bidding procedures furnished by the Company included
instructions that, among other things, the proposed acquisition of the Natural
Gas Subsidiaries should be an all-cash transaction and that the bidder should
provide satisfactory evidence of its ability to fund the purchase price. The
Company requested the bidders to return their final proposals no later than
February 7, 1997. At its meeting on February 4-5, 1997, the Board of
Directors, which throughout the period from its meeting on September 21, 1995
up to that meeting had been provided periodic updates regarding management's
exploration of a sale of the Natural Gas Subsidiaries, was advised of the
status of the bidding process.
The proposals received on February 7, 1997 from the four prospective
purchasers reflected varying amounts of consideration to be paid and
conditions to the closing of a transaction. In addition, the prospective
purchasers responded in varying ways to the Company's request to provide
definitive comments on the documentation to the proposed transaction. During
the ten days following the receipt of the proposals, management of the Company
evaluated the bids received and discussed with each of such bidders the
proposed terms and conditions of a sale of the Natural Gas Subsidiaries. Based
upon the bids received and such discussions, management believed that a
definitive agreement with Midcoast could be concluded on a timely basis on
terms favorable to the Company and its stockholders.
At a meeting of the Board of Directors of the Company on February 17, 1997,
management updated the Board of Directors with respect to the possible sale of
the Natural Gas Subsidiaries, including a (i) review of the bidding process,
(ii) a discussion of possible reasons why certain parties which had earlier
indicated an interest had declined to bid, (iii) a review and comparison of
the bids received and (iv) a review of the discussions which had taken place
with each of the bidders. At that meeting the Board of Directors reviewed the
proposed transaction structure and approved management's continuation of
discussions with Midcoast concerning a possible transaction.
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During the period from February 18, 1997 until the Agreement was executed on
March 19, 1997, the parties and their counsel discussed certain terms and
conditions of the proposed Agreement and management of Midcoast engaged in the
due diligence process and discussed with management of the Company the results
of such process. At its meetings on March 12 and 18, 1997, the Board of
Directors received reports from management regarding the status of the
proposed Sale Transaction. The Board of Directors also received presentations
from, and carefully reviewed the terms of the Agreement with, the Company's
management and legal counsel, and Raymond James rendered an oral opinion on
the fairness to the Company of the consideration to be received. See "Opinion
of Raymond James." Prior to and at such meetings, the directors of the Company
had the opportunity to review drafts of the Agreement and consulted with
management and the Company's legal advisors with respect to specific terms of
the Agreement. At its meeting on March 18, the Board of Directors unanimously
approved the Agreement, authorized its execution, approved the Sale
Transaction and recommended its approval to the Company's stockholders. The
Agreement was executed and delivered, and the Sale Transaction was publicly
announced, on March 19, 1997.
In reaching its decision to approve the Agreement and the Sale Transaction,
the Board of Directors of the Company consulted with the Company's management
and legal advisors, and considered a number of factors, including, but not
limited to, the following:
1. Information concerning the historical financial condition, results of
operations, business and prospects of the Natural Gas Business, including the
belief of the Board of Directors that increasing competitive forces exist in
the markets serviced by the Natural Gas Subsidiaries. Such information, which
is described in more detail in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," incorporated by reference into
this Proxy Statement and included in the Company's 1996 Annual Report which
accompanies this Proxy Statement, included the following:
(i) Plans by Southern Natural Gas Company to construct a new 110-mile
pipeline from Tuscaloosa, Alabama to northern Alabama to serve the cities
of Huntsville and Decatur, Alabama, two of the Company's largest municipal
customers, beginning in late 1997 or early 1998, and the execution by
Southern Natural Gas Company of 20-year contracts with Huntsville and
Decatur to provide substantially all of their natural gas requirements
commencing at the time such pipeline is completed;
(ii) The expiration on August 31, 1997 and December 31, 1997 of two
contracts with two industrial customers which contributed approximately
$730,000 to the Company's net income for the year ended December 31,
1996;
(iii) Discounting of transportation rates for the transportation of
natural gas to certain customers which were contemplating bypassing the
Company's pipeline, which discounting is being phased in over the period
1996 to 2001;
(iv) A significant reduction, expected to begin in 2000, in the
transportation rate for the transportation of natural gas to a large
industrial customer on the Company's intrastate pipeline;
(v) Plans by one of the Company's smaller municipal customers to build a
pipeline in order to connect directly to an upstream pipeline and bypass
the Company's pipeline system;
(vi) The status of discussions with several municipalities which had
expressed interest in contracting with Alabama-Tennessee for firm
transportation service; and
(vii) The potential impact of the foregoing factors on the profitability
of the Company's natural gas marketing business.
2. Industry conditions relating to the Natural Gas Business, as well as the
capital needs of the Natural Gas Business, both on an historical and a
prospective basis, including the recognition that any significant expansion,
if the opportunity were available, in the Natural Gas Business would require
substantial capital investment by the Company.
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3. The belief that the strategic and competitive position of the Company
has been and would continue to be significantly enhanced by the Company's
expansion into the medical products industry for several reasons, including,
but not limited to, the following: (i) the existence in the medical products
industry of an abundance of smaller companies with greater opportunity for
growth through business combinations; (ii) the belief that businesses in such
industry typically achieve higher margins than businesses in certain other
industries; (iii) the general growth in the various markets for products and
services in such industry; (iv) the belief that companies located in the
United States are the world's leaders in such industry; and (v) the belief
that the Company will be able to create synergies with its existing businesses
in such industry by utilizing the experienced management teams of its existing
medical products companies, as well as the manufacturing capacity and product
development capabilities of such businesses.
4. Management's recommendation of the Sale Transaction and its assessment
that the Sale Transaction is the best available means to achieve the Company's
strategic objectives.
5. The proposed structure and terms of the Sale Transaction as reflected in
the Agreement, including the ability of the Company to terminate the Agreement
upon the occurrence or non-occurrence of certain events, such as the receipt
by the Company of an Acquisition Proposal (as described below).
6. The opinion of Raymond James to the Board of Directors, that, subject to
the matters set forth therein, the consideration to be received by the Company
pursuant to the Sale Transaction is fair, from a financial point of view, to
the Company.
7. The ability of Midcoast to obtain the necessary financing in order to
consummate the Sale Transaction and the fact that the consummation of the Sale
Transaction is not conditioned on the availability of financing to Midcoast.
8. The flexibility which the Sale Transaction is expected to afford the
Company to pursue business opportunities outside the natural gas industry,
including the ability of the Company to utilize the net proceeds from the Sale
Transaction for, among other things, the continued expansion of its medical
products business.
9. The fact that management had contact with more than 20 prospective
purchasers during the period September 21, 1995 through March 17, 1997 and the
directors' and management's analyses and judgment regarding the responses
received and the terms and conditions of the definitive proposals received
from four of those prospective purchasers.
10. The possible impact of the Sale Transaction on the stockholders of the
Company and on the market price of the Company's common stock.
11. The belief of the Board of Directors that, based on the foregoing
reasons, the Sale Transaction is in the best interests of the Company and its
stockholders.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors of the Company is not intended to be
exhaustive but is believed to include all material factors considered by the
Board of Directors. In addition, in reaching the determination to approve and
recommend the Sale Transaction, in view of the wide variety of factors
considered in connection with its evaluation, the Board of Directors did not
find it practicable to quantify or otherwise attempt to assign relative
weights to the factors discussed above. Individual directors may have given
differing weights to different factors. See "Certain Factors to be Considered;
Safe Harbor Disclosure: Forward Looking Statements and Associated Risks."
OPINION OF RAYMOND JAMES
Pursuant to an engagement letter dated November 5, 1996, the Company
retained Raymond James to provide various financial advisory services
including, if requested, a fairness opinion to the Board of Directors
concerning the disposition of the Natural Gas Subsidiaries. In mid-February
1997, the Company requested
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Raymond James to render such an opinion with respect to the Sale Transaction.
On March 12, 1997 Raymond James rendered its oral opinion that, as of the date
of such opinion, and subject to the assumptions, factors and limitations
described to the Board of Directors and set forth in its written opinion
summarized below, the consideration to be received by the Company for the
Natural Gas Subsidiaries is fair, from a financial point of view, to the
Company. Raymond James reaffirmed such opinion orally at the meeting of the
Board of Directors on March 18, 1997, and delivered its written opinion on
March 19, 1997. The opinion of Raymond James is directed only to the fairness
of the financial terms of the Sale Transaction and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on the proposed Sale Transaction.
The full text of the written opinion of Raymond James dated March 19, 1997,
which sets forth the assumptions made, factors considered and limitations on
the review undertaken by Raymond James is included as Appendix B to this Proxy
Statement. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ RAYMOND JAMES'
OPINION CAREFULLY IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF RAYMOND JAMES
SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
Raymond James did not participate in any manner in the negotiations between
the Company and Midcoast pursuant to which the consideration payable to the
Company was determined. The final determination of the form and amount of
consideration was made by the Company's Board of Directors pursuant to arms'-
length negotiations with Midcoast. Raymond James made a presentation to the
Board of Directors on March 12, 1997 with respect to the Sale Transaction on
valuation and fairness issues and discussed with the Board of Directors the
form of opinion that it anticipated being in a position to furnish at the
point that the Board of Directors was prepared to approve the Agreement. The
opinion was to the effect that, as of the date thereof, based upon factors
described in the opinion, the consideration to be paid to the Company pursuant
to the Agreement is fair, from a financial point of view, to the Company.
Raymond James delivered its oral opinion on March 12, 1997, which was also
reaffirmed orally at the March 18, 1997 meeting of the Board of Directors and
delivered in writing on March 19, 1997. Except for the foregoing presentations
to the Board of Directors and deliveries of its opinion, Raymond James did not
act as financial advisor to the Company with respect to the proposed Sale
Transaction.
In rendering its opinion, Raymond James reviewed and analyzed (i) the
financial terms and conditions of the Agreement; (ii) publicly available
information regarding the Company and the Natural Gas Subsidiaries which
Raymond James believed to be relevant; (iii) financial and operating
information with respect to the business, operations and prospects of the
Company and the Natural Gas Subsidiaries furnished by management to Raymond
James; (iv) a comparison of certain financial and stock market information for
the Company with similar information for certain selected companies in the
natural gas industry whose securities are publicly traded; (v) a review of the
financial terms of certain recent business combinations, including one such
combination which Raymond James deemed comparable in part; and (vi) a
discounted cash flow analysis of certain projections provided by management to
Raymond James subject to certain pro forma adjustments. In addition, Raymond
James had discussions with various members of senior management regarding
historical and current operations, financial condition and prospects, and
other aspects related to the Sale Transaction and undertook such other
studies, analyses and investigations and considered such other factors as
Raymond James deemed necessary or appropriate for the purpose of rendering its
opinion.
In connection with its review, Raymond James assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without independent verification. Raymond James
further relied upon the assurances of management of the Company that
management was not aware of any facts as to the respective companies that
would make such information inaccurate or misleading. Raymond James also
relied upon the advice and statements of management of the Company concerning
the business, operations and strategic benefits and implications of the Sale
Transaction, including certain pro forma historical and projected financial
information provided to Raymond James. With respect to the projected financial
information provided to Raymond James by management of the Company, Raymond
James assumed that such
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projections were reasonably prepared on bases reflecting the best currently
available estimates and judgments as to the future financial performance of
the Company (including pro forma adjustments for the Natural Gas
Subsidiaries), and that the Company will perform in accordance with such
projections. In arriving at its opinion, Raymond James did not conduct
physical inspections of the properties and facilities of the Company,
including the Natural Gas Subsidiaries, and did not make or obtain any
evaluation or appraisals of the assets or liabilities of the Company. Raymond
James' written opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, March 19, 1997.
In connection with its presentation to the Board of Directors with respect
to its oral opinions delivered on March 12 and March 18, 1997, and its written
opinion delivered on March 19, 1997, Raymond James performed certain 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 analyses and application of those methods to
the particular circumstances. Furthermore, in arriving at its fairness
opinion, Raymond James 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, Raymond
James believes that its analyses must be considered as a whole and that
considering any portions of such analyses and of the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the opinion. In its analyses,
Raymond James made numerous assumptions with respect to natural gas industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of the Company. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive
of future results or values (including as to the future market prices for the
common stock of the Company), which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the price at
which businesses actually may be sold.
For purposes of the following analyses, Raymond James relied upon historical
financial statements, financial projections and related assumptions provided
by management of the Company. The historical statements were pro forma
adjusted to reflect certain adjustments based on information provided to
Raymond James by management of the Company relating to the termination of
certain natural gas service agreements. Using these pro forma historical
financial statements, financial projections and related assumptions, Raymond
James created two financial statement scenarios which it used in its analyses.
The first scenario, the No Earn-Out Case ("Case 1"), assumed that the total
consideration to be paid to the Company for the sale of the Natural Gas
Subsidiaries would be $39,373,000 and that no contingent deferred
consideration would be paid. Case 1 further assumed no renewal or extension of
certain material contracts. The second scenario, the Earn-Out Case ("Case 2"),
assumed that the total consideration to be paid to the Company for the sale of
the Natural Gas Subsidiaries would be $39,373,000 plus the present value of
the maximum amount of contingent deferred consideration using an 8% per annum
discount rate. Case 2 further assumed the renewal or extension of certain
material contracts at an annual rate approximately equal to the current annual
rate paid to the Company.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, Raymond James compared selected financial data of the
Natural Gas Subsidiaries with similar data of selected publicly traded
companies engaged in businesses considered by Raymond James to be comparable
to the Natural Gas Subsidiaries in whole or in part. Specifically, Raymond
James included in its review certain companies in the natural gas pipeline
business including (i) Chesapeake Utilities Corp., (ii) Delta Natural Gas
Company, Inc., (iii) EnergyNorth, Inc., (iv) MidCoast, (v) Mobile Gas Service
Corporation, (vi) North Carolina Natural Gas Corporation, and (vii) NUI
Corporation (collectively, the "Comparable Universe").
Based on a trailing twelve month ("TTM") performance, Raymond James compared
ratios for the Comparable Universe, which included Total Enterprise Value
(market equity value plus long-term debt minus cash and cash equivalents)
("TEV") as a multiple of (i) earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and (ii) earnings before interest and taxes ("EBIT").
Raymond James also compared the Equity Purchase Price ("EPP") as a multiple of
(i) book value, (ii) tangible book value, (iii) TTM net income, (iv) 1997
projected net income and (v) 1998 projected net income. Both 1997 and 1998
projected
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net income for the Comparable Universe were based on the mean of publicly-
available earnings estimates made by research analysts as provided by the
First Call Research Network. Both 1997 and 1998 projected net income for the
Natural Gas Subsidiaries were based on financial projections provided to
Raymond James by management of the Company.
On a TTM basis, the TEV/EBITDA multiple for the Comparable Universe ranged
from 3.98x to 9.60x. The Sale Transaction results in a TEV/EBITDA multiple of
8.05x for Case 1 and 6.55x for Case 2.
On a TTM basis, the TEV/EBIT multiple for the Comparable Universe ranged
from 5.10x to 12.11x. The Sale Transaction results in a TEV/EBIT multiple of
9.29x for Case 1 and 7.32x for Case 2.
The price/book value multiple for the Comparable Universe ranged from 1.30x
to 3.19x. The Sale Transaction results in a price/book value multiple of 2.74x
for Case 1 and 2.85x for Case 2. The price/tangible book value multiple for
the Comparable Universe ranged from 2.10x to 3.29x. The Sale Transaction
results in a price/tangible book value multiple of 2.74x for Case 1 and 2.85x
for Case 2.
The EPP/TTM net income multiple for the Comparable Universe ranged from 9.7x
to 17.9x. The Sale Transaction results in an EPP/TTM net income multiple of
12.9x for Case 1 and 10.5x for Case 2.
The EPP/1997 projected net income (for the year ending December 31, 1997)
multiple for the Comparable Universe ranged from 11.7x to 12.6x. The Sale
Transaction results in an EPP/1997 projected net income of 10.8x for Case 1
and 9.1x for Case 2.
The EPP/1998 projected net income (for the year ending December 31, 1998)
multiple for the Comparable Universe ranged from 11.1x to 12.4x. The Sale
Transaction results in an EPP/1998 projected net income multiple of 20.2x for
Case 1 and 14.5x for Case 2.
Because of the limited number of independent comparable companies and the
inherent differences between the businesses, operations and prospects of the
Natural Gas Subsidiaries and the businesses, operations and prospects of the
companies included in the Comparable Universe, Raymond James believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly also made qualitative judgments
concerning differences between the financial and operating characteristics of
the Natural Gas Subsidiaries and the companies included in the Comparable
Universe.
Analysis of Comparable Transaction. Using publicly available information,
Raymond James compared the multiples of selected financial data for the
Natural Gas Subsidiaries with those of a certain selected precedent
transaction, which Raymond James deemed comparable in part to the Sale
Transaction, which transaction was the acquisition of Cornerstone Natural Gas,
Inc. by The El Paso Natural Gas Company (the "Cornerstone Acquisition").
Raymond James compared ratios for the Natural Gas Subsidiaries, which included
TEV as a multiple of projected EBITDA values to ratios for the Cornerstone
Acquisition, which included TEV as a multiple of projected earnings before
interest, taxes, and depreciation ("EBITD") values. A comparison of TTM
earnings multiples was not used primarily because the TTM earnings multiple
for Cornerstone Natural Gas, Inc. did not reflect the publicly disclosed
expectation of such company's management for such company's future income-
generating potential.
The mean TEV/projected Year 1 (1996) EBITD multiple for the Cornerstone
Acquisition was 6.14x. The Sale Transaction results in a TEV/projected Year 1
(1997) EBITDA multiple of 6.19x for Case 1 and 5.30x for Case 2.
The mean TEV/projected Year 2 (1997) EBITD multiple for the Cornerstone
Acquisition was 4.72x. The Sale Transaction results in a TEV/projected Year 2
(1998) EBITDA multiple of 10.65x for Case 1 and 8.11x for Case 2.
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The mean TEV/projected Year 3 (1998) EBITD multiple for the Cornerstone
Acquisition was 4.64x. The Sale Transaction results in a TEV/projected Year 3
(1999) EBITDA multiple of 12.60x for Case 1 and 9.15x for Case 2.
Because the reasons for, and the circumstances surrounding, the precedent
transaction were specific to such transaction and because of the inherent
differences between the businesses, operations and prospects of the Natural
Gas Subsidiaries and the businesses, operations and prospects of the selected
acquired company analyzed, Raymond James believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
analysis and, accordingly, also made qualitative judgments concerning
differences between the characteristics of such transaction and the Sale
Transaction that would affect the acquisition values of the Natural Gas
Subsidiaries and such acquired companies. Because there was only one such
transaction, the relative weight given to the analysis of such transaction by
Raymond James was not as great as it might have been had there been several
comparable transactions.
Discounted Cash Flow Analysis. Raymond James performed a discounted cash
flow analysis of the Natural Gas Subsidiaries. The value of the Natural Gas
Subsidiaries was estimated as the sum of (i) the estimated present value of
the Natural Gas Subsidiaries' projected free cash flow for the period 1997 to
1999, plus the estimated present value of the product of (a) the Natural Gas
Subsidiaries' projected EBITDA for the year 1999 multiplied by (b) numbers
representing various terminal or exit multiples for the Natural Gas
Subsidiaries, based upon certain operating and financial assumptions,
projections and other information provided by the Company's management. For
purposes of such analysis, Raymond James utilized discount rates ranging from
7% to 9% and applied terminal value multiples ranging from 5.0x to 9.0x to the
Natural Gas Subsidiaries' projected EBITDA for the year 1999. Raymond James
noted that the selection of an appropriate discount rate is an inherently
subjective process and is affected by such factors as the Natural Gas
Subsidiaries' cost of capital, the Natural Gas Subsidiaries' excess capital,
the uncertainty associated with achieving the projections provided by the
Company's management and transaction risks generally. The result of the
foregoing analysis was that the consideration to be paid to the Company is
above the range of values for the Natural Gas Subsidiaries for Case 1 and
within the range of values for the Natural Gas Subsidiaries for Case 2.
Raymond James noted that discounted cash flow analysis is a widely used
valuation methodology, but that it relies on numerous assumptions regarding
the future performance of a company and the future economic environment,
including earnings growth rates, free cash flows, terminal values and discount
rates, all of which are inherently uncertain because they are predicated upon
future events and circumstances.
Raymond James is a nationally recognized investment banking firm and, as a
customary part of its investment banking activities, is regularly engaged in
the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwriting, restructurings, private placements,
and valuations for corporate and other purposes. The Board of Directors of the
Company selected Raymond James to provide the services herein described
because of its reputation and expertise, among other factors.
The Company engaged Raymond James in connection with the identification and
consummation of acquisitions in the medical products industry, and, if
requested, to render its opinion to the Company's Board of Directors with
respect to the fairness of a proposed sale of the Natural Gas Subsidiaries and
not to represent specifically the interests of affiliated or non-affiliated
stockholders of the Company. As compensation for rendering its fairness
opinion, Raymond James received a fee of $200,000 upon delivery of the written
opinion. The Company has also agreed to reimburse Raymond James for reasonable
expenses incurred by Raymond James (including the reasonable fees and expenses
of its counsel) and to indemnify Raymond James against certain liabilities,
including liabilities under the federal securities laws. Raymond James has
also been engaged by, and is acting as financial advisor to, the Company in
connection with certain other possible transactions, for which Raymond James
will receive a customary investment banking fee.
As described above, the opinion of Raymond James was only one of the factors
taken into consideration by the Board of Directors of the Company in making
its determination to approve and recommend the Sale Transaction. Consequently,
the opinion of Raymond James and its analyses described above should not be
taken as determinative of the Board of Directors' or management's opinion with
respect to the value of the Natural Gas Business.
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EFFECT OF THE SALE TRANSACTION ON THE COMPANY'S STOCKHOLDERS
If the Sale Transaction is consummated, the stockholders of the Company will
retain their equity interest in the Company and the Sale Transaction will not
result in any changes in the rights of the Company's stockholders. The common
stock of the Company, which is listed for trading on The Nasdaq Stock Market,
will continue to be traded on The Nasdaq Stock Market without interruption
under the same symbol ("ATRI"). On March 18, 1997, the last trading day
immediately preceding the public announcement of the Sale Transaction, the
high and low sales prices for the common stock of the Company, as reported by
The Nasdaq Stock Market, were $14.875 and $14.375, respectively. For a
description of the Company's dividend policy, see information regarding the
Company's market price and dividends, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which are
incorporated by reference into this Proxy Statement and included in the
Company's 1996 Annual Report which accompanies this Proxy Statement.
As described above, the Company intends to utilize the net proceeds from the
Sale Transaction for certain acquisitions, among other purposes. The Company's
Board of Directors has the authority to consummate certain transactions
without submitting a proposal to the stockholders for their consideration. In
some instances, however, a proposed participation in a business opportunity
will be required by law to be submitted to the stockholders for their
consideration. In such event, a stockholder vote will be solicited in
accordance with the applicable regulations of the Commission. See "Certain
Factors to be Considered; Unascertainable Risks in Connection with Future
Business Acquisitions."
CERTAIN FACTORS TO BE CONSIDERED
In addition to the other information concerning the Sale Transaction set
forth herein, stockholders of the Company should consider the following in
determining whether or not to vote in favor of the Sale Transaction.
Prospects for the Natural Gas Business if the Sale Transaction is not
Consummated. In the event that the Sale Transaction is not consummated and the
Company retains its Natural Gas Business, stockholders should consider the
factors which might adversely affect the financial condition and results of
operations of the Natural Gas Subsidiaries. A number of such factors are
summarized above in "Background and Reasons for the Sale Transaction" and are
described in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," incorporated by reference into this
Proxy Statement and included in the Company's 1996 Annual Report which
accompanies this Proxy Statement. As set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company has
taken certain steps, and anticipates taking additional steps if the Sale
Transaction is not consummated, to mitigate the adverse impact of certain of
those factors. Several municipalities which are not currently customers of
Alabama-Tennessee have expressed interest in contracting with Alabama-
Tennessee for firm transportation service, and Alabama-Tennessee has had
discussions with those municipalities and made proposals to them to provide
such service. Although service to those municipalities probably would not
begin until late 1998 or 1999, if Alabama-Tennessee could obtain contracts
with those municipalities at the rates and for the volumes currently being
discussed and could achieve certain operating cost reductions or increases in
contract demand from other customers, the Company currently believes that the
adverse impact of the loss of the cities of Decatur and Huntsville, Alabama as
firm transportation customers, as previously estimated by the Company, could
be significantly reduced or eliminated over the longer term. The Company also
believes that if Alabama-Tennessee does not lose the cities of Decatur and
Huntsville as firm transportation customers then Alabama-Tennessee would have
to make a substantial capital investment to expand its pipeline systems in
order to have the capacity to serve the municipalities referred to above along
with the cities of Decatur and Huntsville. There is no assurance that Alabama-
Tennessee will obtain contracts with the several municipalities referred to
above for firm transportation services or, if contracts are entered into with
those municipalities, that they will be at the rates or for the volumes
currently being discussed. See "Certain Factors to be Considered; Safe Harbor
Disclosure: Forward-Looking Statements and Associated Risks."
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Payment by the Company to Midcoast in Certain Circumstances. In the event
that the Sale Transaction is not consummated because the Company terminates
the Agreement upon the receipt by the Board of Directors of the Company of an
Acquisition Proposal, as described herein, or because of the failure of the
stockholders of the Company to approve the Sale Transaction at a meeting of
the Company's stockholders held to consider such approval, then the Company is
obligated to pay $2,000,000 to Midcoast. See "Description of the Agreement;
Termination."
Uncertainty of Contingent Deferred Payments. The deferred purchase price to
be paid to the Company pursuant to the Agreement will be entirely contingent
upon the continuation of certain firm gas transportation services by one of
the Natural Gas Subsidiaries. The continuation of such services will be beyond
the control of the Company and, accordingly, there can be no assurance that
the Company will receive any such deferred payments.
Unascertainable Risks in Connection with Future Business Acquisitions.
Although the Company intends to acquire businesses or product lines in the
medical products industry, and has identified certain companies in that industry
with which the Company may engage in discussions, the Company has no commitments
for any such acquisition and, accordingly, stockholders have no basis on which
to evaluate the possible merits or risks of a target business's operations. The
process of evaluating prospective acquisition candidates, engaging in
discussions and negotiations, executing definitive documentation and
consummating a transaction can be quite lengthy, and there can be no assurance
that the Company will be able to acquire suitable businesses or product lines in
the medical products industry or that the net proceeds from the Sale Transaction
will be utilized in connection with any such acquisition within any definite
period of time. Moreover, although the net proceeds to be received by the
Company are substantial, the number of acquisitions which can be effected with
such funds is limited, and it may be necessary for the Company to obtain
additional funds by incurring from time to time additional short-term or long-
term indebtedness or by issuing, in public or private transactions, equity or
debt securities. The availability and terms of such financing will depend on
market and other conditions There can be no assurance that additional financing
will be available on terms acceptable to the Company, nor can there be any
assurance that existing stockholders of the Company will not experience a
dilution in the book value of their common stock as the result of the issuance
by the Company of additional equity.
Although management of the Company will endeavor to evaluate the risks
inherent in any particular target business, there can be no assurance that the
Company will properly ascertain all such risks. Management of the Company will
have a great deal of flexibility in identifying and selecting prospective
acquisition candidates. In many cases, stockholder approval will not be
required to effect such transactions. The consideration to be paid by the
Company in connection with any such transaction will be determined by the
Board of Directors of the Company. Therefore, the Board of Directors will have
significant discretion in determining whether a target business is suitable
for a proposed transaction. Furthermore, the structure of a transaction with a
target business, which may take the form of a merger, exchange of capital
stock or stock or asset acquisition, cannot be determined at the present time
because no agreements, arrangements or understandings currently exist with
respect to any such proposed transaction.
Investment Company Act Considerations. The regulatory scope of the
Investment Company Act, which was enacted principally for the purpose of
regulating vehicles for pooled investments in securities, extends generally to
companies engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities. The Investment Company Act may, however,
also be deemed to be applicable to a company which does not intend to be
characterized as an investment company but which, nevertheless, engages in
activities which may be deemed to be within the definitional scope of certain
provisions of the Investment Company Act. The Company believes that its
anticipated principal activities following the Sale Transaction will involve
the acquisition of control of operating companies and, therefore, will not
subject the Company to regulation under the Investment Company Act.
Nevertheless, there can be no assurance that the Company will not be deemed to
be an investment company, particularly during the period prior to an
acquisition transaction. In the event the Company is deemed to be an
investment company, the Company may become subject to certain restrictions
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relating to the Company's activities, including restrictions on the nature of
its investments and the issuance of securities. In addition, the Investment
Company Act imposes certain requirements on companies deemed to be within its
regulatory scope, including registration as an investment company, adoption of
a specific form of corporate structure and compliance with certain reporting,
recordkeeping, voting, proxy, disclosure and other rules and regulations. In
the event of the characterization of the Company as an investment company, the
failure by the Company to satisfy regulatory requirements, whether on a timely
basis or at all, could have a material adverse effect on the Company.
Interests of Certain Persons. For a description of the interest of certain
officers and employees of the Company, see "Interests of Certain Persons in
the Sale Transaction."
Potential Indemnification Liabilities. Pursuant to the Agreement each of the
Company and Midcoast has agreed to indemnify the other party from and after
the consummation of the Sale Transaction with respect to certain debts,
liabilities and obligations. See "Description of the Agreement;
Indemnification."
Safe Harbor Disclosure: Forward-Looking Statements and Associated Risks. This
Proxy Statement contains forward-looking statements with respect to, among other
things, plans, future events and future performance of the Company. The factors
discussed in this section are important factors (but not necessarily all of the
important factors) which could cause actual results or future events to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company. Where any such forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking statement,
the Company cautions that, while such assumptions or bases are believed to be
reasonable and are made in good faith, assumed facts or bases almost always vary
from actual results, and the differences between assumed facts or bases and
actual results can be material, depending upon the circumstances. Where, in any
forward-looking statement, the Company expresses an expectation or belief as to
plans or future results or events, such expectation or belief is expressed in
good faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will result or be achieved
or accomplished. Words such as "anticipates," "believes," "intends," "expects,"
"estimated," variations of such words and similar expressions are intended to
identify such forward-looking statements. The portions of this Proxy Statement
which contain forward-looking statements generally include cross references to
this section. See also the information incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, and
included in the Company's 1996 Annual Report which accompanies this Proxy
Statement, under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DESCRIPTION OF THE AGREEMENT
The following is a description of the material provisions of the Agreement.
Such description is qualified in its entirety by reference to the complete
text of the Agreement, a copy of which is included herewith as Appendix A.
Capitalized terms which are not otherwise defined in this description or
elsewhere in this Proxy Statement have the meaning set forth in the Agreement.
Purchased Assets. Subject to the terms and conditions of the Agreement,
Midcoast is to purchase from the Company all of the shares of capital stock of
the Natural Gas Subsidiaries. For a description of the principal assets owned
and operated by the Natural Gas Subsidiaries, see "Introduction; Description
of the Company's Natural Gas Business."
Purchase Price; Payment. The purchase price for the Natural Gas Subsidiaries
is $39,373,000, adjusted as described herein, plus the contingent deferred
purchase price described above. See "Use of Proceeds." At the time of the
execution of the Agreement, Midcoast deposited $2,000,000 as an escrow deposit
with Mercantile Bank, N.A., as escrow agent. At the closing of the sale of the
Natural Gas Subsidiaries (the "Closing"), the escrow deposit is to be paid to
the Company and Midcoast is to pay the balance of the purchase price to the
Company by wire transfer. In the event that Midcoast terminates the Agreement
because (i) certain conditions to Midcoast's obligations to close have not
been satisfied or (ii) the Closing does not occur by July 3, 1997, then
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the escrow deposit is to be returned to Midcoast. In addition, if the Company
terminates the Agreement because of another Acquisition Proposal (as described
below) or if the stockholders of the Company do not approve the Sale
Transaction at a meeting of stockholders held to consider such approval, or if
Midcoast terminates the Agreement because of certain casualty losses to the
properties of the Natural Gas Subsidiaries which occur prior to the Closing,
the escrow deposit is to be returned to Midcoast. In the event that the
Company terminates the Agreement because (x) certain conditions to the
Company's obligations to close have not been satisfied or (y) the Closing does
not occur by July 3, 1997 and certain conditions to the Company's obligations
to close have not been satisfied, then the escrow deposit is to be paid to the
Company. Notwithstanding the foregoing, any escrowed funds in excess of
$2,000,000 are to remain the property of Midcoast.
Purchase Price Adjustment. Within 45 days after the Closing, the Company is
to prepare and deliver to Midcoast a draft consolidated balance sheet for the
Natural Gas Subsidiaries as of the Closing. Midcoast is to notify the Company
of any objections it may have to such balance sheet, and the Company and
Midcoast are to use reasonable efforts to resolve any such objections. Any
objections which remain unresolved are to be resolved by an accounting firm
mutually agreed upon between the Company and Midcoast. If, after the
resolution of such objections, the consolidated net book value of the Natural
Gas Subsidiaries as of the Closing exceeds $14,436,000, Midcoast is the pay
the Company the amount of such excess. If the consolidated net book value of
the Natural Gas Subsidiaries as of the Closing is less than such amount, then
the Company is to pay to Midcoast the amount of such deficiency. In addition,
the purchase price is also to be adjusted downward by (i) the amount of any
casualty loss to physical assets of the Natural Gas Subsidiaries suffered
through the date of the Closing, as to which the insurance proceeds or other
rights of the Company are not assignable to Midcoast; (ii) any excess of (A)
the amount of liabilities reflected on the pro forma balance sheet of the
Natural Gas Subsidiaries which are relieved and taken into income by the
Company for the period from December 31, 1996 to the Closing, reduced by the
federal and state income tax liability associated therewith, over (B)
$150,000; and (iii) the product of $13,000 and the number of days, if any,
which elapses from the later of (x) May 19, 1997 and (y) the first date on
which certain of the conditions to the obligations of the Company to close
have been satisfied, to the date of the Closing.
Closing. The Agreement provides that the Closing is to take place on the
third business day following the date on which certain conditions have been
satisfied, or on such other date as the parties mutually agree.
Representations and Warranties. The Agreement contains various customary
representations and warranties of the Company and Midcoast. These include,
among others, representations and warranties by the Company and Midcoast as to
organization and existence, corporate authority, approvals and consents,
absence of any violation of material agreements, absence of any obligation to
brokers, finders or investment bankers and, with respect to Midcoast, its
financial ability to consummate the Sale Transaction and its purchase of the
capital stock of the Natural Gas Subsidiaries for investment purposes only. In
addition, the Company has also made certain representations and warranties
concerning the Natural Gas Subsidiaries, including, among others, organization
and existence, corporate authority, capitalization, absence of any violation
of material agreements, absence of any undisclosed liabilities, taxes, title
to property, certain contracts, leases, compliance with applicable law,
insurance, litigation, employees and employee benefits, patents, copyrights
and trademarks, environmental and other regulatory matters, financial
statements, changes to the Natural Gas Business, customer curtailments and gas
imbalances. It is a condition precedent to each party's obligations to close
the Sale Transaction that the representations and warranties of the other
party to the Agreement be true and correct in all material respects when made
and as of the date of the Closing.
Covenants of the Parties. From the date of the Agreement through the
Closing, the Company has agreed to cause each of the Natural Gas Subsidiaries
to: (i) carry on its business in the ordinary course; (ii) maintain its assets
in as good working order and condition as at the date of the Agreement,
ordinary wear and tear excepted; (iii) perform all of its obligations in all
material respects under agreements relating to or respecting its assets,
properties and rights; (iv) use its good faith reasonable efforts to keep in
full force and effect present insurance coverage; (v) use its good faith
reasonable efforts (consistent with its ordinary course of business) to
maintain
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and preserve its business intact, retain its present employees and maintain
its relationships with customers and others having business relations with it;
(vi) use its good faith reasonable efforts to maintain all licenses and
certifications necessary to conduct its business; and (vii) respond to any
reasonable inquiry by Midcoast concerning the conduct and operation of its
business.
The Company has also agreed that it will cause each of the Natural Gas
Subsidiaries to not, without the prior written consent of Midcoast (i) enter
into any material contract or commitment or incur or agree to incur any
material liability or indebtedness except in the ordinary course of business;
(ii) increase in any material respect the compensation payable to any salaried
employee or agent of such Natural Gas Subsidiary; (iii) purchase, sell,
assign, lease or otherwise acquire, transfer or dispose of any material
property or equipment, except in the ordinary course of business; (iv) enter
into or agree to enter into any material agreements or arrangements which are
outside the ordinary course of business which grant any rights to purchase any
of its material assets; (v) commit to, authorize or engage in any material
capital projects or capital expenditures relating to its business or its
assets; (vi) merge or consolidate into or with any other corporation or other
entity; (vii) engage in any business other than the Natural Gas Business;
(viii) enter into any transaction other than in the ordinary course of
business; or (ix) commit or agree to do any of the foregoing.
Audited Financial Statements. The Agreement provides that prior to the
Closing an accountant selected by Midcoast is to prepare and deliver to
Midcoast, at Midcoast's expense, audited balance sheets and statements of
income and expense of the Natural Gas Subsidiaries for the years ended
December 31, 1995 and December 31, 1996.
Certain Restructurings. The Agreement provides that certain benefit plans
are to be restructured as follows: (i) the Atrion Corporation Thrift Plan is
to be partially terminated with respect to participants employed by the
Natural Gas Subsidiaries, and the account balances thereof are to be
distributed to such participants; (ii) a portion of the assets and liabilities
of the Atrion Corporation Supplemental Executive Thrift Plan are to be
transferred to and assumed and accepted by a trust established by the Company;
(iii) the Atrion Corporation Retirement Plan is to be partially terminated
with respect to participants who continue to be employed after the Closing by
the Natural Gas Subsidiaries, and their accrued benefits are to be distributed
to such participants; (iv) the Alabama-Tennessee Natural Gas Company Post-
Retirement, Medical and Health Voluntary Employee Benefit Association (the
"VEBA") is to be continued by Midcoast; provided, however, that on or before
the Closing, the Company is to cause Alabama-Tennessee to amend the VEBA to
provide that no further funding is to be made for the benefits provided under
the VEBA and that, once the funds in the VEBA have been exhausted, no further
benefits will be provided to retirees thereunder; and (v) the liabilities
allocable to the Natural Gas Subsidiaries under the Atrion Corporation
Supplemental Executive Retirement Plan are to be transferred to and assumed by
the Company. In addition, the liability of Alabama-Tennessee for certain
deferred directors fees is to be assumed by the Company, and certain computer
equipment, liabilities for accrued and unused vacation and deferred taxes and
liabilities relating to the foregoing are to be assigned to or assumed by the
Company or an affiliate. See "Executive Compensation" for a description of
certain of such benefit plans.
Conditions to Closing. The obligations of the Company and Midcoast to
consummate the Sale Transaction are subject to the satisfaction on or prior to
the date of the Closing of certain conditions, including the following: (i)
all of the representations and warranties of the other party are to be true
and correct in all material respects as of the date of the Agreement and as of
the Closing; (ii) the other party shall have complied with and performed in
all material respects all of the agreements, covenants and conditions required
to be performed by it; (iii) no legal action by a creditor or third party
shall have been instituted to restrain or invalidate the Sale Transaction;
(iv) the parties shall have received all regulatory approvals and all
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") shall have expired or terminated; and
(v) the Sale Transaction shall have been approved by the stockholders of the
Company.
In addition, as a condition precedent to the obligations of Midcoast: (i)
there shall have been no material adverse change in the operations, assets or
financial condition of the Natural Gas Subsidiaries; (ii) the consents to the
Sale Transaction contemplated from third parties shall have been obtained; and
(iii) Midcoast shall have received the resignations of the officers and
directors of the Natural Gas Subsidiaries.
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Termination. The Agreement may be terminated by the Company if the Board of
Directors of the Company receives a proposal to purchase the shares or
substantially all of the assets of the Natural Gas Subsidiaries (an
"Acquisition Proposal"), the Company notifies Midcoast in writing of the
material terms and conditions of the Acquisition Proposal and that the Company
desires to consider acceptance of such proposal and Midcoast does not make,
within ten business days following receipt of the Company's notice, an offer
which the Board of Directors of the Company believes, in good faith, to be at
least as favorable to the stockholders of the Company as the Acquisition
Proposal. In addition, the Agreement may be terminated by either Midcoast or
the Company upon written notice to the other party if (i) the stockholders of
the Company do not approve the Sale Transaction at a meeting held to consider
such approval or (ii) provided the terminating party is not then in breach of
any provision of the Agreement, upon the occurrence of either of the
following: (A) if on the date of the Closing any of the conditions precedent
to the obligations of the terminating party to close have not been satisfied
or waived in writing; or (B) if the Closing does not occur on or before July
3, 1997.
In addition to the foregoing, the Agreement provides that if, between the
date of the Agreement and the date of the Closing, there is any casualty or
loss relating to the assets of the Natural Gas Subsidiaries which Midcoast
reasonably determines to be in an amount greater than $2,750,000, then
Midcoast may elect promptly after receiving all relevant facts regarding such
occurrence (i) to terminate the Agreement by giving written notice of such
termination to the Company or (ii) to waive such breach and consummate the
Sale Transaction, in which case at the Closing all claims to insurance
proceeds or other rights of the Company against third parties arising from
such casualty or loss are to be separately assigned by the Company to
Midcoast.
If the Agreement is terminated as provided herein, then neither party is to
have any liability or further obligation to the other party, except that (i)
in the event the Agreement is terminated due to the exercise of the fiduciary
obligations of the Company's Board of Directors with respect to an Acquisition
Proposal, as described above, or due to the failure of the stockholders of the
Company to approve the Sale Transaction at a meeting held to consider such
approval, then the Company is to pay $2,000,000 to Midcoast and (ii) the
escrow deposit is to be paid as described above.
Prohibited Activities of the Company After Closing. In order to protect the
goodwill and business interests of the Natural Gas Subsidiaries following the
Closing, the Company has agreed that it and its affiliates will not (i)
directly or indirectly request or advise any party to any gas sales, purchase
or transportation contract with any of the Natural Gas Subsidiaries to
withdraw, curtail or cancel any service to or from any such Natural Gas
Subsidiary under the terms of any such contract; (ii) aid, abet or otherwise
assist any person seeking to interfere with the Natural Gas Subsidiaries'
relationship with the parties to, or the terms, of any gas sales, purchase or
transportation contract; (iii) without the approval of the Chief Executive
Officer of Midcoast, induce or attempt to influence any employee of the
Natural Gas Subsidiaries to leave or terminate his employment; or (iv) acting
alone or in conjunction with others, in any of the states of Alabama,
Tennessee and Mississippi for a period of three years from the Closing, engage
in any businesses in competition with the businesses presently conducted by
the Natural Gas Subsidiaries, whether for its own account or for others, other
than the transporting or selling of natural gas by certain of the Company's
other existing subsidiaries as presently conducted.
Indemnification. The Agreement provides that each party will indemnify and
hold the other party harmless against and will reimburse the other party for
any and all damages, liabilities, claims, taxes, penalties, assessments, and
other costs and expenses which arise from (i) the breach of any
representation, warranty, agreement or covenant contained in the Agreement;
(ii) all actual, alleged, claimed or purported liabilities and obligations
relating to, or arising from the ownership, operation or control of the
Natural Gas Business (with such liabilities and obligations being limited to
those which arise prior to Closing and which exclude those reflected or
reserved against on the balance sheet provided by the Company to Midcoast as
described above, with respect to indemnification by the Company, or with such
liabilities and obligations being limited to those which arise subsequent to
the Closing, with respect to indemnification by Midcoast); and (iii) (with
respect to indemnification by Midcoast) all actual, alleged, claimed or
purported liabilities and obligations of the Natural Gas Subsidiaries which
are reflected or reserved against on the balance sheet provided to Midcoast by
the
22
<PAGE>
Company subsequent to the Closing as described above. The Company's liability
to make indemnification payments to Midcoast and Midcoast's liability to make
indemnification payments to the Company with respect to breaches of
representations and warranties shall not exceed, in the aggregate,
$10,000,000, except as otherwise described, and such liability for
indemnification payments will expire as to any item that is not the subject of
a claim made within 18 months immediately following the Closing; however, such
time limitation shall not apply to covenants or agreements required to be
performed following the Closing. The Company's liability for indemnification
to Midcoast shall only apply to the extent that the aggregate damages incurred
by Midcoast exceed $500,000 and then only to the extent of such excess;
however, the foregoing dollar threshold and limitation shall not apply to any
indemnification payments arising out of state sales tax, federal income or
state income or income-based tax matters, and claims relating to such matters
may be made within the applicable statute of limitations. Midcoast's liability
to the Company for indemnification relating to breaches of representations and
warranties shall only apply to the extent that the aggregate damages incurred
by the Company exceed $500,000 and then only to the extent of such excess.
The Agreement provides that the sole remedy of a party for any breach of any
of the representations, warranties or covenants contained in the Agreement or
any claim relating to the ownership or operation of the Natural Gas Business
is to exercise the rights for indemnification, excluding action for specific
performance. The Agreement also provides that the Agreement may be
specifically enforced in the event of a breach thereof; however, if the
Company terminates the Agreement and is entitled to receive the escrow deposit
as described herein, then the Company will not be entitled to any such
specific performance, and the amount of such escrow deposit will be agreed
liquidated damages for any and all such causes of action against Midcoast.
Taxes. The Company is to cause each Natural Gas Subsidiary to be included in
the respective consolidated federal income tax returns of the applicable
affiliated group of corporations which includes the Company for all periods
ending on or before the date of the Closing and to timely file such returns
and pay all taxes shown to be due thereon. Midcoast is to be responsible for
and prepare and file all tax returns and pay all taxes with respect to the
Natural Gas Subsidiaries for all periods following the Closing. See "Certain
Federal Income Tax Consequences."
Certain Post-Closing Agreements. Midcoast has agreed to provide severance
benefits to the full-time employees of Alabama-Tennessee as of the date of the
Closing (other than Jerry A. Howard, Jeffery Strickland and George G. Petty)
for any such employee terminated during the 12-month period following Closing;
however, if any employee of a Natural Gas Subsidiary refuses a transfer to a
job at another location of the business of Midcoast or any of its affiliates
(provided such transfer is made by Midcoast in good faith and the job entails
the same responsibilities and provides the same or greater base salary), then
Midcoast will not be obligated to honor such severance obligation with respect
to such employee. The Company has agreed to reimburse Midcoast for 50% of such
severance benefits paid to any such employee, such reimbursement not to
exceed, in the aggregate, $50,000 for all severed employees. Notwithstanding
the foregoing, in the event any such employee becomes an employee of the
Company or any of its affiliates within six months following termination of
such employee's employment with the applicable Natural Gas Subsidiary, then
the Company is to reimburse Midcoast an amount equal to the portion of the
unreimbursed severance benefits paid to such employee by Midcoast, such
reimbursement not to be subject to the $50,000 limit.
The Company has guaranteed (the "Guaranties") the obligations of the Natural
Gas Subsidiaries under certain gas purchase contracts and gas transportation
contracts. Prior to the Closing, Midcoast and the Company are to cause the
Natural Gas Subsidiaries to establish a separate bank account (the "Special
Account"). Subsequent to the Closing Midcoast is to cause all collections of
accounts receivable of the Natural Gas Subsidiaries with respect to their
sales or transportation of natural gas under the contracts subject to
Guaranties which remain in effect to be paid into the Subsidiaries' existing
bank accounts and to be transferred on a daily basis from such accounts to the
Special Account. Funds in the Special Account are to be used to pay only the
obligations under such contracts, except that Midcoast may withdraw monthly
for its own uses from such account the amount by which the parties agree the
revenues from sales of gas purchased or transported under such contracts
exceed the payment obligations under such contracts for such month. All
payments from the Special
23
<PAGE>
Account are to be applied to such obligations in chronological order based on
the respective due dates thereof; provided, however, that all such payables
shall be paid as soon as possible after receipt of invoices therefor if funds
are available in the Special Account. At Closing, the Natural Gas Subsidiaries
are to grant to the Company a security interest in the Special Account to
secure the payment and performance of their obligations under the applicable
contracts.
Midcoast has agreed to use its good faith reasonable efforts following the
Closing to obtain the release of the Company from any Guaranty with respect to
any of such contracts which have terms extending beyond the Closing. In the
event any such Guaranty is still in effect 90 days after the Closing, Midcoast
is to cause the applicable Natural Gas Subsidiary to terminate the applicable
contract at the end of such 90-day period or purchase no additional gas
thereunder so long as such Guaranty remains in effect.
At the Closing, the Company, Midcoast and Alabama-Tennessee are to execute
certain agreements pursuant to which Alabama-Tennessee will grant certain
license rights with respect to its rights of way to AlaTenn Pipeline Company,
Inc., the Company's wholly-owned gaseous oxygen pipeline company, and will
service the Company's gaseous oxygen pipeline for a period of two years.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission ("FTC"), the Sale Transaction may not be consummated until
notification has been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and a waiting period has expired or been terminated. Pursuant to
the HSR Act, notification and report forms were filed on behalf of the Company
and Midcoast with the FTC and the Antitrust Division on April 2, 1997. The
waiting period required by the HSR Act will expire on May 2, 1997 unless early
termination of the waiting period is granted.
At any time before or after the consummation of any part of the Sale
Transaction, and notwithstanding the expiration of the waiting period under
the HSR Act, federal and state antitrust and other governmental authorities
may take such action under the antitrust laws as they deem necessary or
desirable in the public interest. Such action might include seeking to enjoin
the consummation of the Sale Transaction or requiring the divestiture by
Midcoast of all or part of the assets acquired or to be acquired pursuant to
the Agreement. Private parties also may seek to take legal action under the
antitrust laws under certain circumstances.
INTERESTS OF CERTAIN PERSONS IN THE SALE TRANSACTION
In considering the Sale Transaction, stockholders should be aware of, and
should carefully consider that, officers and employees of the Natural Gas
Subsidiaries, including one person who currently is an executive officer of
the Company, may be deemed to have interests in the Sale Transaction, by
virtue of their anticipated continued employment by the Natural Gas
Subsidiaries after the Closing, that may create potential conflicts of
interest. The Board of Directors of the Company was aware of such interests
and considered them, among other matters, in approving the Sale Transaction.
It is presently contemplated that a number of officers and employees of the
Natural Gas Subsidiaries will remain employed by the Natural Gas Subsidiaries
following the Closing. As described above, the Agreement provides that
Midcoast is to provide certain designated severance benefits to the full-time
employees of Alabama-Tennessee for any such employee terminated during the 12-
month period following consummation of the Sale Transaction. The Company has
agreed to pay one-half of such amount, up to $50,000 in the aggregate. Such
employees may also hold options to purchase shares of common stock of the
Company, which options will terminate within a certain period of time
following the termination of their employment by the Company.
ACCOUNTING TREATMENT
The sale of the Natural Gas Subsidiaries will be accounted for by the
Company as a disposition of a business segment and, accordingly, upon approval
of the Sale Transaction by the stockholders, the operating results of the
24
<PAGE>
Natural Gas Subsidiaries will be accounted for as discontinued operations. The
Company expects to recognize a gain on the sale in an amount equal to the
difference between the anticipated cash proceeds from the Sale Transaction and
the book value of the assets being sold, net of expenses related to the
discontinued operations and income taxes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material federal income tax consequences to
the Company and the stockholders of the Company from the Sale Transaction.
Except where specifically noted, this summary does not apply to state or local
taxes. The summary is based upon the Internal Revenue Code (the "Code"),
judicial decisions, Treasury Department regulations promulgated thereunder,
administrative rulings of the Treasury Department, and other interpretations
thereof, any of which could be changed at any time. No ruling has been or will
be requested from the Internal Revenue Service with respect to any
consequences resulting from the Sale Transaction.
The consummation of the Sale Transaction will not be a taxable event for
federal income tax purposes for the stockholders of the Company. Pursuant to
the Agreement, upon consummation of the Sale Transaction, the Company will
join with Midcoast in filing of one or more elections under Section 338(h)(10)
of the Code, and any comparable election under state, local or foreign tax
law, to the extent requested by Midcoast. If Midcoast does not make such
request, the Company will be taxed on the gain resulting from the sale of the
stock of the Natural Gas Subsidiaries. If the elections under Section
338(h)(10) of the Code are made, the Sale Transaction will be deemed to be a
sale of the assets of the Natural Gas Subsidiaries for federal income tax
purposes with the Natural Gas Subsidiaries being deemed to have sold their
assets while still members of the Company's "affiliated group" (as defined in
the Code). Accordingly, the economic burden of taxation resulting from the
deemed asset sale will be borne by the Company. The amount of federal, state
and local tax for which the Company will be liable as a result of the
elections under Section 338(h)(10) of the Code (and any comparable elections
under state or local tax law) is not anticipated to be materially different
than would have resulted if the Company had sold all of the stock of the
Natural Gas Subsidiaries without any such elections being made.
NO APPRAISAL RIGHTS
Holders of common stock of the Company will have no right under the Delaware
General Corporation Law to seek judicial appraisal of their common stock in
connection with the Sale Transaction.
RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE SALE
TRANSACTION AND THE AGREEMENT AND BELIEVES THAT THE SALE TRANSACTION IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE SALE
TRANSACTION.
CERTAIN FINANCIAL INFORMATION
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data set forth below as of
and for each of the five years in the period ended December 31, 1996 have been
derived from the audited consolidated financial statements of the Company. The
statement of operations data with respect to the years ended December 31,
1996, 1995 and 1994 and the balance sheet data as of December 31, 1996 and
1995 have been derived from the audited financial statements of the Company
incorporated by reference into this Proxy Statement and included in the
Company's 1996 Annual Report which accompanies this Proxy Statement. The
statement of operations data with respect to the years ended December 31, 1993
and 1992 and the balance sheet data as of December 31, 1994, 1993 and
25
<PAGE>
1992 have been derived from audited financial statements of the Company
previously filed with the Commission but not incorporated by reference or
included elsewhere in this Proxy Statement. The selected pro forma
consolidated financial data illustrate the effect of the Sale Transaction, in
the manner described below. The summary pro forma balance sheet data have been
prepared as if the Sale Transaction occurred on December 31, 1996 and the
summary pro forma statement of operations data have been prepared as if the
Sale Transaction occurred as of January 1, 1996. See "Unaudited Pro Forma
Condensed Consolidated Financial Information." The selected historical and pro
forma consolidated financial data set forth below are qualified in their
entirety by and should be read in conjunction with (i) the historical
consolidated financial statements and the notes related thereto and (ii)
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which are incorporated by reference into this Proxy Statement and
included in the Company's 1996 Annual Report which accompanies this Proxy
Statement. See "Incorporation of Certain Information by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
PRO FORMA
1996 1996 1995 1994 1993 1992
--------- -------- ------- ------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS(1)
Revenues $23,399 $135,977 $80,379 $70,321 $119,022 $121,651
Income (loss) from
continuing
operations(2) 1,044 1,044 765 (142) -- --
Income from
discontinued operations 0 5,434 4,575 4,832 7,332 4,665
Net income(3) 1,044 6,477 5,340 4,690 7,332 4,665
PER SHARE DATA
Earnings per share(4)
Continuing
operations(2) 0.33 0.33 0.24 (0.04) -- --
Net income 0.33 2.03 1.68 1.48 2.32 1.49
Dividends per share(4) 0.80(5) 0.80 0.80 0.80 0.80 0.79
Book value per share(4) 15.23 10.71 9.43 8.54 7.85 6.31
BALANCE SHEET DATA
Average shares of
common stock
outstanding(4) 3,189 3,189 3,175 3,170 3,162 3,141
Total assets 61,020 63,251 48,506 43,737 42,653 42,766
Long-term debt(6) 7,016 7,016 1,812 2,885 0 0
</TABLE>
- --------
(1) All years have been restated to reflect the Company's natural gas
operations as discontinued operations. The pro forma 1996 income amounts
do not reflect any impact from the use of the net proceeds from the Sale
Transaction.
(2) In 1993 and 1992 the Company had no material operations other than those
to be discontinued as a result of the Sale Transaction.
(3) The 1993 net income amount includes income of $565,000 related to
discontinued operations and $2.3 million attributable to a favorable
revision of an after-tax provision recorded in 1989 of $6.4 million for
estimated nonrecoverable take-or-pay expense.
(4) All per share and share data reflect the three-for-two stock split
effected in December 1996.
(5) This amount does not reflect the reduction in the quarterly dividend to
$0.10 per share, commencing with the dividend payable on September 1,
1997.
(6) Includes current maturities.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information illustrates the effect of the Sale Transaction. The unaudited pro
forma condensed consolidated balance sheet has been prepared as if the Sale
Transaction occurred on December 31, 1996 and the unaudited pro forma
condensed consolidated statement of income has been prepared as if the Sale
Transaction occurred as of January 1, 1996. Such information does not give
effect to the utilization by the Company of the net proceeds from the Sale
Transaction. The pro forma condensed consolidated financial information should
be read in conjunction with the historical consolidated financial statements
and notes thereto which are contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, incorporated by reference into this
Proxy Statement, and with the notes to the unaudited pro forma condensed
consolidated financial information, included elsewhere herein.
The unaudited pro forma adjustments are based upon available information and
contain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma condensed consolidated financial
information is not necessarily indicative of actual operating results or
financial position had the Sale Transaction occurred as of the dates indicated
above, nor does it purport to represent the future financial position of the
Company or operating results which may be attained in the future. Since the
Sale Transaction has not occurred and the consideration to be received may be
adjusted as described elsewhere herein, the results reported below are subject
to change.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
NATURAL GAS COMPANY
COMPANY SUBSIDIARIES PRO FORMA PRO
HISTORICAL TO BE SOLD(1) ADJUSTMENTS(2) FORMA
---------- ------------ ------------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and temporary cash
investments $ 144 $ 1 $26,465(a) $26,608
Accounts receivable 19,154 15,219 0 3,935
Other current assets 5,025 903 5(b) 4,127
------- ------- ------- -------
24,323 16,123 26,470 34,670
------- ------- ------- -------
Plant & equipment (net) 25,409 12,715 25(b) 12,719
------- ------- ------- -------
Other assets
Intangibles 11,264 0 0 11,264
Other 2,255 1,460 1,572(b)(c) 2,367
------- ------- ------- -------
13,519 1,460 1,572 13,631
------- ------- ------- -------
$63,251 $30,298 $28,067 $61,020
======= ======= ======= =======
STOCKHOLDERS' EQUITY AND
LIABILITIES
Current liabilities $18,782 $15,091 $ 227(b) $ 3,918
------- ------- ------- -------
Long-term debt 6,313 0 0 6,313
------- ------- ------- -------
Other liabilities 3,738 2,683 783(b)(c) 1,838
------- ------- ------- -------
Stockholders' equity 34,418 12,524 27,057 48,951
------- ------- ------- -------
$63,251 $30,298 $28,067 $61,020
======= ======= ======= =======
Book value per share $ 10.71 $ 15.23
======= =======
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
NATURAL GAS
COMPANY SUBSIDIARIES PRO FORMA COMPANY
HISTORICAL TO BE SOLD(1) ADJUSTMENTS(2) PRO FORMA
---------- ------------ ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues $135,977 $(112,578) $ 0 $23,399
Cost of goods sold 113,995 (99,852) 0 14,143
-------- --------- ------ -------
Gross margin 21,982 (12,726) 0 9,256
Operating expenses
Other operating expenses 10,592 (4,873) 1,250(d) 6,969
Maintenance 245 (241) 0 4
Depreciation and
amortization 1,433 (584) 0 849
Other taxes 361 (302) 0 59
-------- --------- ------ -------
12,631 (6,000) 1,250 7,881
-------- --------- ------ -------
Net operating income 9,351 (6,726) (1,250) 1,375
Other income (expense)
Investment & other income 1,238 (550) 688
Interest expense (435) 251 (250)(e) (434)
-------- --------- ------ -------
803 (299) (250) 254
-------- --------- ------ -------
Income before income taxes 10,154 (7,025) (1,500) 1,629
-------- --------- ------ -------
Income tax expense 3,677 (2,548) (544)(f) 585
-------- --------- ------ -------
Net income $ 6,477 $ (4,477) $ (956) $ 1,044
======== ========= ====== =======
Earnings per share $ 2.03 $ 0.33
======== =======
Average shares of common
stock outstanding 3,189 3,189
======== =======
</TABLE>
- --------
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
(1) To reflect the sale of the Natural Gas Subsidiaries by adjusting the
Company's historical financial statements for all assets, liabilities,
revenues and expenses attributable to the Natural Gas Subsidiaries.
(2) To reflect certain other adjustments as a result of the Sale Transaction,
as follows:
(a) Gross proceeds of $39,373 to be received at Closing, less transaction-
related expenses, expenses of discontinuation of operations and
estimated income tax liabilities. Assumes no post-closing adjustments
or contingent deferred purchase price. See "Description of the
Agreement; Purchase Price Adjustment."
(b)The retention of certain assets and liabilities by the Company.
(c) The recognition of gain attributable to the curtailment of certain
Company benefit plans as a result of the Sale Transaction. See
"Description of the Agreement; Certain Restructurings."
(d) The elimination of certain overhead expenses attributable to the
Natural Gas Business, but to be reallocated to the Company's continuing
operations.
(e)The elimination of interest expense allocated from the Company to the
Natural Gas Subsidiaries.
(f)Estimated income tax effect of (d) and (e) above.
(3) All per share and share data reflect the three-for-two stock split
effected in December 1996.
28
<PAGE>
PROPOSAL TO APPROVE THE COMPANY'S
1997 STOCK INCENTIVE PLAN
Upon the recommendation of the Compensation Committee, and subject to
stockholder approval, the Board of Directors has adopted the Atrion
Corporation 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan"),
pursuant to which key employees of the Company will be eligible for awards of
stock options, stock appreciation rights, restricted stock and performance
shares and outside directors (directors who are not employees of the Company
or any subsidiary) will receive automatic grants of nonqualified stock
options. A summary of the essential features of the 1997 Stock Incentive Plan
is set forth below but is qualified in its entirety by reference to the full
text of the 1997 Stock Incentive Plan which was filed electronically with this
Proxy Statement with the Commission. Such text is not included in the printed
version of this Proxy Statement.
BACKGROUND AND PURPOSE
Over the past several years the Company has granted benefits under (i) the
Company's 1990 Stock Option Plan and (ii) the Company's 1994 Stock Incentive
Plan (collectively, the "Prior Plans"). The Board of Directors continues to
believe that long-term incentive compensation should be one of the fundamental
components of compensation for the Company's key employees and that stock
options and other stock-based incentives similar to those which have been
available under the Prior Plans should continue to play an important role in
encouraging employees and directors to have a greater financial investment in
the Company. The Board of Directors believes that the 1997 Stock Incentive
Plan will help promote long-term growth and profitability by further aligning
stockholder and employee interests.
The purpose of the 1997 Stock Incentive Plan is to promote the interests of
the Company by affording participants an opportunity to acquire a proprietary
interest in the Company and by providing participants with long-term financial
incentives for outstanding performance. If the 1997 Stock Incentive Plan is
approved, the Compensation Committee will be afforded a great deal of
flexibility in the types and amounts of awards that can be made and the terms
and conditions applicable to those awards.
DESCRIPTION OF THE 1997 STOCK INCENTIVE PLAN
Number of Shares. The aggregate number of shares of common stock that will
be available for grants under the 1997 Stock Incentive Plan is the sum of (i)
300,000 shares, constituting approximately 9.3% of the shares of common stock
outstanding as of February 28, 1997 and (ii) the shares of common stock which
are subject to options granted under the Prior Plans but as to which such
options may from time to time expire, lapse or be canceled or terminated. Upon
the approval of the 1997 Stock Incentive Plan by the stockholders of the
Company, no further options or other benefits are to be granted under the
Prior Plans, but any options outstanding under such plans may be exercised in
accordance with the terms thereof. All shares allocated to awards under the
1997 Stock Incentive Plan that are canceled or forfeited will be available for
subsequent awards. In no event may a participant receive awards during any
calendar year covering in the aggregate more than 50,000 shares.
Administration; Term of the 1997 Stock Incentive Plan. The 1997 Stock
Incentive Plan will be administered by the Compensation Committee, the members
of which will be ineligible to receive awards other than automatic grants of
nonqualified stock options. It is intended that the Compensation Committee
will at all times be composed of "nonemployee directors" within the meaning of
Rule 16b-3 promulgated under Section 16(b) of the Exchange Act. Under the 1997
Stock Incentive Plan, the Compensation Committee will have full power to (i)
designate the key employees to receive awards from time to time; (ii)
determine the sizes and types of awards (other than with respect to the
automatic option grants to outside directors, as described below);
(iii) determine the terms and provisions of awards as it deems appropriate;
(iv) construe and interpret the 1997 Stock Incentive Plan and establish, amend
or waive rules and regulations relating to the administration of the 1997
Stock Incentive Plan; (v) determine whether awards (other than the automatic
option grants to outside directors, as described below) are to be granted
singularly, in combination or in tandem; (vi) accelerate or defer (with the
consent of the key employee) the vesting, exercise or payment of an award or
the performance period of an award; (vii) accept the surrender of awards and
the substitution of new or revised awards in exchange
29
<PAGE>
therefor; (viii) amend the terms and provisions of any outstanding award to
the extent such terms and provisions are within the discretion of the
Compensation Committee; and (ix) make all other decisions and determinations
necessary or advisable for the administration of the 1997 Stock Incentive
Plan. All determinations and decisions made by the Compensation Committee
pursuant to the 1997 Stock Incentive Plan shall be final, conclusive and
binding.
Notwithstanding any other provision of the 1997 Stock Incentive Plan, the
Board of Directors is to administer the provisions thereof relating to the
automatic award of options to outside directors, as described herein. In the
Board of Directors' administration of such provisions, and the options granted
to outside directors, the Board of Directors will have all of the authority
and discretion otherwise granted to the Compensation Committee with respect to
the administration of the 1997 Stock Incentive Plan.
The 1997 Stock Incentive Plan became effective on March 12, 1997, the date
of its approval by the Board of Directors of the Company, subject to
stockholder approval, and is to remain in effect until all shares of common
stock subject to it have been purchased or acquired, unless sooner terminated
by the Board of Directors. Notwithstanding the foregoing, no grants of
incentive stock options ("ISOs") will be made under the 1997 Stock Incentive
Plan after March 12, 2007.
Eligibility. "Key employees" of the Company and its subsidiaries and outside
directors of the Company will be eligible to participate in the 1997 Stock
Incentive Plan. The fact that an employee is a director of the Company will
not make him ineligible for designation as a key employee. The selection of
key employees will be entirely within the discretion of the Compensation
Committee. As of March 12, 1997, approximately 15 officers and other key
employees would be eligible to participate in the 1997 Stock Incentive Plan.
The concept of a "key employee" is, however, somewhat flexible and it is
anticipated that such factors as the duties and responsibilities of employees,
the value of their services, their present and potential contributions to the
success of the Company and other relevant factors will be considered.
Accordingly, the number of persons who ultimately may be eligible to
participate in the 1997 Stock Incentive Plan is not presently determinable. As
of March 12, 1997, eight outside directors were eligible to participate in the
annual automatic grant of nonqualified stock options ("NQSOs"), as described
below.
Awards of Stock Options and Stock Appreciation Rights. The 1997 Stock
Incentive Plan provides for the grant of options to purchase shares of common
stock to key employees at option prices to be determined by the Compensation
Committee as of the date of grant. For stock option awards intended to qualify
as ISOs, the option price may not be less than the fair market value of the
common stock on the date of grant. For such purpose "fair market value" means
the average of the high and low sales price per share of the common stock as
reported by either (i) any national securities exchange on which the common
stock is actively traded or (ii) The Nasdaq Stock Market on the day on which
such fair market value is determined or, if common stock is not traded on such
exchange or system on such date, then on the immediately preceding date on
which common stock was traded on such exchange or system. On April 18, 1997,
the closing price of the common stock of the Company on The Nasdaq Stock
Market was $12.75. Each grant of options is to be evidenced by an award
agreement which is to specify the option price, the term of the option, the
number of shares subject to the option and such other provisions as the
Compensation Committee may determine. The shares subject to an option may be
purchased in such installments and on such exercise dates as set forth in the
award agreement. Options granted under the 1997 Stock Incentive Plan will
expire not more than ten years from the date of grant. The award agreement
will also set forth the extent (if any) to which the participant will have the
right to exercise his options following termination of employment.
Awards of options under the 1997 Stock Incentive Plan, which may be either
ISOs (which qualify for special tax treatment) or NQSOs, are to be determined
by the Compensation Committee in its discretion. Notwithstanding the
foregoing, the Compensation Committee may not grant ISOs to any participant
that, in the aggregate, are first exercisable during any one calendar year to
the extent that the aggregate fair market value of the shares subject to such
options, at the time of grant, exceeds $100,000.
30
<PAGE>
Payment for shares issued pursuant to the exercise of an option may be made
either in cash or by tendering shares of common stock of the Company with a
fair market value at the date of the exercise equal to the portion of the
exercise price which is not paid in cash.
A participant granted an option under the 1997 Stock Incentive Plan will
have no rights as a stockholder of the Company with respect to the shares
subject to such option except to the extent shares are actually issued.
Options may not be sold, transferred, pledged or assigned, except as otherwise
provided by law or in an award agreement relating to NQSOs. The Compensation
Committee may impose restrictions on the transfer of shares acquired pursuant
to the exercise of options as it may deem advisable.
The 1997 Stock Incentive Plan also provides for the grant of stock
appreciation rights ("SARs"), either in tandem with stock options or
freestanding, which entitle holders upon exercise to receive either cash or
shares of common stock or a combination thereof as the Compensation Committee,
in its discretion, shall determine with a value equal to the difference
between (i) the fair market value on the exercise date of the shares of common
stock with respect to which an SAR is exercised and (ii) the fair market value
of such shares on the date of grant or, if different, the exercise price of
the related option in the case of a tandem SAR. With respect to a tandem SAR,
the exercise of the option (or the SAR) will result in the cancellation of the
related SAR (or option) to the extent of the number of shares in respect of
which such option or SAR has been exercised.
Additional Provisions Regarding ISOs. ISOs may be granted only to persons
who are employees of the Company or a subsidiary on the date of an award. In
addition, no ISO may be exercised after the expiration of ten years from the
date the award is granted; provided, however, that if the option is granted to
a key employee who, together with persons whose stock ownership is attributed
to the key employee pursuant to the Code, owns common stock possessing more
than 10% of the total combined voting power of all classes of the stock of the
Company or any of its subsidiaries, the option may not be exercised after the
expiration of five years from the date of grant. The aggregate fair market
value (determined on the date of the award) of the shares of common stock with
respect to which ISOs are exercisable for the first time by any key employee
during any calendar year (under all plans of the Company and its subsidiaries)
may not exceed $100,000. In addition, no ISO may be exercised more than three
months after termination of employment for any reason other than disability or
death, unless (i) the participant dies during such three-month period and (ii)
the award agreement or the Compensation Committee permits later exercise.
Awards of Restricted Stock and Performance Shares. The 1997 Stock Incentive
Plan provides for the award of shares of restricted stock to such key
employees and on such terms and conditions as determined from time to time by
the Compensation Committee. The restricted stock award agreement to be entered
into with the participant will contain the terms of the award, including the
number of shares of restricted stock granted and the applicable period of
restriction. Additional restrictions may include the continued service of the
participant with the Company, the attainment of specified performance goals or
any other conditions deemed appropriate by the Compensation Committee.
The stock certificates evidencing the restricted stock will bear an
appropriate legend and will be held in the custody of the Company until the
applicable restrictions have been satisfied. The participant cannot sell,
transfer, pledge or assign shares of restricted stock until the applicable
restrictions have been satisfied. Once the restrictions are satisfied, the
shares will be delivered to the participant. During the period of restriction,
the participant may exercise full voting rights and will be credited with all
dividends payable with respect to the restricted stock. Such dividends may be
payable to the participant or subject to additional restrictions as determined
by the Compensation Committee and set forth in the award agreement. The award
agreement will also set forth the extent, if any, to which the participant
will have the right to receive unvested restricted stock following termination
of employment.
In addition to restricted stock, the Compensation Committee may award
performance shares to key employees. The value of a performance share will
equal the fair market value of a share of common stock. The number of
performance shares granted or the vesting of granted performance shares can be
contingent on the
31
<PAGE>
attainment of certain performance goals or other conditions over a period of
time (the "performance period"), all as determined by the Compensation
Committee and evidenced by an award agreement to be entered into with the
participant. During the performance period, the Compensation Committee will
determine whether any performance shares have been earned. Earned performance
shares may be paid in cash, shares of common stock or a combination thereof
having an aggregate fair market value equal to the value of the performance
shares as of the payment date. Common stock used to pay earned performance
shares may have additional restrictions as determined by the Compensation
Committee. In addition, the Compensation Committee may cancel any earned
performance shares and replace them with stock options determined by the
Compensation Committee to be of equivalent value based on a conversion formula
specified in the participant's performance share award agreement. Except as
otherwise provided in the award agreement, performance shares may not be sold,
transferred, pledged or assigned, other than by will or the laws of descent
and distribution.
Awards to Outside Directors. The 1997 Stock Incentive Plan contains a
provision for the automatic grant of NQSOs annually to outside directors of
the Company. On July 10 of each year while the 1997 Stock Incentive Plan is in
effect, commencing with July 10, 1997, each outside director will be granted
automatically, without action by the Compensation Committee, an option to
purchase 2,000 shares, at an exercise price equal to the fair market value of
the common stock on the date of grant. Each such option will be fully
exercisable on the date of grant and will expire on the first to occur of (i)
the tenth anniversary of the date of grant; (ii) six months after the date the
outside director ceases to be a director of the Company other than as a result
of his death; or (iii) one year after the outside director ceases to be a
director by reason of his death. The Compensation Committee may not provide
for an extended exercise period beyond such stated periods.
Section 162(m) of the Code. Compensation from the exercise of options and
SARs that are granted under the 1997 Stock Incentive Plan and that have an
exercise price at least equal to fair market value at the date of grant should
be treated as "performance-based compensation" for purposes of Section 162(m)
of the Code. In addition, the 1997 Stock Incentive Plan authorizes the
Compensation Committee to make awards of restricted stock or performance
shares that are conditioned on the satisfaction of certain performance
criteria. For such awards intended to result in "performance-based
compensation," the Compensation Committee, or the members thereof who are
"outside directors" within the meaning of Section 162(m), will establish prior
to, or within the permitted period of time after the commencement of, the
applicable performance period the applicable performance criteria. The
Compensation Committee (or members thereof as described above) may select from
among the following objective performance measures for such purposes: (i)
earnings per share, (ii) return on assets, (iii) return on equity, (iv)
revenues or (v) total stockholder return, as such terms are defined in the
1997 Stock Incentive Plan. The performance criteria are to be stated in the
form of an objective, nondiscretionary formula and the Compensation Committee
(or members thereof as described above) will certify in writing the attainment
of such performance criteria prior to any payout with respect to such awards.
Withholding for Payment of Taxes. The 1997 Stock Incentive Plan provides for
the withholding and payment of any payroll or withholding taxes required by
applicable law. The 1997 Stock Incentive Plan permits a participant to satisfy
such requirement, with the approval of the Compensation Committee and subject
to the terms of the 1997 Stock Incentive Plan, by having the Company withhold
from the participant a number of shares of common stock otherwise issuable
under the award having a fair market value equal to the amount of the
applicable payroll and withholding taxes.
Changes in Capitalization; Change in Control. In the event of any change in
the outstanding shares of common stock of the Company by reason of any stock
dividend, stock split, spin-off, recapitalization, merger, consolidation,
combination, exchange of shares or otherwise, the aggregate number and class
of shares of common stock with respect to which awards may be made under the
1997 Stock Incentive Plan, and the number, class and price of shares subject
to outstanding awards under the 1997 Stock Incentive Plan are to be adjusted
by the Compensation Committee as it determines to be appropriate and equitable
in its discretion.
32
<PAGE>
The 1997 Stock Incentive Plan provides that in the event of a change in
control of the Company, all options, other than NQSOs granted to outside
directors, and all SARs will become and remain fully exercisable as of the
date of the change in control. Outstanding awards of restricted stock and
performance shares will become immediately vested and any applicable
performance conditions shall be deemed satisfied (at the target performance
condition, if applicable) as of the date of the change in control. To the
extent set forth in any award agreement (other than with respect to options
granted automatically to outside directors as described above) a participant
will be permitted to surrender for cancellation within 60 days after such
change in control any outstanding options, SARs, restricted stock or
performance shares and will be entitled to receive a payment (i) with respect
to each option in an amount equal to the excess, if any, of the "change in
control price" over the exercise price; (ii) with respect to each SAR in an
amount equal to the excess, if any, of the change in control price over the
grant price of the SAR; (iii) with respect to each share of restricted stock,
the change in control price; and (iv) with respect to each performance share,
the change in control price.
For purposes of the 1997 Stock Incentive Plan, a "change in control" is
deemed to occur when (i) any person acquires securities of the Company
representing 25% or more of the combined voting power of the Company's then-
outstanding securities; (ii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving or parent entity) 75% or more of the combined voting power of the
voting securities of the Company or such surviving or parent entity
outstanding immediately after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquired 25% or more of the combined
voting power of the Company's then outstanding securities; (iii) when, during
any period of two consecutive years, individuals who, at the beginning of such
period, constitute the directors of the Company cease for any reason to
constitute at least a majority thereof unless each director who was not a
director at the beginning of such period was elected by, or on the
recommendation of, at least 67% of the directors at the beginning of such
period; or (iv) the stockholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the assets of the Company which will result in the
Company having no significant continuing operations.
The "change in control price" means the highest price per share (i) paid for
shares of common stock of the Company in any transaction reported on any
exchange on which the common stock is listed or on The Nasdaq Stock Market, as
the case may be, or (ii) paid or offered in any transaction related to a
change in control of the Company, in either event at any time during the
preceding 60 day period, as determined by the Compensation Committee.
Amendment and Termination of the 1997 Stock Incentive Plan. The Board of
Directors may alter, amend, discontinue, suspend or terminate the 1997 Stock
Incentive Plan at any time in whole or in part. Notwithstanding the foregoing,
stockholder approval will be required for any change to the material terms of
the 1997 Stock Incentive Plan and no amendment or modification of the 1997
Stock Incentive Plan may materially and adversely affect any award previously
granted without the consent of the participant.
FEDERAL INCOME TAX CONSEQUENCES
The general principles of federal income tax law that apply to the 1997
Stock Incentive Plan are summarized in the following discussion. All
provisions of federal income tax law are subject to change. Currently, the
maximum tax rate applicable to capital gain income of individuals is less than
the maximum tax rate applicable to ordinary income. The following material,
therefore, discusses the characterization of income under the various 1997
Stock Incentive Plan features as ordinary income or capital gain or loss.
State and local tax consequences are beyond the scope of this summary.
Incentive Stock Options. ISOs granted under the 1997 Stock Incentive Plan
will be subject to the applicable provisions of the Code, including Section
422 thereof. If no "disqualifying disposition" of shares of common stock
issued to an optionee upon the exercise of an ISO is made within one year
after the exercise date
33
<PAGE>
or within two years after the date the ISO was granted, then (i) no income
will be recognized by the optionee at the time of the grant of the ISO, (ii)
no income will be recognized by the optionee at the date of exercise, (iii)
upon sale of the shares acquired by exercise of the ISO, any amount realized
in excess of the option price will be taxed to the optionee as a long-term
capital gain and any loss sustained will be a long-term capital loss and (iv)
no deduction will be allowed to the Company for federal income tax purposes.
If a "disqualifying disposition" of such shares is made, the optionee will
recognize taxable ordinary income in an amount equal to the excess of the fair
market value of the shares purchased at the time of exercise over the option
price (the "bargain purchase element") and the Company will be entitled to a
federal income tax deduction equal to such amount. The amount of any gain in
excess of the bargain purchase element realized upon a "disqualifying
disposition" will be taxable as capital gain to the holder (for which the
Company will not be entitled to a federal income tax deduction). Upon exercise
of an ISO, the optionee may be subject to alternative minimum tax.
Nonqualified Stock Options. With respect to NQSOs granted under the 1997
Stock Incentive Plan, (i) no income is recognized by the optionee at the time
the NQSO is granted, (ii) at exercise, ordinary income is recognized by the
optionee in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise, and the Company
receives a tax deduction for the same amount and (iii) on disposition, the net
appreciation or depreciation after the date of exercise is treated as either
short-term or long-term capital gain or loss depending on whether the shares
have been held for more than one year.
Stock Appreciation Rights. Upon the grant of an SAR, the participant
recognizes no taxable income and the Company receives no deduction. The
participant will recognize ordinary income and the Company will receive a
deduction at the time of exercise equal to the cash and fair market value of
shares payable upon such exercise.
Restricted Stock. Upon becoming entitled to receive shares at the end of the
applicable restriction period without a forfeiture, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
shares at that time. However, a recipient who makes an election under Section
83(b) of the Code within 30 days of the date of the grant will recognize
ordinary taxable income on the date of the grant equal to the fair market
value of the shares of restricted stock as if the shares were unrestricted and
could be sold immediately. If the shares subject to such election are
subsequently forfeited, the recipient will not be entitled to any deduction,
refund or loss for tax purposes. Upon sale of the shares after the restriction
period has expired, the holding period to determine whether the recipient has
long-term or short-term capital gain or loss begins when the restriction
period expires, and the tax basis will be the fair market value of the shares
at that time. However, if the recipient timely elects to be taxed as of the
date of grant, the holding period commences on the date of the grant and the
tax basis will be the fair market value of the shares on the date of the grant
as if the shares were then unrestricted and could be sold immediately. The
Company generally will be entitled to a deduction, equal to the amount that is
taxable as ordinary compensation income to the recipient, for the Company's
taxable year in which the recipient recognizes such income.
Performance Shares. A participant who is awarded performance shares will not
recognize income and the Company will not be allowed a deduction at the time
the award is made. When a participant receives payment for performance shares
in cash or shares of common stock of the Company, the amount of the cash and
the fair market value of the shares received will be ordinary income to the
participant and will be allowed as a deduction for federal income tax purposes
to the Company. However, if there is a substantial risk that any shares used
to pay out earned performance shares will be forfeited (for example, because
the Compensation Committee conditions such shares on the performance of future
services), the taxable event is deferred until the risk of forfeiture lapses.
In that case, the participant can elect to make a Section 83(b) election as
previously described. The Company can take the corresponding deduction at the
time the income is recognized by the participant.
PARTICIPATION IN AND BENEFITS UNDER THE 1997 STOCK INCENTIVE PLAN
As described above, the employees of the Company and its subsidiaries who
are to receive awards under the 1997 Stock Incentive Plan and the types and
sizes of such awards are to be determined by the Compensation
34
<PAGE>
Committee. Accordingly, because all such awards to key employees are within
the discretion of the Compensation Committee, it is not possible to predict
the benefits or amounts that will be received by or allocated to particular
employees or groups of employees, or to determine the benefits or amounts that
would have been received by or allocated to such persons for 1996 if the 1997
Stock Incentive Plan had been in effect. No awards have been made to date
under the 1997 Stock Incentive Plan.
The following table sets forth the number of shares of common stock as to
which options are to be granted annually to outside directors under the 1997
Stock Incentive Plan.
NEW PLAN BENEFITS
ATRION CORPORATION 1997 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
NO. OF SHARES
UNDERLYING ANNUAL
POSITION OR GROUP OPTION GRANTS
----------------- -----------------
<S> <C>
Outside Directors as a Group 16,000(a)
</TABLE>
- --------
(a) Based upon eight outside directors serving on the Board of Directors as of
the effective date of the 1997 Stock Incentive Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1997 STOCK
INCENTIVE PLAN.
RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of Directors, upon
recommendation of the Audit Committee, has appointed the firm of Arthur
Andersen LLP as independent accountants to audit the financial statements of
the Company for the year 1997. Arthur Andersen LLP has audited the Company's
financial statements for many years. A representative of Arthur Andersen LLP
will attend the annual meeting, will have an opportunity to make a statement,
and will be available to respond to appropriate questions. If the stockholders
do not ratify the appointment of Arthur Andersen LLP, the selection of
independent auditors will be reconsidered by the Board of Directors.
The consolidated financial statements appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 have been audited by
Arthur Andersen LLP, as set forth in their report thereon included therein and
incorporated by reference herein. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given under the
authority of such firm as experts in accounting and auditing. See
"Incorporation of Certain Information by Reference."
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS TO AUDIT THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR 1997.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for the years ended December 31, 1996, 1995 and 1994 of those
persons during 1996 who were (i) the Chief Executive Officer of the Company
and (ii) the other executive officers of the Company whose salary and bonus
for the year ended December 31, 1996 exceeded $100,000 (such officers are
referred to herein as the "Named Executive Officers").
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ----------------------
AWARDS
----------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS(2) COMPENSATION
- ------------------ ---- -------- ------- --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerry A. Howard......... 1996 $400,000 $91,000 $ -- $ -- 5,400 $34,748(3)
Chairman of the Board, 1995 400,000 74,400 -- -- 9,000 34,707
President and Chief 1994 394,375 16,000 -- 17,500(2) 15,300 34,066
Executive Officer
George G. Petty......... 1996 $146,000 $ 5,840 $ -- $ -- 1,800 $12,909(3)
Vice President-- 1995 144,500 5,840 -- -- 4,500 12,778
Finance, Chief 1994 140,500 5,680 -- -- 5,400 12,440
Financial Officer and
Secretary-Treasurer(4)
Jeffery Strickland...... 1996 $ 97,500 $29,080 $ -- $ -- 2,700 $ 8,648(3)
Vice President-- 1995 90,000 10,170 -- -- 2,700 8,092
Corporate 1994 85,500 3,600 -- -- 6,750 7,654
Development(4)
Dick Rabenau............ 1996 $125,658 $42,232 $ -- $ -- 2,700 $ 6,916(3)
President--Atrion 1995 122,185 53,874 19,936(5) 9,000 6,748
Medical 1994 84,373 14,400 -- -- 0 2,756
Products, Inc.
Gus Magrini............. 1996 $ 98,625 $29,080 $ -- $ -- 2,700 $ 8,907(3)
President--AlaTenn 1995 91,875 8,720 -- -- 4,500 8,355
Energy 1994 88,500 3,600 -- -- 4,500 8,003
Marketing Company, Inc.
</TABLE>
- --------
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of $50,000 or 10% of the total
annual salary and bonus reported for the Named Executive Officer.
(2) The restricted stock award in the table represents an award granted under
the 1994 Stock Incentive Plan, and the dollar amount thereof is the fair
market value of the award on the date of grant, based upon the closing
price of the Company's common stock, as reported by The Nasdaq Stock
Market, on such date. As of December 31, 1996, Mr. Howard held 1,500
restricted shares with an aggregate value of $24,750, based upon the
closing price of the Company's common stock, as reported by The Nasdaq
Stock Market on such date. Options granted represent incentive stock
options granted under the 1994 Stock Incentive Plan. Information regarding
restricted stock and options granted in each year has been adjusted to
reflect a three-for-two stock split which was effected on December 2,
1996. See "Information Concerning Stock Options."
(3) Includes the following paid by the Company or one or more of its
subsidiaries: (i) matching contributions to the Atrion Corporation Thrift
Plan (Mr. Howard, $9,500; Mr. Petty, $8,760; Mr. Strickland, $5,850; Mr.
Rabenau, $6,317; and Mr. Magrini, $5,918); (ii) payment of life insurance
premiums (Mr. Howard, $10,748; Mr. Petty, $4,149; Mr. Strickland, $2,798;
Mr. Rabenau, $599; and Mr. Magrini, $2,989); and (iii) with respect to Mr.
Howard, a contribution to the Atrion Corporation Supplemental Executive
Thrift Plan in the amount of $14,500.
(4) Upon Mr. Petty's retirement effective February 1, 1997, Mr. Strickland was
elected Vice President and Chief Financial Officer, Secretary and
Treasurer.
(5) Comprised of club membership fee and dues, and reimbursement for federal
income tax liability resulting from income associated therewith,
aggregating $10,936 and automobile allowance of $9,000.
INFORMATION CONCERNING STOCK OPTIONS
The following tables summarize certain information concerning grants to and
exercises by the Named Executive Officers during the year ended December 31,
1996 of options and the value of all unexercised options held by such persons
as of December 31, 1996.
36
<PAGE>
OPTION GRANTS IN 1996 (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
PERCENTAGE
OF TOTAL POTENTIAL REALIZABLE VALUE
NO. OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (3)
OPTIONS IN FISCAL PRICE EXIPIRATION ---------------------------
NAME GRANTED(2) YEAR PER SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Howard......... 5,400 17% $15.00 8/05/06 $ 50,941 $ 129,090
George G. Petty......... 1,800 6% $15.00 8/05/06 $ 16,980 $ 43,030
Jeffery Strickland...... 2,700 8% $15.00 8/05/06 $ 25,470 $ 64,545
Dick Rabenau............ 2,700 8% $15.00 8/05/06 $ 25,470 $ 64,545
Gus Magrini............. 2,700 8% $15.00 8/05/06 $ 25,470 $ 64,545
</TABLE>
- --------
(1) Information with respect to securities underlying options and the exercise
price has been adjusted to reflect a three-for-two stock split which was
effected on December 2, 1996.
(2) All options granted in 1996 are "incentive stock options" granted pursuant
to the 1994 Stock Incentive Plan and the applicable provisions of the
Code. The exercise price of the options granted is equal to the fair
market value of the common stock on the date of grant, which was August 5,
1996. Options are exercisable in whole or in part during each relevant
time period, with one-third exercisable one year after grant, an
additional one-third three years after grant and the remaining one-third
five years after grant. The options granted under the 1994 Stock Incentive
Plan are not transferable by the optionee except by will or by the laws of
descent and distribution, and each option is exercisable during the
lifetime of the optionee, only by the optionee or, in the event of
disability, by the optionee's guardian or representative. All options
terminate three months after the optionee's termination of employment
except in case of disability, in which case the options terminate one year
after termination of employment. The number of options granted, the term
thereof and the manner in which options are to be exercised are determined
by the Compensation Committee.
(3) Potential realizable value is based upon the assumption that the market
price of the common stock of the Company will appreciate at the compounded
annual rate shown from the date of grant until the end of the option term.
The dollar amounts in the foregoing table have been calculated based upon
the requirements in the rules on executive compensation disclosure adopted
by the Commission and do not reflect the Company's estimate of future
growth in the price of the Company's common stock.
37
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR END YEAR END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Howard......... 0 $ 0 38,100 25,350 $170,666 $89,395
George G. Petty......... 16,800 $90,375 0 9,900 $ 0 $35,598
Jeffery Strickland...... 0 $ 0 15,150 10,500 $ 67,931 $35,898
Dick Rabenau............ 0 $ 0 3,000 8,700 $ 13,500 $31,050
Gus Magrini............. 0 $ 0 12,750 10,200 $ 54,410 $34,049
</TABLE>
- --------
(1) Information in the foregoing table has been adjusted to reflect a three-
for-two stock split which was effected on December 2, 1996.
(2) Such value is equal to the product of (i) the closing price of the common
stock of the Company on December 31, 1996 ($16.50 per share) less the
exercise price and (ii) the number of shares subject to the in-the-money
option.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The following table sets forth certain information respecting each Named
Executive Officer who received awards in 1996 under the Atrion Medical
Products, Inc. Long Term Incentive Compensation Plan (the "Atrion Medical
Products Long Term Plan"):
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER
NUMBER OF PERIOD NON-STOCK PRICE-BASED
SHARES, UNTIL PLANS(2)
UNITS OR OTHER MATURATION --------------------------
NAME RIGHTS(1) OR PAYOUT THRESHOLD TARGET MAXIMUM
---- -------------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Dick Rabenau.............. -- 1996 - 1998 $36,900 $73,800 $147,600
</TABLE>
- --------
(1) Two subsidiaries of the Company, Atrion Medical Products and Halkey-
Roberts, have long term incentive plans covering designated employees of
those subsidiaries or the Company. Awards consist of the designation of
percentages of annual base salary in effect at the beginning of a three-
year performance period which is to be paid at the end of such performance
period to each participant if the financial performance goals for Atrion
Medical Products or Halkey-Roberts are met or exceeded. At the beginning
of each three-year performance period, the Compensation Committee
designates the key employees of Atrion Medical Products, Halkey-Roberts or
the Company who are to participate, sets the percentage of annual base
salary then in effect to be paid for each participant, the performance
criteria and the threshold, target and maximum performance levels. The
financial performance goals which were specified in 1996 are based upon
cumulative earnings for the performance period, before overhead
allocations, interest, bonus accruals and income taxes.
(2) There is no assurance that results will be achieved that will result in
payments being made for any performance period. No payout occurs unless
the threshold performance goal is met or exceeded.
38
<PAGE>
RETIREMENT PLANS
The Company maintains a non-contributory pension plan (the "Pension Plan")
that applies to all the employees of Alabama-Tennessee and Atrion Medical
Products, including officers, meeting certain age and service requirements.
The Pension Plan provides benefits for retirement at age 65, for early
retirement and for disability retirement, and provides for death benefits
under certain circumstances. Any employee can qualify to become a participant
in the Pension Plan by completing one year of employment in which he has 1,000
or more hours of service. Under the Pension Plan, an employee of Alabama-
Tennessee who retires at age 65, which is the normal retirement age provided
in the Pension Plan, will be eligible to receive a monthly benefit payable
throughout his lifetime in an amount based on such employee's compensation for
the preceding five years and years of credited service. An employee of Atrion
Medical Products will be entitled to receive a monthly benefit equal to the
product of $10 and his years of credited service. The benefits payable under
the Pension Plan are not subject to Social Security or other offset. The
Company also has a supplemental non-contributory pension plan (the
"Supplemental Executive Retirement Plan") for Alabama-Tennessee's eligible
employees, including officers. The Supplemental Executive Retirement Plan
provides for benefit payments in addition to those payable under the Pension
Plan and is intended to provide benefits that would otherwise be denied
participants by reason of certain Code limitations on qualified plan
benefits.
The following table illustrates the estimated maximum annual benefits
payable to employees of Alabama-Tennessee under the Pension Plan and the
Supplemental Executive Retirement Plan under the life annuity option, assuming
retirement in 1996 at age 65, and without considering any additional benefits
for years of credited service in excess of 30.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE
ANNUAL YEARS OF SERVICE
COMPENSATION --------------------------------------------------------------------
5 10 15 20 25 30
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 9,200 18,401 27,601 36,801 46,001 55,202
150,000 14,200 28,401 42,601 56,801 71,001 85,202
200,000 19,200 38,401 57,601 76,801 96,001 115,202
250,000 24,200 48,401 72,601 96,801 121,001 145,202
300,000 29,200 58,401 87,601 116,801 146,001 175,202
350,000 34,200 68,401 102,601 136,801 171,001 205,202
400,000 39,200 78,401 117,601 156,801 196,001 235,202
450,000 44,200 88,401 132,601 176,801 221,001 265,202
500,000 49,200 98,401 147,601 196,801 246,001 295,202
550,000 54,200 108,401 162,601 216,801 271,001 325,202
600,000 59,200 118,401 177,601 236,801 296,001 355,202
</TABLE>
The compensation used to calculate the retirement benefits under the Pension
Plan and the Supplemental Executive Retirement Plan is to be determined on the
basis of salary and bonus as shown in the Summary Compensation Table. As of
December 31, 1996, Messrs. Howard, Petty, Strickland and Magrini had 12 1/12
years, 9 11/12 years, 13 1/4 years and 7 1/12 years, respectively, of credited
service. Mr. Rabenau, who is an employee of Atrion Medical Products, had 2 2/3
years of credited service at December 31, 1996. Assuming retirement at age 65,
the benefits payable to Mr. Rabenau under the Pension Plan are estimated to be
approximately $130 per month.
SEVERANCE COMPENSATION AGREEMENT
The Company is a party to an agreement with Mr. Howard which is intended to
encourage him to continue to carry out his duties with the Company in the
event of a potential change in control of the Company. The agreement provides
that if, following a change in control of the Company (as defined in the
agreement), the
39
<PAGE>
officer's employment with the Company is terminated either by the Company for
other than cause or permanent disability or by such officer for good reason
(as defined in the agreements), then the officer will receive (a) a lump sum
payment equal to three times the greater of (i) the highest annual salary plus
bonus paid by the Company to the officer in the five fiscal years of the
Company preceding the year in which the termination of employment occurs and
(ii) the officer's "annualized includable compensation" as defined in the
Code, (b) certain other payments respecting, among other things, the Company's
retirement plans and relocation costs or losses and (c) various welfare
benefits for a specified period of time after termination of employment. The
Code imposes certain excise taxes on the recipient of, and limits the
deductibility of, certain compensatory payments made by a corporation to or
for the benefit of certain individuals if such payments are contingent upon a
change in ownership of a substantial portion of the assets, or a change in
control, of such corporation. The agreement limits the compensation payments
thereunder to amounts which can be paid by the Company without such adverse
tax consequences. The agreement also provides that, while the officer is
employed by the Company for a period up to four years following the change in
control, such officer is to continue to receive (i) annual compensation in an
amount not less than the officer's annual fixed or base salary as in effect
immediately prior to the change in control, (ii) an annual amount not less
than the aggregate annual bonus or incentive pay made to the officer for the
calendar year preceding the year in which the change in control occurs, and
(iii) full participation in all employee retirement income and welfare benefit
policies and programs of the Company.
The Supplemental Executive Retirement Plan and the Atrion Corporation
Supplemental Executive Thrift Plan provide that upon a change in control of
the Company, participants therein whose employment terminates may elect to
receive immediately their benefits thereunder and account balances therein,
respectively. Under the 1990 Stock Option Plan and the 1994 Stock Incentive
Plan, in the event of a change in control of the Company all outstanding
options are to become fully exercisable and all restricted shares are to
become fully vested, and the value of the outstanding options and restricted
shares is to be cashed out, unless otherwise determined by the Compensation
Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, all the members of which are directors of the Company
who are not employed by the Company or any subsidiary. This program is
designed to attract, retain and motivate management personnel and includes
compensation that is tied to enhanced stockholder value. The Compensation
Committee is responsible for recommendations for base salaries, salary
increases and bonuses for the Company's executive officers and for the
administration of the Company's incentive programs.
Compensation Policies
Since 1990, base salary and stock option awards have been the principal
components of compensation for the Company's executive officers. However,
several years ago the Compensation Committee concluded that it would continue
to review other forms of executive compensation, and, in 1994, restricted
stock awards were added as a form of executive compensation to be utilized in
appropriate situations. In 1995, on the recommendation of the Compensation
Committee, a program was adopted which provides for the payment of annual and
three-year incentive compensation tied to the performance of Atrion Medical
Products. Such program covers certain key employees of Atrion Medical
Products, one of whom is currently classified as an executive officer of the
Company, and in 1995 included two executive officers of the Company who devote
substantial amounts of time to the operations of Atrion Medical Products. A
similar incentive compensation program which is tied to the performance of
Halkey-Roberts has recently been adopted to cover certain key employees of
Halkey-Roberts, one of whom is currently classified as an executive officer of
the Company. In light of the continuing diversification of the Company, the
Compensation Committee decided in 1996 that the executive officers of the
Company who are not directly employed by Atrion Medical Products or Halkey-
Roberts will not continue to participate in new annual and three-year
incentive compensation programs sponsored by those subsidiaries but, instead,
a new incentive compensation program covering those executive officers will be
developed and implemented in 1997 or 1998.
40
<PAGE>
Base salaries of the Company's executive officers are reviewed annually and
adjustments made on the basis of the Company's performance as measured by
certain financial and non-financial criteria, various survey information
respecting compensation of executive officers, compensation levels for
executive officers in a broad range of companies (which range is broader than
the group of companies included in the Edward D. Jones Diversified Natural Gas
Index used in comparing cumulative stockholder return), cost-of-living
information and individual performance of the particular executive officer.
The Compensation Committee has not assigned relative weights or values to any
of such criteria. With respect to all executive officers other than Mr.
Howard, the Compensation Committee takes into consideration a review of
individual performance provided by Mr. Howard and recommendations regarding
adjustments of compensation provided by him. With respect to the financial
performance of the Company, the Compensation Committee takes into
consideration the Company's operating income, net income (both inclusive and
exclusive of one-time items), return on invested capital and total stockholder
return, both compared to the Edward D. Jones Diversified Natural Gas Index and
on a stand-alone basis. The Compensation Committee has also concluded that in
evaluating the Company's performance it will give consideration to certain
non-financial criteria including customer relations, safety record, corporate
citizenship and environmental awareness. A new executive's base salary is
determined on the basis of the responsibilities of the position, the
experience of the new executive and the competitive marketplace for management
talent. The Compensation Committee has also acknowledged that, in fixing base
salaries and adjustments, consideration is to be given to the cost of living
in the area where the executive will be located. In an effort to tie a
significant amount of compensation of certain key employees of Atrion Medical
Products and Halkey-Roberts, two of whom are currently classified as executive
officers of the Company, to the attainment of annual and three-year financial
goals for Atrion Medical Products and Halkey-Roberts, the Compensation
Committee recommended the adoption of the Atrion Medical Products, Inc. Short
Term Incentive Compensation Plan, the Atrion Medical Products Long Term Plan
(collectively, the "Atrion Medical Products Plans"), the Halkey-Roberts
Corporation Short Term Incentive Compensation Plan and the Halkey-Roberts Long
Term Incentive Compensation Plan (collectively the "Halkey-Roberts Plans").
The Compensation Committee believes that the Atrion Medical Products Plans and
the Halkey-Roberts Plans, all of which have been adopted, provide incentives
for those key employees who are in a position to impact directly the
performance of Atrion Medical Products and Halkey-Roberts to maximize the
growth and financial performance of those units. Under the Atrion Medical
Products Plans and the Halkey-Roberts Plans, the Compensation Committee
designates the persons who are to participate, sets annual and three-year
financial performance levels and sets the cash bonuses, as a percentage of
base salary, to be paid to each participant if the financial performance goals
are met or exceeded. Pending the formulation and adoption of the new incentive
compensation program referred to above, executive officers who do not
participate in the Atrion Medical Products Plans or the Halkey-Roberts Plans
will be eligible for discretionary bonuses as determined by the Compensation
Committee.
Stock options and restricted stock awards are also designed to motivate
executives to improve the long term performance of the Company's common stock
in the market, to-encourage them to achieve superior results over the long
term and to align executive officer and stockholder interests. Decisions
respecting restricted stock awards are made on the basis of the criteria
referred to above, and decisions respecting the grant of stock options are
made using the same criteria as well as the number of unexercised options held
by key employees. The Compensation Committee has also concluded that, where
appropriate, it will stagger the exercise dates for options and the
restriction period for restricted stock over a period of time so that the key
employee receiving stock option or restricted stock awards will be rewarded
only if he remains with the Company for an extended period and in order to
emphasize the significance of the Company's long-term performance.
Compensation of Chief Executive Officer
In reaching its decisions respecting Mr. Howard's cash compensation in 1996
and stock option awards, the Compensation Committee reviewed Mr. Howard's base
salary, bonuses and stock option and restricted stock awards in 1991, 1992,
1993, 1994 and 1995, the changes in such compensation made during such period
and certain of the factors considered when those changes in compensation were
made. Additionally, the Compensation Committee took into consideration the
Company's performance measured by the Company's
41
<PAGE>
operating income, net income (both inclusive and exclusive of one-time items),
return on invested capital and total stockholder return, both compared to the
Edward D. Jones Diversified Natural Gas Index and on a stand-alone basis, but
did not assign relative weights or values to any of such criteria in assessing
the Company's performance. The Compensation Committee noted that operating
income in 1995 was up 9.51% from 1994, net income was up 13.86% from 1994,
return on invested capital in 1995 was 17.55% and total stockholder return in
1995 was 36.67% as compared to total stockholder return of 35.97% reflected by
the Edward D. Jones Diversified Natural Gas Index. In addition, the
Compensation Committee considered surveys of executive officer compensation,
information respecting the compensation levels for chief executive officers in
various industries, Mr. Howard's individual performance and the number of
unexercised stock options held by Mr. Howard. In reaching its conclusions
respecting Mr. Howard's base salary and stock incentive awards, the
Compensation Committee concluded that the criteria reviewed by it reflected
that the Company had achieved a strong financial and non-financial performance
in 1995 and noted Mr. Howard's leadership, including the leadership provided
by him in the integration of the business of Atrion Medical Products with the
Company's other operations, the development of AlaTenn Pipeline Company,
Inc.'s gaseous oxygen pipeline and the acquisition of Halkey-Roberts, and his
ability to attract, manage and retain highly-qualified executive officers for
the Company and its subsidiaries. While acknowledging such performance and
leadership, the Compensation Committee concluded that Mr. Howard's base salary
should not be increased in light of the goal of the Compensation Committee to
tie a greater part of all executive officers' annual compensation to the
performance of the Company. Although Mr. Howard was included in 1995 in the
annual and three-year bonus programs under the Atrion Medical Products Plans
for the year 1995 and the period 1995-97, in 1996 the Compensation Committee
decided that with the continuing diversification of the Company's business and
the importance of tying Mr. Howard's (and certain other executive officers')
incentive compensation to the performance of the Company as a whole rather
than to the individual performance of any of its subsidiaries, Mr. Howard
would not participate in new annual or three-year compensation programs under
the Atrion Medical Products Plans or the Halkey-Roberts Plans. Although the
Compensation Committee envisions that a new incentive compensation plan which
ties compensation to the performance of the Company as a whole will be
implemented in 1997 or 1998, no such plan was in place in 1996. However, in
light of the strong performance of the Company, as reflected by the criteria
set forth above, and Mr. Howard's individual performance in 1996, at the
recommendation of the Compensation Committee Mr. Howard received a
discretionary cash bonus in 1996 of $75,000.
In further recognition of the Company's and Mr. Howard's performance and to
further align Mr. Howard's interests with those of the Company's other
stockholders, the Compensation Committee awarded Mr. Howard options to
purchase 5,400 shares of common stock (post-split) exercisable in equal
amounts after one, three and five years. In taking such action, the
Compensation Committee concluded that by deferring the dates on which the
options could first be exercised, additional emphasis would be placed on Mr.
Howard's remaining with the Company and on the Company's long-term performance
and the long-term performance of the Company's common stock in the market. Mr.
Howard, like all other employees of Alabama-Tennessee, was also awarded a
bonus in December 1996 equal to 4% of base salary. The Compensation Committee
recommended this award in light of the general practice of the Company to
award bonuses equal to such percent of base salary to all employees of
Alabama-Tennessee in December of each year and in light of the Company's
financial performance for the first nine months of 1996.
Members of the Compensation Committee
<TABLE>
<S> <C>
Emile A. Battat J. Kenneth Smith
Richard O. Jacobson John P. Stupp, Jr.
Hugh J. Morgan, Jr.
</TABLE>
42
<PAGE>
PERFORMANCE OF COMMON STOCK
The following graph compares the cumulative total return on investment (the
change in year-end stock price plus reinvestment of dividends), for each of
the last five fiscal years, assuming that $100 was invested on December 31,
1991 in each of (i) the Company, (ii) a group of stocks consisting of all
companies whose stocks are included in the S&P 500 Composite Index and (iii) a
group of stocks consisting of 23 diversified natural gas companies in the
Edward D. Jones Diversified Natural Gas Index. The companies included in such
industry index are, in addition to the Company, the following: Chesapeake
Utilities Corp.; The Columbia Gas System, Inc.; Consolidated Natural Gas Co.;
Eastern Enterprises; Energen Corp.; Enserch Corp.; Equitable Resources, Inc.;
K N Energy, Inc.; MCN Corp.; MDU Resources Group, Inc.; National Fuel Gas Co.;
National Gas & Oil Co.; Noram Energy Corp.; Oneok, Inc.; Questar Corp.; South
Jersey Industries, Inc.; Southeastern Michigan Gas Enterprises; Southwest Gas
Corp.; Southwestern Energy Co.; UGI Corp.; Valley Resources, Inc.; and Wicor,
Inc.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE RETURNS AMONG
ATRION CORPORATION, S&P 500 AND
EDWARD D. JONES DIVERSIFIED NATURAL GAS INDEX
Measurement period Measurement PT -
(Fiscal Year Covered) 1991 FYE 1992 FYE 1993 FYE 1994 FYE 1995 FYE 1996
- --------------------- ---------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ATRION CORPORATION $100.00 $153.10 $143.90 $124.80 $170.60 $208.70
S&P 500 INDEX $100.00 $107.60 $118.40 $120.00 $164.90 $202.70
ED. D. JONES DIVERSIFIED
NATURAL GAS INDEX $100.00 $110.40 $123.20 $107.80 $140.90 $177.40
</TABLE>
STOCKHOLDER PROPOSALS
Stockholder Proposals in the Company's Proxy Statement
In order for proposals by stockholders to be considered for inclusion in the
Company's proxy material relating to the 1998 annual meeting of stockholders,
such proposals must be received by the Company on or before December 24, 1997.
Stockholder Proposals to be Presented at Annual Meetings
The Company's Bylaws provide that a stockholder who desires to propose any
business at an annual meeting of stockholders must give the Company written
notice of such stockholder's intent to bring such business before such
meeting. Such notice is to be delivered to, or mailed, postage prepaid, and
received by, the Secretary of the Company at the principal executive offices
of the Company not later than 60 days nor earlier than 90 days prior to the
first anniversary of the preceding year's annual meeting of stockholders;
provided, however, that in the event that the date of the annual meeting is
more than 30 days before or more than 60 days after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than
90 days
43
<PAGE>
prior to such annual meeting and not later than the 60 days prior to such
annual meeting and the 10th day following the issuance by the Company of a
press release announcing the meeting date. The stockholder's written notice
must set forth (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting; (b) the name and address of the stockholder who intends to propose
such business; (c) a representation that the stockholder is a holder of record
of shares of common stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at such meeting to propose such
business; and (d) any material interest of the stockholder in such business.
The Chairman of the meeting may refuse to transact any business presented at
any meeting without compliance with the foregoing procedure.
Stockholder Nominations for Directors
The Company's Bylaws provide that a stockholder who desires to nominate
directors at a meeting of stockholders must give the Company written notice,
within the same time period described above, setting forth (a) the name and
address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the stockholder
is a holder of record of shares of common stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Commission had each nominee
been nominated, or intended to be nominated, by the Board of Directors; and
(e) the consent of each nominee to serve as a director of the Company if so
elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person if a stockholder has failed to comply with the foregoing
procedure.
OTHER BUSINESS
The Board of Directors does not intend to bring any business before the
meeting other than that stated herein and is not aware of any other matters
that may be presented for action at the meeting. However, if any other matters
should properly come before the meeting, or any adjournments thereof, it is
the intention of the persons named in the accompanying proxy to vote on such
matters as they, in their discretion, may determine.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at the following
addresses: Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained by mail, at prescribed rates,
from the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 or accessed electronically on the
Commission's Web site at (http://www.sec.gov). in addition, material filed by
the Company can also be inspected at the offices of The Nasdaq Stock Market,
1735 K Street, N.W., Washington, D.C. 20006.
In accordance with the rules of the Commission, this Proxy Statement
incorporates by reference certain information with respect to the Company that
is not included herein. The Company will provide, without charge to any
person, including any beneficial owner, to whom this Proxy Statement is
delivered, and upon written or oral request of such person, a copy of any and
all of the information that has been incorporated by reference in this Proxy
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Proxy Statement incorporates). Such a request is to
be directed to Mr. Jeffery Strickland, Atrion Corporation, 3230 Second Street,
Muscle Shoals, Alabama 35661 (telephone number: (205) 383-3631).
44
<PAGE>
This Proxy Statement incorporates by reference the following: information
concerning industry segments, supplementary financial information and selected
financial data, information regarding the Company's market prices, dividends
and related stockholder matters and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and included in the
1996 Annual Report which accompanies this Proxy Statement. In addition to such
specific information, the following documents filed by the Company with the
Commission (Commission File No. 0-10763) are incorporated herein by reference
in their entirety:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
2. The Company's Current Report on Form 8-K dated March 7, 1997,
reporting the Company's reincorporation from Alabama to Delaware; and
3. The Company's Current Report on Form 8-K dated June 5, 1996, as
amended on August 5, 1996, reporting the acquisition by the Company of
Halkey-Roberts and including audited financial statements relating to
Halkey-Roberts and pro forma financial statements of the Company relating
to such acquisition.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the annual meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated by reference herein or
contained herein shall be deemed to be modified or superseded to the extent
that a statement herein or in a document subsequently incorporated by
reference herein shall modify or supersede such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement. Subject to the
foregoing, all information appearing in this Proxy Statement is qualified in
its entirety by the information appearing in the documents incorporated herein
by reference.
By Order of the Board of Directors
Jeffery Strickland
Vice President and Chief Financial
Officer, Secretary and Treasurer
April 23, 1997
45
<PAGE>
APPENDIX A
ASSET PURCHASE AGREEMENT
between
ATRION CORPORATION
and
MIDCOAST ENERGY RESOURCES, INC.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1. DEFINITIONS.......................................................... A-5
2. PURCHASE AND SALE.................................................... A-7
3. PURCHASE PRICE; PAYMENT.............................................. A-7
(a) Purchase Price................................................... A-7
(b) Consolidated Net Book Value Determination........................ A-8
(c) Adjustment to Purchase Price..................................... A-8
(d) Contingent Deferred Purchase Price............................... A-9
4. REPRESENTATIONS AND WARRANTIES AS TO SELLER.......................... A-9
(a) Organization and Existence....................................... A-9
(b) Approvals........................................................ A-9
(c) Consents......................................................... A-9
(d) No Violation..................................................... A-9
(e) Validity and Binding Effect...................................... A-10
(f) Shares........................................................... A-10
(g) No Brokers....................................................... A-10
(h) Public Utility Holding Company Act............................... A-10
5. REPRESENTATIONS AND WARRANTIES AS TO SUBSIDIARIES.................... A-10
(a) Organization and Existence....................................... A-10
(b) Capitalization................................................... A-10
(c) No Violation..................................................... A-11
(d) Financial Statements............................................. A-11
(e) Taxes............................................................ A-11
(f) Title to Properties.............................................. A-11
(g) Gas Purchase Contracts, Gas Sales Contracts, Gas Storage
Contracts and Gas Transportation Agreements...................... A-11
(h) No Leases........................................................ A-12
(i) No Defaults...................................................... A-12
(j) Compliance with Applicable Law................................... A-12
(k) Insurance........................................................ A-12
(l) Litigation....................................................... A-12
(m) Employee Matters................................................. A-12
(n) Patents, Copyrights, Trademarks, Etc............................. A-13
(o) Employee Benefit Plans........................................... A-13
(p) Environmental Matters............................................ A-13
(q) Real Property.................................................... A-14
(r) Changes.......................................................... A-14
(s) Tariffs.......................................................... A-14
(t) Material Misstatements or Omissions.............................. A-14
(u) Assets Owned..................................................... A-14
(v) No Partnership................................................... A-14
(w) No Customer Curtailments......................................... A-14
(x) Gas Imbalances................................................... A-15
6. BUYER'S REPRESENTATIONS AND WARRANTIES............................... A-15
(a) Organization and Existence....................................... A-15
(b) Approvals........................................................ A-15
(c) Consents......................................................... A-15
(d) No Violation..................................................... A-15
(e) Validity and Binding Effect...................................... A-15
(f) Financial Wherewithal............................................ A-15
(g) No Brokers....................................................... A-15
</TABLE>
A-2
<PAGE>
<TABLE>
<C> <S> <C>
(h) Material Misstatements or Omissions............................... A-15
(i) Investment Representation......................................... A-16
7. COVENANTS............................................................. A-16
(a) Seller's Covenants................................................ A-16
(b) Certain Restructurings............................................ A-17
(c) Audited Financial Statements...................................... A-18
(d) Schedules......................................................... A-18
(e) Fulfillment of Conditions......................................... A-18
(f) Stockholder Approval.............................................. A-18
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE.................. A-18
(a) Representations and Warranties.................................... A-18
(b) Covenants......................................................... A-18
(c) Legal Opinion..................................................... A-18
(d) Deliveries of Consents............................................ A-18
(e) No Litigation..................................................... A-18
(f) No Material Adverse Change........................................ A-18
(g) Officers' Certificates............................................ A-18
(h) Regulatory Approvals.............................................. A-19
(i) Resignations...................................................... A-19
(j) Stockholder Approval.............................................. A-19
9. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.................. A-19
(a) Representations and Warranties.................................... A-19
(b) Covenants......................................................... A-19
(c) Legal Opinion..................................................... A-19
(d) No Litigation..................................................... A-19
(e) Officer's Certificate............................................. A-19
(f) Regulatory Approvals.............................................. A-19
(g) Stockholder Approval.............................................. A-19
10. CLOSING............................................................... A-19
11. TRANSACTIONS AT CLOSING............................................... A-20
(a) Deliveries By the Sellers to the Buyer............................ A-20
(b) Deliveries by the Buyer to the Sellers............................ A-20
(c) Deliveries by the Seller, Buyer and Subsidiaries.................. A-20
12. TERMINATION RIGHTS.................................................... A-20
(a) Termination....................................................... A-20
(b) Effect of Termination............................................. A-21
13. INDEMNITY............................................................. A-21
(a) By the Seller..................................................... A-21
(b) By Buyer.......................................................... A-21
(c) Limitations....................................................... A-21
(d) Indemnification Procedure......................................... A-22
(e) Attorneys Fees.................................................... A-22
(f) Insurance......................................................... A-22
(g) Exclusive Remedy.................................................. A-22
14. SPECIFIC PERFORMANCE.................................................. A-23
15. PUBLIC ANNOUNCEMENTS.................................................. A-23
16. POST-CLOSING COVENANTS................................................ A-23
(a) Necessary Action.................................................. A-23
(b) Access To Books and Records....................................... A-23
(c) Rights of Way..................................................... A-23
(d) Severance Policy.................................................. A-23
(e) Office Space...................................................... A-24
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
(f) Guaranteed Obligations............................................ A-24
(g) Special Account................................................... A-24
(h) Termination of Gas Contract....................................... A-25
17. TAXES................................................................. A-25
(a) Obligations Regarding Taxes....................................... A-25
(b) Section 338(h)(10) Election....................................... A-25
18. ARBITRATION........................................................... A-26
19. CASUALTY LOSSES....................................................... A-26
20. PROHIBITED ACTIVITIES OF SELLER....................................... A-26
21. MISCELLANEOUS......................................................... A-27
(a) Notices........................................................... A-27
(b) Binding Effect.................................................... A-27
(c) Expenses.......................................................... A-27
(d) Merger............................................................ A-27
(e) Waiver............................................................ A-27
(f) Counterpart Execution............................................. A-28
(g) Governing Law..................................................... A-28
(h) Survival of Warranties, Representations, and Agreements........... A-28
(i) Including......................................................... A-28
(j) Gender............................................................ A-28
(k) Captions.......................................................... A-28
(l) Knowledge Defined................................................. A-28
(m) Schedules......................................................... A-28
(n) Further Assurances................................................ A-28
(o) Severability...................................................... A-28
(p) No Third Party Beneficiary........................................ A-28
</TABLE>
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made this 19th day of March, 1997, by and between
ATRION CORPORATION and MIDCOAST ENERGY RESOURCES, INC.
W I T N E S S E T H:
WHEREAS, the Seller is the owner of all of the issued and outstanding
capital stock of the Subsidiaries;
WHEREAS, each of ATNG and TRIGAS is engaged in the business of owning and
operating natural gas pipelines and ATEMCO is engaged in the business of
natural gas marketing (each Subsidiary's business as described being
hereinafter referred to as the "Business" and the Subsidiaries' businesses
being sometimes hereinafter referred to, collectively, as the "Businesses");
and
WHEREAS, the Seller desires to sell the Shares to the Buyer, and the Buyer
desires to purchase the Shares from the Seller, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereby agree as follows:
1. DEFINITIONS. The following terms, wherever used in this Agreement, shall
have the respective meanings indicated below:
(a) "Actual Value" means the Consolidated Net Book Value as determined in
accordance with Section 3(b)(iii)(C).
(b) "Agreement" means this Stock Purchase Agreement.
(c) "ATEMCO" means AlaTenn Energy Marketing Company, Inc., an Alabama
corporation.
(d) "ATNG " means Alabama-Tennessee Natural Gas Company, an Alabama
corporation.
(e) "Business" or "Businesses" shall have the meaning described in the
recitals to this Agreement.
(f) "Buyer" means Midcoast Energy Resources, Inc., a Nevada corporation.
(g) "Buyer's Value" shall have the meaning set forth in Section 3(b)(ii).
(h) "Closing" means the closing of the purchase and sale of the Shares as
described in Section 10.
(i) "Closing Date" means the date of Closing as provided in Section 10.
(j) "Closing Date Balance Sheet" means the Draft Closing Date Balance Sheet
together with any revisions thereto as described in Section 3(b).
(k) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(l) "Consolidated Net Book Value" shall mean the consolidated net book value
of the Subsidiaries as of the Closing Date as reflected in the Closing Date
Balance Sheet.
(m) "Contingent Deferred Purchase Price" shall have the meaning set forth in
Section 3(d).
(n) "Contracts" means any and all contracts, leases, commitments, licenses,
permits and other agreements of the Subsidiaries.
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(o) "Contract Year" shall have the meaning set forth in Section 3(d).
(p) "Damages" means all debts, obligations, losses, costs of defense,
damages, liabilities, claims, judgments, awards, settlements, taxes,
penalties, assessments, and other costs and expenses (including attorneys fees
as provided in Section 13(e) and any prejudgment interest in any litigated or
arbitrated matter) which may be incurred, made or levied against the
Subsidiaries, or any of them, the Buyer or the Seller; provided, however, that
such term shall not include any special, punitive, exemplary, consequential or
indirect damages, except that it shall include damages for lost profits which
flow as a direct result of the loss and, provided further, that each of the
parties shall have a duty to exercise reasonable diligence and ordinary care
in attempting to minimize all such damages as would a person of ordinary
prudence under the same or similar circumstances.
(q) "Draft Closing Date Balance Sheet" shall have the meaning set forth in
Section 3(b)(i).
(r) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(s) "Escrow Agent" means Mercantile Bank, N.A.
(t) "Escrow Deposit" means the cash and other property held by the Escrow
Agent pursuant to the Escrow Agreement among the Escrow Agent, the Seller and
the Buyer executed contemporaneously herewith.
(u) "FERC" means the Federal Energy Regulatory Commission.
(v) "Fiduciary Out" shall have the meaning set forth in Section 12.
(w) "Financial Statements" means the unaudited financial statements of the
Subsidiaries (including balance sheets and statements of income and expense)
for the calendar years ended December 31, 1994, December 31, 1995 and December
31, 1996.
(x) "HSR Act" refers to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
(y) "Hazardous Substances" means asbestos, any other substance, product,
chemical or chemical byproduct, waste or material defined, or regulated or
designated as hazardous, toxic or dangerous by any federal, state or local
statute, regulation or ordinance presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances may be
amended from time to time.
(z) "Indemnification Claim" means any claim, demand, action, lawsuit,
proceeding, event or condition with respect to which a claim for
indemnification may be made pursuant to Section 13.
(aa) "Indemnification Payments" shall have the meaning set forth in Section
13(a).
(ab) "Material Adverse Effect" means an adverse effect which would result in
Damages in the aggregate amount of Fifteen Thousand Dollars ($15,000) or more.
(ac) "Original Value" shall have the meaning set forth in Section
3(b)(iii)(C).
(ad) "Plans" means all "employee benefit plans" (as such term is defined in
Section 3(3) of ERISA) sponsored or maintained by any of the Subsidiaries on
the date of execution of this Agreement.
(ae) "Preliminary Purchase Price" means Thirty-Nine Million Three Hundred
Seventy-Three Thousand Dollars ($39,373,000).
(af) "Pro Rata" shall have meaning set forth in Section 3(d).
(ag) "Public Announcements" shall have the meaning set forth in Section 15.
(ah) "Purchase Price" means the Preliminary Purchase Price adjusted pursuant
to Sections 3(b) and 3(c).
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(ai) "Section 338(h)(10) Election" means a joint election under Code Section
338(h)(10) with respect to the purchase of the Shares pursuant to this
Agreement.
(aj) "Seller" means Atrion Corporation, a Delaware corporation.
(ak) "Shares" means all of the shares of capital stock of the Subsidiaries.
(al) "Subsidiary" or "Subsidiaries" means ATNG, TRIGAS and ATEMCO.
(am) "Third Party Claim" means an Indemnification Claim involving a claim,
demand, action, lawsuit or proceeding by a third party.
(an) "TRIGAS" means Tennessee River Intrastate Gas Company, an Alabama
corporation.
2. PURCHASE AND SALE. Subject to the terms and conditions set forth in this
Agreement and based upon the representations and warranties made herein, at
the Closing, the Seller shall sell, assign and deliver the Shares to the Buyer
and the Buyer shall purchase and acquire the Shares from the Seller.
3. PURCHASE PRICE; PAYMENT.
(a) Purchase Price. The purchase price for the Shares shall be the
Preliminary Purchase Price, as adjusted in the manner provided in Sections
3(b) and 3(c) below, plus the Contingent Deferred Purchase Price as described
in Section 3(d) below. At Closing, Buyer shall pay the Seller the Preliminary
Purchase Price less the Escrow Deposit, in cash, by wire transfer to an
account designated by the Seller. Contemporaneously herewith, the Buyer has
deposited with Escrow Agent the sum of Two Million Dollars ($2,000,000). The
parties agree to cause the Escrow Agent to pay the Escrow Deposit, by wire
transfer to an account designated by the applicable party, on the following
basis:
(i) if the Closing occurs, the Escrow Deposit shall be paid to the Seller
at Closing as part of the Purchase Price;
(ii) if the Closing does not occur due to the failure of one or more
conditions precedent in Section 8 hereof to be satisfied and the Buyer
terminates this Agreement pursuant to Section 12(a)(ii)(A) or 12 (a)(ii)(B)
hereof, then the Escrow Deposit shall be paid to the Buyer within three (3)
business days following termination;
(iii) if the Closing does not occur due to a termination of this
Agreement which results from the exercise by the Seller of the Fiduciary
Out or the failure of the stockholders of the Seller to approve this
Agreement at a meeting of the stockholders held to consider such approval,
then the Escrow Deposit shall be paid to the Buyer within three (3)
business days following termination;
(iv) if the Closing does not occur due to the failure of one or more
conditions precedent in Sections 9(a), (b), (c) or (e) hereof to be
satisfied or, with respect to Section 9(d), the failure of said condition
to be satisfied on account of an action brought by a creditor or
stockholder of the Buyer, and this Agreement is terminated by the Seller
pursuant to Section 12(a)(ii)(A) or 12(a)(ii)(B) hereof, then the Escrow
Deposit shall be paid to the Seller within three (3) business days
following termination;
(v) if the Closing does not occur by July 3, 1997 and this Agreement is
terminated by either the Seller or the Buyer pursuant to Section
12(a)(ii)(B) hereof for any reason whatsoever other than due to the failure
of one or more conditions precedent in Sections 9(a), (b), (c) or (e)
hereof, or, with respect to Section 9(d), other than due to the failure of
said condition to be satisfied on account of an action brought by a
creditor or stockholder of the Buyer, then the Escrow Deposit shall be paid
to the Buyer within three (3) business days following termination; or
(vi) if the Closing does not occur due to the Buyer's termination of this
Agreement pursuant to Section 19 hereof, then the Escrow Deposit shall be
paid to the Buyer within three (3) business days following termination.
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(vii) Notwithstanding Sections 3(a)(i) through (vi) above, to the extent
the Escrow Deposit exceeds Two Million Dollars ($2,000,000), such excess
shall be the property of and be paid to the Buyer at Closing or, if Closing
does not occur, within three (3) business days following termination of
this Agreement.
(b) Consolidated Net Book Value Determination.
(i) Within forty-five (45) days after the Closing Date, the Seller shall
prepare and deliver to the Buyer a draft consolidated balance sheet for the
Subsidiaries as of 9:00 a.m. Central Time on the Closing Date (the "Draft
Closing Date Balance Sheet"). The Seller will prepare the Draft Closing
Date Balance Sheet in accordance with generally accepted accounting
principles applied on a basis consistent with the preparation of the pro
forma balance sheet attached hereto as Exhibit A utilizing the same
adjustments used in preparing said attached pro forma balance sheet
including the removal of all prepaid insurance amounts.
(ii) If the Buyer has any objections to the Draft Closing Date Balance
Sheet, it shall deliver a detailed statement describing its objections to
the Seller within thirty (30) days after receiving the Draft Closing Date
Balance Sheet and including therein the Buyer's calculation of Consolidated
Net Book Value (the "Buyer's Value"). The Buyer and the Seller shall use
reasonable efforts to resolve any such objections themselves. If the
parties do not obtain a final resolution within thirty (30) days after the
Seller has received the statement of objections, however, the Buyer and the
Seller shall select an accounting firm mutually acceptable to them which
shall resolve any remaining objections. If the Buyer and the Seller are
unable to agree on the choice of an accounting firm, they shall select a
nationally-recognized accounting firm by lot (after excluding their
respective regular outside accounting firms). The determinations made by
the accounting firm so selected shall be set forth in writing and shall be
conclusive and binding upon the parties. The Seller shall revise the Draft
Closing Date Balance Sheet as appropriate to reflect the resolution of any
objections thereto pursuant to this Section 3(b).
(iii) In the event the parties submit any unresolved objections to an
accounting firm for resolution as provided in Section 3(b)(ii) above, the
Buyer and the Seller shall share responsibility for the fees and expenses
of the accounting firm as follows:
(A) if the accounting firm resolves all of the remaining objections
in favor of the Buyer, the Seller shall be responsible for all of the
fees and expenses of the accounting firm;
(B) if the accounting firm resolves all of the remaining objections
in favor of the Seller, the Buyer shall be responsible for all of the
fees and expenses of the accounting firm; and
(C) if the accounting firm resolves some of the remaining objections
in favor of the Buyer and the rest of the remaining objections in favor
of the Seller (the Consolidated Net Book Value so determined shall be
referred to herein as the "Actual Value"), the Seller shall be
responsible for that fraction of the fees and expenses of the
accounting firm equal to (x) the difference between the consolidated
net book value of the Subsidiaries reflected in the Draft Closing Date
Balance Sheet (the "Original Value") and the Actual Value over (y) the
difference between the Original Value and the Buyer's Value, and the
Buyer shall be responsible for the remainder of the fees and expenses.
(iv) The Buyer shall make the books, records and financial staff of the
Subsidiaries available to the Seller and its accountants and other
representatives and shall generally cooperate with Seller in the
preparation of the Draft Closing Date Balance Sheet, and the Seller will
make the work papers and backup materials used in preparing the Draft
Closing Date Balance Sheet available to the Buyer and its accountants and
other representatives, in each case at reasonable times and upon reasonable
notice at any time during (A) the preparation by the Seller of the Draft
Closing Date Balance Sheet, (B) the review by the Buyer of the Draft
Closing Date Balance Sheet and (C) the resolution by the parties of any
objections thereto.
(c) Adjustment to Purchase Price. The Purchase Price shall be adjusted as
follows:
(i) If the Consolidated Net Book Value, as finally determined pursuant to
Section 3(b) above, exceeds Fourteen Million Four Hundred Thirty-Six
Thousand Dollars ($14,436,000), upward by an amount equal to such excess;
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<PAGE>
(ii) If the Consolidated Net Book Value, as finally determined pursuant
to Section 3(b) above, is less than Fourteen Million Four Hundred Thirty-
Six Thousand Dollars ($14,436,000), downward by an amount equal to such
deficiency;
(iii) Downward by the amount of a casualty loss to physical assets of the
Subsidiaries suffered through the Closing Date, as to which the insurance
proceeds or other rights of Seller against third parties arising from such
casualty are not assignable to Buyer; as provided in Section 19 of this
Agreement;
(iv) Downward by any excess of (A) the amount of liabilities reflected on
the pro forma balance sheet attached hereto as Exhibit A which are relieved
and taken into income by Seller for the period from December 31, 1996 to
the Closing Date, reduced by the federal and state income tax liability
associated therewith, over (B) One Hundred Fifty Thousand Dollars
($150,000); and
(v) Downward by the product of Thirteen Thousand Dollars ($13,000) and
the number of days, if any, which elapses from the later of (A) May 19,
1997 and (B) the first date on which all of the conditions set forth in
Sections 9(a), (b), (c), (e) and the first sentence of Section 9(d) are
satisfied, to the Closing Date.
The net amount owing by Buyer to Seller or by Seller to Buyer, as applicable
by reason of such adjustments to the Preliminary Purchase Price shall be paid
in immediately available funds by wire transfer or other means within three
(3) business days after such determinations have been made.
(d) Contingent Deferred Purchase Price. The Contingent Deferred Purchase
Price, up to a maximum of Two Million Dollars ($2,000,000), shall be paid as
provided on Schedule 3(d).
4. REPRESENTATIONS AND WARRANTIES AS TO SELLER. The Seller hereby represents
and warrants to the Buyer as of the date hereof as follows:
(a) Organization and Existence. The Seller is a corporation, duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite power and authority to enter into and perform its obligations under
this Agreement. Seller is duly qualified to do business and is in good
standing in all jurisdictions where the nature of properties owned or leased
by the Seller or the activities conducted by the Seller make such
qualification necessary except where a failure to be so qualified would not
have a Material Adverse Effect on the operations, assets or financial
condition of the Seller or any of the Subsidiaries, individually or
collectively.
(b) Approvals. Subject to stockholder approval, if necessary, the Seller's
execution, delivery and performance of this Agreement has been duly authorized
by all necessary corporate and other action and no further corporate or other
action is necessary on the part of the Seller for it to execute and deliver
this Agreement and to consummate and perform its obligations hereunder.
(c) Consents. Except as set forth in Schedule 4(c) of the Disclosure
Schedule delivered contemporaneously herewith (the "Disclosure Schedule"), no
consent, approval or authorization of, or the making of any declaration or
filing with, any governmental authority or any other person is necessary in
connection with the execution, delivery or performance by the Seller of this
Agreement (other than pursuant to the HSR Act), except such consents,
approvals, authorizations, declarations and filings which, if not obtained or
made, would not prevent or impede the consummation of the transactions
contemplated hereby or have a Material Adverse Effect on the operations,
assets or financial condition of the Buyer or any of the Subsidiaries,
individually or collectively.
(d) No Violation. Except as set forth in Schedule 4(d) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Seller
nor the fulfillment of or compliance with the terms or provisions hereof will:
(i) violate or conflict with any provision of the Articles of Incorporation or
Bylaws of the Seller, (ii) conflict with, result in any breach or violation
of, constitute a default under, give rise to a right of termination,
cancellation or acceleration under or result in the creation of any lien,
security interest or loss of a benefit under any contract or other agreement,
mortgage, lease, license or other instrument or obligation to which the Seller
is
A-9
<PAGE>
a party or by which it or any of its assets is bound, except where such
conflicts, breaches, violations, defaults, terminations or other events would
not, individually or in the aggregate, prevent or impede the consummation of
the transactions contemplated hereby; or (iii) result in the violation of any
provision of any applicable law, rule, regulation or ordinance or any order,
decree, writ or injunction of any court, administrative agency or governmental
authority by which the Seller is bound, except where such violations would not
prevent or impede the consummation of the transactions contemplated hereby.
(e) Validity and Binding Effect. This Agreement has been duly executed and
delivered on behalf of the Seller and, assuming the valid and binding
execution of this Agreement by the Buyer, constitutes the legal, valid and
binding obligation of the Seller, enforceable against the Seller in accordance
with its terms subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the availability of specific performance
and other equitable remedies (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(f) Shares. The Seller holds of record and owns all of the Shares, free and
clear of all liens, security interests, restrictions, pledges, claims and
encumbrances of every nature. The Seller is not a party to any option,
warrant, right or other contract or commitment that would require the Seller
to sell any of the Shares. The Seller is not a party to any voting trust,
proxy or other agreement or understanding with respect to the voting of the
Shares.
(g) No Brokers. Neither the Seller nor any Subsidiary has employed any
broker, finder, investment banker or consultant in connection with this
Agreement that would be entitled to a broker's, finder's or similar fee or
commission in connection herewith.
(h) Public Utility Holding Company Act. Seller is not a "holding company" or
a "subsidiary company" of a "holding company" or an affiliate of a "holding
company", or an "affiliate" of a "subsidiary company" of a "holding company,"
in each case within the meaning of the Public Utility Holding Company Act of
1935, as amended.
5. REPRESENTATIONS AND WARRANTIES AS TO SUBSIDIARIES. The Seller hereby
represents and warrants to the Buyer as of the date hereof as follows:
(a) Organization and Existence. Each Subsidiary is a corporation, duly
organized, validly existing and in good standing under the respective laws of
its state of incorporation and has all requisite power and authority to enter
into and perform its obligations under this Agreement. Each Subsidiary is duly
qualified to do business and is in good standing as a foreign corporation in
all jurisdictions where the nature of the properties owned or leased or the
activities conducted by such Subsidiary make such qualification necessary and
where a failure to be so qualified would have a Material Adverse Effect on the
assets, operations or financial condition of such Subsidiary. The Subsidiaries
have all requisite power and authority and all licenses, permits and
authorizations necessary to own, lease and operate their respective properties
and to carry on their respective Businesses as such Businesses are presently
being conducted, except where the failure to obtain such licenses, permits and
authorizations would not have a Material Adverse Effect on the operations,
assets or financial condition of the Subsidiaries, individually or
collectively.
(b) Capitalization. The entire authorized capital stock of ATNG consists of
Five Thousand Four Hundred (5,400) shares, of which Five Thousand Four Hundred
(5,400) shares are issued and outstanding. The entire authorized capital stock
of TRIGAS consists of One Thousand (1,000) shares, of which One Thousand
(1,000) shares are issued and outstanding. The entire authorized capital stock
of ATEMCO consists of One Thousand (1,000) shares, of which One Thousand
(1,000) shares are issued and outstanding. The Seller is the owner of all of
the issued and outstanding shares of each of the Subsidiaries and all such
shares have been duly authorized, are validly issued, fully paid,
nonassessable and free of preemptive rights. There are no outstanding or
authorized options, warrants, purchase rights, subscriptions rights,
conversion rights, exchange rights or other contracts or commitments that
would require any Subsidiary to issue, sell or otherwise cause to become
outstanding any of its capital stock.
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(c) No Violation. Except as set forth in Schedule 5(c) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Seller
nor the fulfillment of or compliance with the terms or provisions hereof will:
(i) violate or conflict with any provision of the Articles of Incorporation or
Bylaws of any Subsidiary (ii) conflict with, result in any breach or violation
of, constitute a default under, give rise to a right of termination,
cancellation or acceleration under or result in the creation of any lien,
security interest or loss of a benefit under any contract or other agreement,
mortgage, lease, license or other instrument or obligation to which any
Subsidiary is a party or by which it or any of its assets is bound; or (iii)
result in the violation of any provision of any applicable law, rule,
regulation or ordinance or any order, decree, writ or injunction of any court,
administrative agency or governmental authority by which any Subsidiary is
bound.
(d) Financial Statements. The Seller has furnished Buyer with copies of the
Financial Statements. The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods indicated, except as adjusted to reflect elimination of
inter-company assets and liabilities among the Seller (including any
affiliates of the Seller) and the Subsidiaries which items have been
reclassified as equity and except as otherwise disclosed therein, and fairly
present the financial position of the Subsidiaries taken as a whole. Except as
and to the extent (x) reflected or reserved against in the Financial
Statements, (y) disclosed in one or more Schedules to this Agreement or (z) of
liabilities and obligations incurred in the ordinary course of business since
December 31, 1996, none of the Subsidiaries, as of the date of this Agreement
has any material liability or obligation of any nature (whether absolute,
accrued, contingent or otherwise) which should be reflected as a liability on
the Financial Statements under generally accepted accounting principles
consistently applied.
(e) Taxes. Except as disclosed in Schedule 5(e) of the Disclosure Schedule,
(i) all federal, state, county and local tax returns and reports, of whatever
type, required to be filed by or with respect to each Subsidiary, as of the
date hereof and as of the Closing Date, have been or will have been filed and
all taxes (including, without limitation, penalties, interest, assessments and
other charges imposed thereon) shown to be due on said returns and reports
have been paid; (ii) none of the Subsidiaries is delinquent in the payment of
any taxes, assessments or penalties due and payable by such entity to the
United States or any other taxing authority with respect to any period ended
prior to the date hereof; (iii) none of the federal income tax returns for any
tax year after 1991 of any of the Subsidiaries has been audited by the
Internal Revenue Service; (iv) there are no federal, state or local tax liens
upon any property or assets of any of the Subsidiaries, except for liens for
taxes not yet due and payable; (v) there are no present disputes with any
taxing authority relating to taxes of any nature payable by or affecting any
of the Subsidiaries; and (vi) no waivers of statutes of limitations as to any
tax matters have been given or requested with respect to any Subsidiary.
(f) Title to Properties. Except as otherwise specified in Schedule 5(f) of
the Disclosure Schedule and except such title matters which do not have a
Material Adverse Effect on the operations, assets or financial condition of
the Subsidiaries, individually or collectively, each of the Subsidiaries has:
(i) good and marketable title to its assets, free and clear of all liens,
mortgages, security agreements, options, pledges, charges, covenants,
conditions, restrictions and other encumbrances and claims of any kind or
character whatsoever (other than tax liens for taxes not yet due and payable);
and (ii) all rights-of-way and easements necessary to own, operate and
maintain its Business as presently conducted. Except as set forth in Schedule
5(f) of the Disclosure Schedule, no person has any right, title or interest or
any claim thereto in any of such properties or assets, the existence of which,
either individually or in the aggregate, would prevent or impede the
consummation of the transactions contemplated hereby or have a Material
Adverse Effect on the operations, assets or financial condition of any of the
Subsidiaries, individually or collectively.
(g) Gas Purchase Contracts, Gas Sales Contracts, Gas Storage Contracts and
Gas Transportation Agreements. All Gas Purchase Contracts, Gas Sales
Contracts, Gas Storage Contracts and Gas Transportation Contracts to which any
of the Subsidiaries is a party or is otherwise bound are listed in Schedule
5(g) of the Disclosure Schedule. Copies of all such Contracts, together with
all amendments, modifications, revocations and notices pertaining thereto have
been delivered or made available to Buyer. Except as set forth on Schedule
5(g) of the Disclosure Schedule, no Subsidiary is party to any arrangement
under which it will be obligated, by virtue
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of a prepayment arrangement, a "take-or-pay" arrangement or any other
arrangement, to transport or deliver hydrocarbons at some future time without
then or thereafter receiving full payment therefor, or to pay for hydrocarbons
or their transportation without then receiving such hydrocarbons.
(h) No Leases. Except as set forth in Schedule 5(h) of the Disclosure
Schedule, all the equipment and real property (other than rights-of-way,
licenses, permits and easements) which are material to the operations of each
of the Subsidiaries is owned by such Subsidiary and not leased or rented.
(i) No Defaults. None of the Subsidiaries is in breach or default under any
term or provision of any of its Contracts except where such breaches or
defaults would not, either individually or in the aggregate, prevent or impede
the consummation of the transactions contemplated hereby or have a Material
Adverse Effect on the assets, operations or financial condition of any of the
Subsidiaries. All of the Contracts are in full force and effect, and
constitute legal, valid and binding obligations of the applicable Subsidiary
except where the failure to be in full force and effect and legal, valid and
binding would not, either individually or in the aggregate, have a Material
Adverse Effect on the assets, operations or financial condition of such
Subsidiary. None of the Subsidiaries has received any written notice from any
other party indicating any intent to rescind or dishonor any material
provision contained in any of the Contracts. Except as set forth in Schedule
5(i) of the Disclosure Schedule, none of the Subsidiaries is a party to any
contract to sell any portion of its assets other than in the ordinary course
of business.
(j) Compliance with Applicable Law. Except as set forth in Schedule 5(j) of
the Disclosure Schedule, to the Seller's knowledge, the Subsidiaries are in
compliance with every applicable law, rule, regulation, ordinance, license,
permit and other governmental action and authority and every order, writ, and
decree of every court, administrative agency or other governmental authority
in connection with the ownership, operation and maintenance of their
Businesses, properties and assets, except where the non-compliance with which,
either individually or in the aggregate, would not prevent or impede the
consummation of the transactions contemplated hereby or have a Material
Adverse Effect on the operations, assets or financial condition of the
Subsidiaries. All filings and notices required to be made by the Subsidiaries
with the regulatory agencies of the federal government and any state, county
or municipality have been made or given, except where the failure to make such
filings and notices, either individually or in the aggregate, would prevent or
impede the consummation of the transactions contemplated hereby or have a
Material Adverse Effect on the operations, assets or financial condition of
the Subsidiaries, individually or collectively.
(k) Insurance. The Subsidiaries maintain in effect insurance on their
respective assets as described in Schedule 5(k) of the Disclosure Schedule.
Such insurance policies are in full force and effect on the date hereof and
will remain in effect through the Closing; provided, however, that the parties
acknowledge that the Seller may cancel all or any portion of such insurance
policies at Closing. None of the Subsidiaries is in default with respect to
any provision contained in any insurance policy covering any portion of its
assets, except where such default would not prevent or impede the consummation
of the transactions contemplated hereby or have a Material Adverse Effect on
the operations, assets or financial condition of the Subsidiaries,
individually or collectively.
(l) Litigation. Except as set forth in Schedule 5(l) of the Disclosure
Schedule, there are no pending suits, actions or proceedings, against or
involving any of the Subsidiaries and, to the knowledge of the Seller, there
are no investigations or threatened suits, actions or proceedings against or
involving such Subsidiaries, except such suits, actions, proceedings or
investigations which would not, either individually or in the aggregate, have
a Material Adverse Effect on the operations, assets or financial condition of
any of the Subsidiaries. No Subsidiary is in default with respect to any
judgment, order, writ, injunction, decree or award from any court or other
governmental instrumentality or arbitrator having jurisdiction over such
Subsidiary which default or violation has had or will have a Material Adverse
Effect on the operations, assets or financial condition of such Subsidiary.
(m) Employee Matters. Except as set forth in Schedule 5(m) of the Disclosure
Schedule, none of the Subsidiaries is a party to any written employment
contract, brokerage commission contract or consulting contract
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or any union or collective bargaining contract. To the Seller's knowledge,
each Subsidiary is in compliance with all laws relating to the employment of
labor, including, without limitation, provisions thereof relating to wages,
hours, equal opportunity and the payment of social security and other taxes
where the noncompliance with which would either individually or in the
aggregate have a Material Adverse Effect on the assets, operations or
financial condition of the Subsidiaries. The Seller is not aware of any union
organization effort, strike, walk-out, boycott, slow-down, sick-out, work
stoppage or similar labor relations problem relating to the Business of any
Subsidiary.
(n) Patents, Copyrights, Trademarks, Etc. Except as set forth in Schedule
5(n) of the Disclosure Schedule, to the Seller's knowledge, the present
conduct of the Business of each Subsidiary does not conflict with, infringe
upon or violate the patents, trademarks, servicemarks, trade names, copyrights
or trade secrets or other intangible assets of any other person or entity, and
none of the Subsidiaries has received any notice of any infringement thereof,
except where such conflicts, infringements and violations would not, either
individually or in the aggregate, have a Material Adverse Effect on the
operations, assets or financial condition of the Subsidiaries, individually or
collectively.
(o) Employee Benefit Plans. All Plans are set forth in Schedule 5(o) of the
Disclosure Schedule. To the Seller's knowledge, the Plans have been operated,
administered and funded in compliance in all material respects with the
applicable provisions of ERISA, the Code and all applicable regulations
promulgated thereunder (including the minimum funding requirements of Section
302 of ERISA and Section 412 of the Code). Without limiting the generality of
the foregoing:
(i) To the Seller's knowledge, no Subsidiary has any liability with
respect to any other "employee benefit plan" and has never sponsored,
maintained, made or been required to make contribution to any "multi-
employer plan" as such term is defined in Section 3(37) of ERISA).
(ii) To the Seller's knowledge, no "reportable event" (as such term is
defined in Section 4043(a) of ERISA) and no transaction described in
Section 406 of ERISA has occurred with respect to any of the Plans.
(iii) There are no pending claims by, against or on behalf of the Plans
other than routine claims by participants and beneficiaries for benefits
due and owing under the Plans.
(iv) None of the assets of any of the Subsidiaries is subject to a lien
pursuant to Section 302(f) or Section 4068 of ERISA.
(v) To the Seller's knowledge, no Subsidiary nor any affiliate of any
Subsidiary has engaged in any transaction or is a successor to or parent
corporation of any party which has engaged in any transaction which would
subject it to liability under Section 4069 of ERISA.
(p) Environmental Matters. Except as set forth in Schedule 5(p) of the
Disclosure Schedule, (i) to the Seller's knowledge, there are no Hazardous
Substances present upon any real property owned or occupied by any Subsidiary;
(ii) to the Seller's knowledge, there has been no spill, release, discharge,
dispersal, deposit, storage or disposal of any Hazardous Substances by any
Subsidiary which has not been corrected; (iii) none of the Subsidiaries is
subject to any order, permit or directive, directed to it as opposed to the
industry in general, relating to the generation, recycling, reuse, sale,
storage, handling, transport or disposal of Hazardous Substances or directing
cleanup of or payment of cleanup costs of Hazardous Substances, the cost of
compliance with which, either individually or in the aggregate, would have a
Material Adverse Effect on the operations, assets or financial condition of
such Subsidiary; (iv) there are no notices, claims, orders, directives,
litigation, administrative or other proceedings, judgments or orders of which
the Seller is aware relating to any Hazardous Substances or other forms of
pollution relating in any way to any above-mentioned property of any
Subsidiary with which such Subsidiary has not complied in all material
respects, except where the cost of compliance with which, either individually
or in the aggregate, would have a Material Adverse Effect on the operations,
assets or financial condition of such Subsidiary; and (v) to the Seller's
knowledge, no persons have been exposed to a Hazardous Material through
activities, conditions, or circumstances pertaining to any of the Subsidiaries
such that the Subsidiaries (or their assets) are reasonably likely to incur
liability to such persons for personal injuries, damages or death resulting
from such exposure.
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(q) Real Property. The Seller has no knowledge of any threatened termination
or reduction of the current access to or from the real property used by any
Subsidiary in its Business to existing roads or the sewer or other utility
services presently serving such real property. No Subsidiary has received any
notice that its real property is in violation of any zoning, laws, statutes,
ordinances or building or use restrictions applicable to such real property or
which prohibit the use of such real property for its current use or uses.
(r) Changes. Except as set forth in Schedule 5(r) of the Disclosure
Schedule, since December 31, 1996 each of the Subsidiaries has:
(i) conducted the operation of its Business only in the ordinary course
of business consistent with past practice;
(ii) preserved its corporate existence and retained its business
organization intact;
(iii) paid all compensation and other obligations to its employees when
the same were due and payable;
(iv) not mortgaged, pledged, subjected to lien, charged, encumbered or
granted a security interest in or to any of its assets;
(v) not sold or transferred any of its assets except for sales of
inventory in the ordinary course of business;
(vi) not suffered any material damage, destruction or loss (whether or
not covered by insurance) affecting its assets;
(vii) not waived any right of substantial value; and
(viii) not terminated any contract, agreement or arrangement with any
customer or supplier or received notice of termination with respect to any
such material contract, agreement or arrangement.
(s) Tariffs. Except as set forth in Schedule 5(s) of the Disclosure
Schedule, to the extent that the operations of any of the Subsidiaries are
subject to a tariff approved by FERC, those operations are in compliance with
each such tariff, except where such noncompliance would not have a Material
Adverse Effect on the assets, operations or financial condition of the
Subsidiaries taken as a whole. Seller has no knowledge of any refund claim of
any customers or any refund obligation of any Subsidiary imposed under an
order issued by FERC and, except as set forth in Schedule 5(s) of the
Disclosure Schedule, has no knowledge of any facts or circumstances which
would give rise to any such refund claim or refund obligation. Except as set
forth in Schedule 5(s) hereto, there are no customer complaints pending or, to
Seller's knowledge, threatened against any Subsidiary before FERC, which
would, either individually or in the aggregate, have a Material Adverse Effect
on the operations, assets or financial condition of the Subsidiaries taken as
a whole.
(t) Material Misstatements or Omissions. No statement, representation,
warranty or covenant made by the Seller in this Agreement or in any Exhibit or
Schedule to this Agreement contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary in
order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
(u) Assets Owned. The Subsidiaries own, or have rights of way, licenses,
leases, permits or easements with respect to, all of the material assets used
in the Businesses or held in storage for use in the Businesses, including
those described in Schedule 5(u) of the Disclosure Schedule, and they own the
various other assets described or referred to in said Schedule 5(u). Other
than sales or assignments to their customers and among themselves, the
Subsidiaries have not sold or assigned any rights of way, licenses, leases,
permits or easements, in whole or in part, or any undivided interest therein,
to any parties whatsoever, except as disclosed in said Schedule 5(u).
(v) No Partnership. None of the Subsidiaries is a party to any partnership
or joint ventures.
(w) No Customer Curtailments. Except as set forth on Schedule 5(w) of the
Disclosure Schedule, neither Seller nor any of the Subsidiaries has received
written notice of any threatened or planned plant closings of customers of the
Subsidiaries or the curtailment by such customers of future gas purchases by
such customers from the Subsidiaries.
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(x) Gas Imbalances. Except as accrued for on the Draft Closing Date Balance
Sheet and reserved for thereon, there will be no gas imbalances as of the
Closing Date for which the Subsidiaries, or any of them, shall have any
liability or other obligation which is not offset by a corresponding
receivable.
6. BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer hereby represents and
warrants to the Seller as of the date hereof as follows:
(a) Organization and Existence. The Buyer is a corporation, duly organized,
validly existing and in good standing under the laws of Nevada and has all
requisite power and authority to enter into and perform its obligations under
this Agreement. The Buyer is duly qualified to do business and is in good
standing in all jurisdictions where the nature of properties owned or leased
by the Buyer or the activities conducted by the Buyer make such qualification
necessary and except where a failure to be so qualified would have a Material
Adverse Effect on the assets, operations or financial condition of the Seller.
(b) Approvals. The Buyer's execution, delivery and performance of this
Agreement has been duly authorized by all necessary and other corporate action
and no further corporate or other action is necessary on the part of the Buyer
for it to execute and deliver this Agreement and to consummate and perform its
obligations hereunder.
(c) Consents. Except as set forth in Schedule 6(c) hereto, no consent,
approval or authorization of, or the making of any declaration or filing with,
any governmental authority or any other person is necessary in connection with
the execution, delivery or performance by the Buyer of this Agreement (other
than pursuant to the HSR Act), except such consents, approvals,
authorizations, declarations and filings which, if not obtained or made, would
not prevent or impede the consummation of the transactions contemplated
hereby.
(d) No Violation. Except as set forth in Schedule 6(d) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Buyer
nor the fulfillment of or compliance with the terms or provisions hereof will:
(i) violate or conflict with any provision of the Articles of Incorporation or
Bylaws of the Buyer, (ii) conflict with, result in any breach or violation of,
constitute a default under, give rise to a right of termination, cancellation
or acceleration under or result in the creation of any lien, security interest
or loss of a benefit under any contract or other agreement, mortgage, lease,
license or other instrument or obligation to which the Buyer is a party or by
which it or any of its assets is bound, except where such conflicts, breaches,
violations,defaults, terminations and other events would not, individually or
in the aggregate, prevent or impede the consummation of the transactions
contemplated hereby; or (iii) result in the violation of any provision of any
applicable law, rule, regulation or ordinance or any order, decree, writ or
injunction of any court, administrative agency or governmental authority by
which the Buyer is bound, except where such violations would not prevent or
impede the consummation of the transactions contemplated hereby.
(e) Validity and Binding Effect. This Agreement has been duly executed and
delivered on behalf of the Buyer and, assuming the valid and binding execution
of this Agreement by the Seller, constitutes the legal, valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with its
terms subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) the availability of specific performance and other
equitable remedies (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(f) Financial Wherewithal. The Buyer has the financial ability to consummate
the transactions contemplated by this Agreement.
(g) No Brokers. The Buyer has not employed any broker, finder, investment
banker or consultant in connection with this Agreement that would be entitled
to a broker's, finder's or similar fee or commission in connection herewith.
(h) Material Misstatements or Omissions. No statement, representation,
warranty or covenant made by the Buyer in this Agreement or in any Exhibit or
Schedule to this Agreement, contains or will contain any untrue
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statement of material fact or omits or will omit to state any material fact
necessary in order to make the statements herein or therein in the light of
circumstances under which they were made, not misleading.
(i) Investment Representation. Buyer is purchasing the Shares for investment
purposes only and not with a view to any distribution thereof in violation of
the Securities Act of 1933, as amended, or any applicable state securities
law. Buyer has such knowledge and experience in business and financial affairs
in general, and of the Businesses of the Subsidiaries as conducted and
regulated in the states where they are located in particular, as to be capable
of evaluating the merits and risks of purchasing the Shares, taking into
account the accuracy of the representations and warranties contained in
Sections 4 and 5 hereof, and also the accuracy of any other information
provided to Buyer.
7. COVENANTS.
(a) Seller's Covenants. The Seller covenants and agrees that from and after
the execution and delivery of this Agreement to and including the Closing
Date:
(i) Access; Delivery of Documents. The Seller shall cause the
Subsidiaries to give the Buyer and its representatives access during normal
business hours and upon reasonable notice to the properties and the books
and records of the Subsidiaries and shall furnish or cause to be furnished
such information concerning the Subsidiaries as the Buyer may reasonably
request. The Buyer agrees not to disturb the normal operations of the
Subsidiaries. In addition, upon the Buyer's request, the Seller shall
provide to the Buyer or cause to be provided to the Buyer copies of any and
all agreements relating to the respective Businesses of the Subsidiaries.
Buyer shall maintain the confidentiality of all information furnished to
Buyer pursuant to this Section 7(a)(i) and, in the event this Agreement is
terminated, shall return copies of any such information to Seller or, at
Seller's request, shall destroy such materials.
(ii) Conduct of Business.
(A) Affirmative Requirements. Except as otherwise contemplated by
this Agreement, the Seller shall cause each of the Subsidiaries to:
(1) carry on its business in the ordinary course;
(2) maintain its assets in as good working order and condition as
at present, ordinary wear and tear excepted;
(3) perform all of its obligations in all material respects under
agreements relating to or respecting its assets, properties and
rights;
(4) use its good faith reasonable efforts to keep in full force
and effect present insurance coverage;
(5) use its good faith reasonable efforts (consistent with its
ordinary course of business) to maintain and preserve its Business
intact, retain its present employees and maintain its relationships
with customers and others having business relations with it;
(6) use its good faith reasonable efforts to maintain all licenses
and certifications necessary to conduct its Business; and
(7) respond to any reasonable inquiry by the Buyer concerning the
conduct and operation of its Business.
(B) Prohibitions. Except as otherwise contemplated by this Agreement,
the Seller shall cause each Subsidiary to not, without the prior
written consent of the Buyer:
(1) enter into any material contract or commitment or incur or
agree to incur any material liability or indebtedness except in the
ordinary course of business;
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(2) increase in any material respect the compensation payable
after the date hereof to any salaried employee or agent of such
Subsidiary;
(3) purchase, sell, assign, lease or otherwise acquire, transfer
or dispose of any material property or equipment, except in the
ordinary course of business;
(4) enter into or agree to enter into any material agreements or
arrangements which are outside the ordinary course of business which
grant any rights to purchase any of its material assets;
(5) except as identified in Schedule 7(a)(ii)(B)(5) of the
Disclosure Schedule, commit to, authorize or engage in any material
capital projects or capital expenditures relating to its Business or
its assets;
(6) merge or consolidate into or with any other corporation or
other entity;
(7) engage in any business other than the Business;
(8) enter into any transaction other than in the ordinary course
of business; or
(9) commit or agree to do any of the actions described in Sections
7(a)(ii)(B)(1) through (8) above.
(b) Certain Restructurings. The parties acknowledge and agree that the
Seller and the Buyer shall cause the following actions to be taken with
respect to the Subsidiaries:
(i) certain benefit plans shall be restructured as follows:
(1) the Atrion Thrift Plan shall be partially terminated with respect
to participants employed by the Subsidiaries in accordance with the
provisions of Exhibit B hereto and their account balances shall be
distributed to such participants;
(2) the liabilities of the Subsidiaries under the Atrion Supplemental
Executive Thrift Plan shall be transferred to and assumed by the Seller
and certain assets of the Atrion Supplemental Executive Thrift Plan
Trust shall be transferred to and accepted by a trust established by
the Seller in accordance with the provisions of Exhibit C hereto;
(3) the Atrion Retirement Plan shall be partially terminated with
respect to participants employed by the Subsidiaries in accordance with
the provisions of Exhibit D hereto and their accrued benefits shall be
distributed to such participants;
(4) the ATNG Post-Retirement, Medical and Health Voluntary Employee
Benefit Association (the "VEBA") shall be continued by the Buyer as
provided in Exhibit E hereto; provided, however, that on or before the
Closing Date, Seller shall cause ATNG to amend such VEBA to provide
that no further funding shall be made for the benefits provided under
the VEBA and that, once the funds in the VEBA have been exhausted, no
further benefits will be provided to retirees thereunder; and
(5) the liabilities of the Subsidiaries under the Atrion Supplemental
Executive Retirement Plan shall be transferred to and assumed by the
Seller in accordance with the provisions of Exhibit F hereto;
(ii) the liability of ATNG for deferred director fees payable to J.
Kenneth Smith shall be assumed by Seller; and
(iii) the following assets and liabilities shall be assigned to the
Seller or one of its non-Subsidiary affiliates:
(A) the computer equipment, software and other property listed and
described on Exhibit G hereto;
(B) the liability for accrued and unused vacation of those persons
listed on Exhibit H hereto; and
(C) any deferred tax assets and liabilities relating to the items
assumed or assigned pursuant to this Section 7(b).
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(c) Audited Financial Statements. Prior to Closing, Seller shall allow
accountants selected by Buyer to prepare and deliver to Buyer audited balance
sheets and statements of income and expense of the Subsidiaries for the fiscal
years ended December 31, 1995 and December 31, 1996, at Buyer's expense.
Seller shall cause the Subsidiaries to fully cooperate with such accountants
and grant them such access to information as shall be reasonably necessary to
perform such work.
(d) Schedules. It is understood and agreed that from time to time prior to
Closing the parties may deliver to one another modifications or supplements to
the Schedules of the Disclosure Schedule relating to the respective parties'
representations and warranties; provided, however, except as provided in the
following sentence, no such modification or supplement will affect the rights
or obligations of the parties to this Agreement (including without limitation
a party's rights to terminate this Agreement if the other party fails to meet
the condition that its representations and warranties be true and correct in
all material respects without such modification or supplement having been
made) until after the Closing Date. Notwithstanding any other provision
hereof, if the Closing occurs, any such supplement or amendment of any
Schedule will be effective to cure and correct for indemnification purposes
(but only for such purposes) any breach of any representation, warranty or
covenant that would have existed by reason of such party not having made such
supplement or amendment.
(e) Fulfillment of Conditions. Each of the parties shall use its good faith
reasonable efforts to satisfy the conditions to the closing of the
transactions contemplated hereby, including, without limitation, complying
promptly with all requirements of the HSR Act.
(f) Stockholder Approval. Seller shall call a meeting of its stockholders to
consider approval of this Agreement and the transactions contemplated hereby,
which meeting shall be held as soon as reasonably practicable after the
execution of this Agreement.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE. The obligations of
the Buyer under this Agreement with respect to the purchase and sale of the
Shares shall be subject to the fulfillment on or prior to the Closing Date of
each of the following conditions:
(a) Representations and Warranties. All of the representations and
warranties of the Seller contained in this Agreement shall be true and correct
in all material respects when made and as of the Closing Date as if made on
such date. The parties acknowledge and agree that the dollar limitation in the
definition of the term "Material Adverse Effect" shall not be taken into
account and shall have no relevance in determining whether said
representations and warranties are true and correct in all material respects.
(b) Covenants. The Seller shall have complied with and performed in all
material respects all of the agreements, covenants and conditions required by
this Agreement to be performed or complied with by it on or prior to the
Closing Date.
(c) Legal Opinion. The Buyer shall have been furnished with an opinion of
the Seller's counsel, dated the Closing Date, in the form of Exhibit I
attached hereto.
(d) Deliveries of Consents. The Seller shall have delivered to the Buyer
such instruments, consents and approvals of third parties as are necessary to
consummate the transactions contemplated by this Agreement.
(e) No Litigation. There shall not have been instituted by any creditor of
the Seller or other third party any suit or proceeding to restrain or
invalidate this transaction which would involve expense or lapse of time that
would be materially adverse to the Buyer's interest.
(f) No Material Adverse Change. There shall not have occurred (after the
date hereof) any material adverse change, whether or not covered by insurance,
in the operations, assets or financial condition of the Subsidiaries,
individually or collectively.
(g) Officers' Certificates. At the Closing, the Seller shall have furnished
to the Buyer a certificate dated the Closing Date signed by the Chief
Executive Officer and the Chief Financial Officer of the Seller, the
Controller, the Vice President of Operations and Engineering, and the Vice
President of Regulatory Affairs and Customer Service of ATNG and the President
of ATEMCO to the effect that all of the representations and warranties of the
Seller contained in the Agreement remain in all material respects true and
correct as of the
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Closing Date after taking into account any modifications or supplements to the
Schedules hereto delivered by the Seller to the Buyer and that the Seller has
performed and satisfied in all material respects all covenants and conditions
required by this Agreement to be performed or satisfied by the Seller on or
prior to Closing.
(h) Regulatory Approvals. All regulatory approvals shall have been obtained
and all applicable waiting periods (and any extensions thereof) under the HSR
Act shall have expired or otherwise been terminated by the parties.
(i) Resignations. The Buyer shall have received the resignations of the
officers and directors of the Subsidiaries set forth on Schedule 8(i) of the
Disclosure Schedule.
(j) Stockholder Approval. The stockholders of the Seller shall have approved
this Agreement and the transactions contemplated hereby.
9. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. The obligations of
the Seller under this Agreement with respect to the purchase and sale of the
Shares shall be subject to the fulfillment on or prior to the Closing Date of
each of the following conditions:
(a) Representations and Warranties. All of the representations and
warranties by the Buyer contained in this Agreement shall be true and correct
in all material respects when made and as of the Closing Date as if made on
such date.
(b) Covenants. The Buyer shall have complied with and performed in all
material respects all of the agreements, payments, assumptions, covenants and
conditions required by this Agreement to be performed and complied with by it
on or prior to the Closing Date.
(c) Legal Opinion. The Seller shall have been furnished with an opinion of
the Buyer's counsel, dated the Closing Date, in the form of Exhibit J attached
hereto.
(d) No Litigation. There shall not have been instituted by any creditor or
stockholder of the Buyer any suit or proceeding to restrain or invalidate this
transaction which would involve expense or lapse of time that would be
materially adverse to the Seller's interest. In addition, there shall not have
been instituted by any third party any suit or proceeding to restrain or
invalidate this transaction which would involve expense or lapse of time that
would be materially adverse to the Seller's interest.
(e) Officer's Certificate. At the Closing, the Buyer shall have furnished to
the Seller a certificate dated the Closing Date signed by the Chief Executive
Officer, the Chief Financial Officer, and the Vice President of Operations of
the Buyer to the effect that all of the representations and warranties of the
Buyer, contained in the Agreement remain in all material respects true and
correct as of the Closing Date after taking into account any modifications or
supplements to the Schedules hereto delivered by the Buyer to the Seller and
that the Buyer has performed and satisfied in all material respects all
covenants and conditions required by this Agreement to be performed or
satisfied on or prior to Closing.
(f) Regulatory Approvals. All regulatory approvals shall have been obtained
and all applicable waiting periods (and any extensions thereof) under the HSR
Act shall have expired or otherwise been terminated by the parties.
(g) Stockholder Approval. The stockholders of the Seller shall have approved
this Agreement and the transactions contemplated hereby.
10. CLOSING. The Closing shall be held at the offices of Berkowitz, Lefkovits,
Isom & Kushner, A Professional Corporation, at 1600 SouthTrust Tower,
Birmingham, Alabama at 10:00 a.m. local time on the third business day
following the date on which all the conditions specified in Sections 8(h) and
8(j) hereof shall have been satisfied or on such other date as the parties
hereto shall mutually agree (the "Closing Date"). For all purposes hereof, the
Closing of the purchase and the sale of the Shares and the transfer of the
benefits and burdens of ownership thereof shall be deemed to occur at 9:00
a.m. Central Time on the Closing Date.
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11. TRANSACTIONS AT CLOSING.
(a) Deliveries By the Sellers to the Buyer. At the Closing, the Seller shall
deliver (or cause to be delivered) the following to the Buyer:
(i) stock certificates evidencing the Shares duly endorsed for transfer
to the Buyer or accompanied by appropriate assignment documents;
(ii) resolutions of the Board of Directors and stockholders of the Seller
certified as true and correct by the Secretary of the Seller, authorizing
and approving the execution of this Agreement by the Seller and the sale
and delivery of the Shares;
(iii) the legal opinion of the Seller's legal counsel;
(iv) consents and approvals with respect to the transfer of the Shares,
if any;
(v) certificate of the applicable officers of the Seller and the
Subsidiaries dated the Closing Date, as described in Section 8(g) hereof;
and
(vi) the pipeline agreements attached as Exhibit K; and
(vii) Certificates of Good Standing as to Seller and the Subsidiaries for
their respective states of incorporation, and Certificates of Good Standing
as to the Subsidiaries for those states in which the Subsidiaries are
qualified to do business.
(b) Deliveries by the Buyer to the Sellers. At the Closing, the Buyer shall
deliver (or cause to be delivered) the following to the Seller:
(i) by wire transfer to Seller's account an amount of cash equal to the
Preliminary Purchase Price, less the Escrow Deposit, as described in
Section 3(a) hereof;
(ii) resolutions of the Board of Directors of the Buyer, certified as
true and correct by the Secretary of the Buyer, authorizing and approving
the execution of this Agreement by the Buyer and the purchase of the
Shares;
(iii) the legal opinion of counsel for the Buyer;
(iv) certificate of the officers of the Buyer dated the Closing Date, as
described in Section 9(e) hereof; and
(v) the pipeline agreements attached as Exhibit K.
(c) Deliveries by the Seller, Buyer and Subsidiaries. The parties shall
cause all of the notices and other documents described in Sections 16(g) and
16(h) to be delivered to the appropriate parties.
12. TERMINATION RIGHTS.
(a) Termination. In addition to the termination rights provided in Section
19 hereof, this Agreement may be terminated by the Seller if the Board of
Directors of the Seller receives a proposal to purchase the Shares or
substantially all of the assets of the Subsidiaries (an "Acquisition
Proposal") and the Seller notifies the Buyer in writing of all the material
terms, conditions and other provisions of the Acquisition Proposal and that
the Seller desires to consider acceptance of such proposal and Buyer does not
make, within ten (10) business days following receipt of the Seller's notice,
an offer which the Board of Directors of the Seller believes, in good faith,
to be at least as favorable to the stockholders of the Seller as said
Acquisition Proposal (the "Fiduciary Out"). In addition to the Fiduciary Out
and any termination rights granted to the parties elsewhere in this
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Agreement, this Agreement may be terminated by either the Buyer or the Seller
upon written notice to the other party if (i) the stockholders of the Seller
at a stockholders meeting held to consider such approval do not approve this
Agreement; or (ii) provided the terminating party is not then in breach of any
provision of this Agreement, upon the occurrence of any of the following:
(A) If on the Closing Date any of the conditions precedent to the
obligations of the terminating party set forth in this Agreement have not
been satisfied or waived in writing; or
(B) If the Closing does not occur on or before July 3, 1997.
(b) Effect of Termination. In the event this Agreement is terminated, the
Escrow Deposit shall be paid as provided in Section 3(a). In addition, in the
event this Agreement is terminated due to the exercise of the Fiduciary Out or
the failure of the stockholders of the Seller to approve this transaction at a
stockholders meeting held to consider such approval and in these events only,
then, within five (5) business days following termination, the Seller shall
pay to the Buyer, in cash, the sum of Two Million Dollars ($2,000,000). The
only liability of Seller to Buyer in the event of any termination of this
Agreement shall be the payment of the foregoing sum as provided in this
Section 12(b).
13. INDEMNITY.
(a) By the Seller. The Seller agrees to indemnify and hold the Buyer and the
Subsidiaries harmless against and shall reimburse the Buyer and the
Subsidiaries for any and all Damages which arise from any of the following
(provided, however, that Seller shall not be required to reimburse more than
one party for any item of Damage):
(i) the breach of any representation, warranty, agreement or covenant of
the Seller contained in this Agreement (including any Exhibit or Schedule
hereto); and
(ii) all actual, alleged, claimed or purported liabilities and
obligations of the Seller and the Subsidiaries and all claims and demands
made in respect thereof, whether known or unknown, whether arising out of
contract, tort, misrepresentation, strict liability, violations of
environmental laws or waste management practices, or violation of any other
laws or otherwise relating to, or arising from the ownership, operation or
control of the Businesses prior to Closing except those which are reflected
or reserved against on the Closing Date Balance Sheet.
(b) By Buyer. The Buyer agrees to indemnify and hold the Seller harmless
against and shall reimburse the Seller for any and all Damages which arise
from any of the following:
(i) the breach of any representation, warranty, agreement or covenant of
the Buyer contained in this Agreement (including any Exhibit or Schedule
hereto);
(ii) all actual, alleged, claimed or purported liabilities and
obligations of the Subsidiaries which are reflected or reserved against on
the Closing Date Balance Sheet; and
(iii) all actual, alleged, claimed or purported liabilities and
obligations of the Buyer and the Subsidiaries and all claims and demands
made in respect thereof, whether known or unknown, whether arising out of
contract, tort, misrepresentation, strict liability, violations of
environmental laws or waste management practices or violation of any other
laws or otherwise relating to, or arising from the ownership, operation or
control of the Businesses following Closing.
(c) Limitations.
(i) On Seller's Indemnification. Except as hereafter provided, in no case
shall the Seller's liability to make indemnification payments to the Buyer
("Indemnification Payments") under the foregoing provisions
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of this Section 13 exceed, in the aggregate, Ten Million Dollars
($10,000,000) and, except as hereinafter provided, the liability to make
indemnification payments shall expire as to any item that is not the
subject of a claim made within eighteen (18) calendar months immediately
following the Closing Date; provided, however, that such time limitation
shall not apply to covenants or agreements required to be performed
following Closing. Notwithstanding any provision contained herein, the
Buyer shall only be entitled to Indemnification Payments to the extent that
the aggregate Damages incurred by the Buyer exceed Five Hundred Thousand
Dollars ($500,000) and then only to the extent of such excess; provided,
however, that the foregoing dollar threshold and limitation shall not apply
to any Indemnification Payments arising out of state sales taxes, federal
income taxes or state income or income-based taxes and, provided further,
that claims with respect to state sales taxes, federal income taxes and
state income or income-based taxes may be made within the applicable
statute of limitations respecting such tax matters.
(ii) On Buyer's Indemnification. In no case shall the Buyer's liability
to make indemnification payments to the Seller with respect to breaches of
the Buyer's representations and warranties contained in Section 6 hereof
exceed, in the aggregate, Ten Million Dollars ($10,000,000) and the
foregoing indemnification obligation with respect to breaches of the
Buyer's representations and warranties contained in Section 6 hereof shall
expire as to any item that is not the subject of a claim made within
eighteen (18) calendar months immediately following the Closing Date.
Notwithstanding any provision contained herein, the Seller shall only be
entitled to indemnification payments with respect to breaches of the
Buyer's representations and warranties contained in Section 6 hereof to the
extent that the aggregate Damages incurred by the Seller exceed Five
Hundred Thousand Dollars ($500,000) and then only to the extent of such
excess.
(d) Indemnification Procedure. Promptly after an indemnified party becomes
aware of an Indemnification Claim, such indemnified party shall, if a claim in
respect thereof is to be made against any party, give written notice to the
latter of the nature of the Indemnification Claim. In case any such
Indemnification Claim involves a Third Party Claim, the indemnified party
shall give the indemnifying party notice within thirty (30) days following its
receipt of notice of such Third Party Claim. The indemnifying party shall,
following notice and consultation with the indemnified party (i) defend
against any such claim or litigation in such manner as it may deem appropriate
with legal counsel of its choice and (ii) compromise or settle such litigation
or claim on such terms as is approved by the indemnified party such approval
not to be unreasonably withheld. The indemnifying party shall be responsible
for and shall pay in accordance with the parameters specified in this Section
13, the amount of all liabilities, damages, costs of settlement, fees, costs
and expenses, including attorney's fees, incurred in connection with the
defense against, investigation of and settlement of any such claim or
litigation. If no settlement of any such claim is made, the indemnifying party
will satisfy any judgment rendered with respect to such claim or in such
litigation before the indemnified party is required to do so, and will pay, in
accordance with the parameters specified in this Section 13, all costs and
expenses, incurred by the indemnified party with respect thereto. The
indemnified party shall cooperate with the indemnifying party with respect to
any such defense.
(e) Attorneys Fees. Subject to the limitations and in accordance with the
procedures of this Section 13, the indemnified party may recover attorneys
fees from the indemnifying party in connection with any Third Party Claims
made against such indemnified party. Notwithstanding the foregoing, the
indemnifying party shall not be liable for any attorneys' fees incurred by the
indemnified party in connection with a Third Party Claim once the indemnifying
party has assumed the defense of such Third Party Claim. With respect to any
other claims which an indemnified party may have against an indemnifying party
pursuant to this Section 13, such indemnified party shall not be entitled to
recover attorneys fees.
(f) Insurance. The Seller shall not be required to indemnify the Buyer for
any Damages to the extent the Buyer has insurance which actually pays for such
Damages; provided, however, that Buyer shall promptly make claims and seek
payment of such proceeds.
(g) Exclusive Remedy. Notwithstanding any provision of this Agreement to the
contrary, the sole remedy of a party for any breach of any of the
representations, warranties or covenants contained in this Agreement or
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any claim relating to the ownership or operation of the respective Businesses
of the Subsidiaries shall be to exercise the rights under this Section 13,
which shall be subject to the procedures and limitations set forth in this
Section 13, excluding, however, any cause of action for specific performance.
14. SPECIFIC PERFORMANCE. The parties acknowledge that they will be
irreparably damaged in the event this Agreement is not specifically enforced.
In the event of any controversy concerning any provision of this Agreement the
same shall be enforceable in a court of equity or by decree of specific
performance or by temporary or permanent injunction or any other legal or
equitable remedy, without the necessity of showing actual damages or
furnishing a bond or other security. Except as otherwise expressly provided in
this Agreement, such remedy shall, however, be cumulative and not exclusive,
and shall be in addition to any other remedy the aggrieved party may have.
Notwithstanding the foregoing provisions, if Seller shall terminate this
Agreement and be entitled to receive the Escrow Deposit, Seller shall not be
entitled to specific performance, damages, or any other right or remedy
against Buyer for Buyer's breach of any covenants, representations or
warranties or for any other matter or thing pertaining to this Agreement, it
being expressly understood and agreed that the Escrow Deposit shall be agreed
liquidated damages for any and all such causes of action against Buyer.
15. PUBLIC ANNOUNCEMENTS. The parties shall issue a joint press release or, at
the election of the parties, separate press releases mutually-acceptable to
the parties, announcing the execution and delivery of this Agreement and the
closing of the transaction contemplated hereby. Except for any such press
releases, the parties shall not issue or make any press release or make any
public statement prior to or in connection with the Closing (the "Public
Announcements") with respect to this Agreement or the transactions
contemplated hereby without the other party's prior written consent except as
may be required by law in the opinion of such party's counsel. In the event
the foregoing exception is applicable, no Public Announcement will be made
without written notice and a copy of the proposed Public Announcements being
provided to the other parties to this Agreement no less than three (3)
business days prior to the issuance of such Public Announcements.
16. POST-CLOSING COVENANTS.
(a) Necessary Action. From time to time after the Closing Date, the Seller
shall, if requested by the Buyer, take such actions and make, execute and
deliver to the Buyer such additional instruments of transfer, as may be
necessary or proper to (i) transfer the Shares to the Buyer; and (ii)
consummate the transactions contemplated hereby. Notwithstanding the foregoing
and except as otherwise provided in this Agreement, the Seller shall not be
responsible for any filing fees or other payments which may be required by
third parties in consummating the transactions contemplated hereby.
(b) Access To Books and Records. Following Closing and for ten (10) years
thereafter, the Seller shall have the right to review any records transferred
to the Buyer pursuant hereto which relate to the Businesses, upon reasonable
notice to the Buyer during normal business hours and to copy the same at the
sole expense of the Seller.
(c) Rights of Way. Buyer shall grant to Seller certain limited license
rights on ATNG's rights of way and easements and Buyer shall maintain AlaTenn
Pipeline Company, Inc.'s existing right-of-way and properties with respect to
its gaseous-oxygen pipeline as set forth in the pipeline agreements attached
hereto as Exhibit K.
(d) Severance Policy. Buyer shall provide severance benefits to the full-
time employees of ATNG as of the Closing Date (other than Jerry Howard,
Jeffery Strickland and George Petty) as provided on Exhibit L hereto for any
such employee terminated during the twelve (12) month period following
Closing; provided, however, that if any employee of a Subsidiary refuses a
transfer to a job at another location of the business of the Buyer or any of
its affiliates (provided such transfer is made by Buyer in good faith and the
job entails the same responsibilities and provides the same or greater base
salary), then the Buyer shall not be obligated to honor such severance
obligation with respect to such employee. Seller shall reimburse the Buyer for
fifty percent (50%) of such severance benefits paid to any such employee
promptly upon receipt of an invoice for the same, said reimbursement not to
exceed, in the aggregate, Fifty Thousand Dollars ($50,000) for all severed
employees.
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Notwithstanding the foregoing, in the event any such employee becomes an
employee of Seller or any affiliate of Seller within six (6) months following
termination of such employee's employment with the applicable Subsidiary, then
the Seller shall promptly reimburse to Buyer, upon receipt of an invoice
therefor, an amount equal to the portion of the unreimbursed severance
benefits paid or to be paid to such employee by the Buyer. Reimbursements made
to Buyer pursuant to the immediately preceding sentence shall be without
regard to the Fifty Thousand Dollar ($50,000) limitation and such
reimbursements shall not be counted toward the accumulation of such dollar
limitation.
(e) Office Space. For a period of six (6) months following Closing, Buyer
shall provide Seller with office space, office equipment, personnel and access
to equipment, all as more particularly described on Exhibit M hereto.
(f) Guaranteed Obligations. Buyer shall cause the Subsidiaries to satisfy or
fulfill all obligations of the Subsidiaries which are guaranteed by Seller
when such obligations are required to be satisfied or fulfilled.
(g) Special Account. The parties acknowledge that Seller has guaranteed
obligations of the Subsidiaries under certain Gas Purchase Contracts, Gas
Sales Contracts and Gas Transportation Contracts, which Guaranties are listed
on Schedule 16(g) hereto (the "Guaranties"). Prior to Closing, Buyer and
Seller shall cause the Subsidiaries to establish a separate corporate bank
account with Compass Bank (the "Special Account"). From and after the Closing
the Buyer shall cause all collections of accounts receivable of the
Subsidiaries with respect to their sales of natural gas purchased under the
Gas Purchase Contracts or transported under Gas Transportation Contracts which
at such time remain under the Guaranties to be paid into the Subsidiaries'
existing accounts at Compass Bank (the "Bank") and to be transferred on a
daily basis from the Bank to the Special Account. At Closing, Seller, Buyer
and the Subsidiaries shall provide (a) to the Subsidiaries' customers to which
natural gas is sold or for whom it is transported, irrevocable written
instructions to make payments therefor to the Subsidiaries' accounts at the
Bank until otherwise instructed in writing by Seller and Buyer, and (b) to the
Bank, irrevocable written instructions to transfer all funds in the
Subsidiaries' accounts at the Bank to the Special Account on a daily basis
until otherwise instructed in writing by Seller and Buyer. Funds in the
Special Account shall be used to pay only the obligations under the Gas
Purchase Contracts and Gas Transportation Contracts except that the Buyer
shall have the right to withdraw monthly for its own uses from such account
the amount by which the parties agree the revenues from sales of gas purchased
or transported under the Gas Purchase Contracts or Gas Transportation
Contracts exceed the payment obligations under the Gas Purchase Contracts and
Gas Transportation Contracts for such month. All payments from the Special
Account shall be applied to such obligations in chronological order based on
the respective due dates thereof; provided, however, that all such payables
shall be paid as soon as possible after receipt of invoices therefor if funds
are available in the Special Account. Nothing contained herein shall be
construed as a limitation on the Buyer's and the Subsidiaries' obligations to
pay said obligations. The Special Account shall be closed (and any balance
remaining therein transferred to such other Buyer account or accounts as may
be specified by Buyer), and Seller shall, at Buyer's request, sign any joint
notification requested by Buyer instructing the Bank or any customer of Buyer
either to make payment or transfer funds or take other action relating to
Buyer's funds other than as described above, upon the later of (i) the full
payment of the obligations under the Gas Purchase Contracts and Gas
Transportation Contracts and (ii) termination of all Guaranties. Seller shall
have the right to audit and review all accounts, books and records relating to
the Special Account during normal business hours and upon reasonable notice,
to confirm Buyer's compliance with terms hereof. At Closing, Seller and Buyer
shall cause the Subsidiaries to execute and deliver a Security Agreement
pursuant to which Subsidiaries shall grant a security interest in the Special
Account to secure the payment and performance by the Subsidiaries of their
obligations under the applicable Gas Purchase Contracts and Gas Transportation
Contracts. Such Security Agreement shall be in form and substance reasonably
acceptable to Seller and shall provide that upon default Seller shall have all
rights and remedies of a secured party under the Uniform Commercial Code in
effect in the applicable jurisdiction, and that the Subsidiaries shall
cooperate in giving the Bank appropriate notice of existence of such security
interest and the Subsidiaries shall otherwise take any and all actions
(including the filing of appropriate financing statements) reasonably required
by Seller to perfect such security interest.
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(h) Termination of Gas Contracts. Buyer agrees to use its good faith
reasonable efforts following the Closing to obtain the release of Seller from
any Guaranty with respect to any of the Gas Purchase Contracts, Gas Sales
Contracts or Gas Transportation Contracts which have terms extending beyond
the Closing. In the event any such Guaranty is still in effect ninety (90)
days after the Closing, Buyer shall cause the applicable Subsidiary to
terminate the applicable Gas Purchase Contract or Gas Transportation Contract
(if such Gas Transportation Contract is terminable) at the end of such ninety-
day period or purchase or transport no additional gas thereunder so long as
such Guaranty remains in effect. At Closing, Buyer and Seller shall cause each
applicable Subsidiary to grant to Seller an irrevocable power of attorney
giving Seller the right and power to terminate such Gas Purchase Contracts or
Gas Transportation Contracts or cause no gas to be purchased or transported
thereunder, on behalf of such Subsidiary, at the end of such ninety (90)-day
period. At Closing and thereafter, Buyer shall assume and perform all of
Seller's obligations under the Agreement dated as of January 26, 1990 by and
among Champion International Corporation, ATEMCO and TRIGAS and Seller.
17. TAXES.
(a) Obligations Regarding Taxes. Seller shall cause each Subsidiary to be
included in the respective consolidated federal income tax returns of the
applicable affiliated group of corporations which includes Seller (and the
income tax returns of any foreign, state or local taxing jurisdiction that
requires consolidated or combined income tax returns of affiliated groups of
corporations), for all periods ending on or before the Closing Date and will
timely file such returns and pay all taxes shown to be due thereon. For states
where short-period tax returns due to a change in ownership are required and
the state income tax year closes as a result of the sale of subsidiary stock
with respect to which a 338(h)(10) election is made, Seller will file the
appropriate state tax return for the applicable Subsidiary and pay the
applicable taxes for the period beginning with the beginning of the tax year
through and including the Closing Date. In states where short-period tax
returns due to a change in ownership are not allowed and the state income tax
year does not close as a result of the sale of the subsidiary stock with
respect to which a 338(h)(10) election is made, Seller shall prepare proforma
federal and state returns which report the taxable income from operations and
gain from the sale from the beginning of the Subsidiary's tax year through and
including the Closing Date, and pay to the Buyer the amount that would
otherwise be due if the state required a short-period return. Buyer shall have
the opportunity to review such pro forma returns for a period of twenty (20)
days. Buyer shall be responsible for and shall prepare and file all tax
returns and pay all taxes with respect to the Subsidiaries for all periods
following the Closing Date. Each party shall cooperate with the other and
grant the other access to information as shall be reasonably necessary to
prepare and file such returns.
(b) Section 338(h)(10) Election. Seller and Buyer agree that Buyer may elect
that the parties should make one or more timely and effective elections under
Section 338(h)(10) of the Code (the "Section 338(h)(10) Election"). Upon
written notice by Buyer to Seller that the Section 338(h)(10) Election is to
be made, Seller agrees to cause the "common parent" (as defined in Section
1504 of the Code) of the "affiliated group" (as defined in Section 1504 of the
Code) that includes the Seller and the Subsidiaries for the taxable period
that includes the Closing Date to join in the Section 338(h)(10) Election.
Buyer agrees to join in the Section 338(h)(10) Election. If Buyer elects to
make a Section 338(h)(10) Election, Buyer will cause to be filed one or more
fully executed Forms 8023 on or before the time and in the place and manner
provided by the United States Treasury regulations under Section 338 of the
Code, and will provide notice of such filing to Seller. As soon as practicable
after Buyer elects to make a Section 338(h)(10) Election, Buyer and Seller
shall allocate the modified aggregate deemed sales price and the adjusted
grossed-up basis resulting from the Section 338(h)(10) Election in the manner
set forth on Exhibit N hereto and the parties shall use such allocation for
all federal, state and local income tax reporting purposes. The Buyer shall be
liable for any and all liability for any taxes arising, directly or
indirectly, from a liquidation, merger, sale or other disposition of any of
the properties and/or assets of the Subsidiaries subsequent to the Closing
Date, or from an actual or deemed election pursuant to Section 338 of the Code
with respect to the Subsidiaries or their respective properties and/or assets,
other than any liability for taxes arising from a properly filed Section
338(h)(10) Election. Anything to the contrary in this Agreement
notwithstanding, the parties' covenants, agreements, rights and obligations
with respect to any tax covered by this Section 17(b) shall survive the
Closing and shall not terminate until twenty (20) business days after the
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expiration of all statutes of limitations (including any and all extensions
thereof) applicable to such tax or the assessment thereof, and any claim for
indemnification against claims resulting from or arising out of the breach of
any such covenant or agreement shall be made, if at all, prior to the
expiration of such period.
18. ARBITRATION. The parties acknowledge and agree that this Agreement and the
performance of the transactions contemplated hereby evidence transactions
which involve a substantial nexus with interstate commerce. Accordingly, any
dispute, controversy or claim of any kind or nature which may arise between
the parties (including any dispute, controversy or claim relating to the
validity of this arbitration clause) with respect to this Agreement or the
transactions contemplated hereby, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Such arbitration proceedings
shall be held in Birmingham, Alabama, and shall be heard by an arbitrator
mutually agreeable to the Seller and the Buyer and, to the extent practicable,
who is knowledgeable and experienced in the type of matter that is the subject
of the dispute. If the parties are unable to agree on an arbitrator, then the
arbitrator shall be selected by the American Arbitration Association. The
parties understand and agree that the decision of the arbitrator shall be
final and binding upon both the Seller and the Buyer, and that the arbitrator
shall have all powers provided by law, and may award any legal or equitable
relief, including, without limitation, money damages, declaratory relief and
injunctive relief; provided, however, that the arbitrator's authority to award
money damages shall be limited to those falling within the definition of
Damages. The arbitrator shall charge all fees and expenses of the arbitration
equally to the parties, except that each party shall bear and pay all of its
own attorneys' fees, accountants' fees, expert witness fees and other fees and
costs incurred by it in connection with its preparation for and participation
in the arbitration.
19. CASUALTY LOSSES. The Seller assumes all risk of loss, damage or
destruction to the physical assets of the Subsidiaries due to fire or other
casualty up to and including the Closing Date. In the event that there shall
have been suffered, between the date hereof and the Closing Date, damage to or
destruction to the physical assets of the Subsidiaries the cost of repairs or
replacement of which the Buyer reasonably determines to be in an amount
greater than Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000),
then the Buyer may elect promptly after receiving all relevant facts regarding
such occurrence (i) to terminate this Agreement by giving written notice of
such termination to the Seller, or (ii) to waive such breach and consummate
this Agreement, in which case then at the Closing all claims to insurance
proceeds or other rights of the Seller against third parties arising from such
casualty or loss shall (to the extent assignable) be separately assigned by
the Seller to the Buyer at the Closing. To the extent not so assignable, such
claims may be pursued by the Buyer, for its own account and benefit, in the
name of the Seller or, alternatively, the Buyer may elect to reduce the
Purchase Price by the amount of such loss.
20. PROHIBITED ACTIVITIES OF SELLER. In order to protect the goodwill and
business interests of the Subsidiaries following the Closing, Seller covenants
and agrees that it and its affiliates, now or hereafter existing, will not:
(a) directly or indirectly, request or advise any party to any gas sales,
purchase or transportation contract, now or hereafter existing, with any of
the Subsidiaries, to withdraw, curtail or cancel any service to or from such
Subsidiary under the terms of any such contract;
(b) aid, abet or otherwise assist any person, firm, or corporation seeking
to interfere with the Subsidiaries' relationship with the parties to, or the
terms, of any gas sales, purchase or transportation contract, now or hereafter
existing, with any of the Subsidiaries;
(c) without the approval of the Chief Executive Officer of the Buyer,
directly or indirectly, induce or attempt to influence any employee of the
Subsidiaries to leave or terminate his employment; or
(d) acting alone or in conjunction with others, directly or indirectly, in
any of the states of Alabama, Tennessee and Mississippi for a period of three
(3) years from the Closing Date, engage in any businesses in
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competition with the businesses presently conducted by the Subsidiaries,
whether for its own account or for others, other than Central Gas Company's
transporting and selling of gas to the city of Florence, Alabama through its
existing interconnect with Tennessee Gas Pipeline and Tennessee River
Development Company's transporting and selling of gas to the city of Florence,
Alabama through its existing interconnect with Texas Eastern Transmission
Company.
21. MISCELLANEOUS.
(a) Notices. All notices and other communications required or permitted to
be given hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the party to whom such notice relates at the following addresses:
<TABLE>
<S> <C>
IF TO SELLER ATRION CORPORATION
3230 Second Street
Muscle Shoals, Alabama 35662-3809
With a Copy to: Berkowitz, Lefkovits, Isom & Kushner
A Professional Corporation
1600 SouthTrust Tower
Birmingham, Alabama 35203
Attention: B.G. Minisman, Jr.
IF TO BUYER: MIDCOAST ENERGY RESOURCES, INC.
1100 Louisiana
Suite 2950
Houston, Texas 77002
With a Copy to: Ronald L. Chachere, Esq.
Suite 970
Mercantile Tower MT115
Corpus Christi, Texas 78477
</TABLE>
or at such alternative addresses as may be specified by the parties by notice
given in the manner provided herein.
(b) Binding Effect. All agreements made and entered into in connection with
this transaction shall be binding upon and inure to the benefit of the parties
hereto, their successors and assigns. No assignment of any right, title,
interest or obligation hereunder shall be effective unless approved in writing
by all of the other parties to this Agreement; provided, however, that Buyer
shall be permitted to assign this Agreement, including its rights and
obligations hereunder, to Midcoast Holdings No. One, Inc., provided further,
however, that Buyer shall not be released from any liabilities or obligations
hereunder as a result of such assignment.
(c) Expenses. Except as otherwise provided in Section 13 hereof, each of the
parties hereto shall each bear its own expenses and costs, including the fees
of any attorney retained by it, incurred in connection with the preparation of
this Agreement and the consummation of the transactions contemplated hereby.
(d) Merger. This Agreement, along with the Exhibits and Schedules referred
to herein merges all previous negotiations between the parties hereto and
constitutes the entire agreement and understanding between the parties with
respect to the subject matter of this Agreement. No alteration, modification
or change of this Agreement shall be valid except by an agreement in writing
executed by the parties hereto.
(e) Waiver. No failure or delay by any party hereto in exercising any right,
power or privilege hereunder (and no course of dealing between or among any of
the parties) shall operate as a waiver of any such right, power or privilege.
No waiver of any default on any one occasion shall constitute a waiver of any
subsequent or other default. No single or partial exercise of any such right,
power or privilege shall preclude the further or full exercise thereof. No
waiver of any right, power or privilege hereunder shall be enforceable unless
in writing and
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executed by the party against whom such enforcement is sought. The waiver by
any party hereto of any of the conditions precedent to its obligations under
this Agreement shall not preclude it from seeking redress for breach of this
Agreement other than with respect to the condition so waived.
(f) Counterpart Execution. This Agreement may be executed and delivered by
telecopy and may be executed in two (2) or more counterparts, each of which
when so executed shall be an original, but all of which together shall
constitute one agreement.
(g) Governing Law. This Agreement shall be construed and enforceable in
accordance with, and be governed by, the internal laws of the State of Alabama
without regard to the principles of conflicts of laws.
(h) Survival of Warranties, Representations, and Agreements. Except as
otherwise provided herein, the representations, warranties, agreements and
indemnifications of the Seller and the Buyer contained in this Agreement shall
not be discharged or dissolved upon, but shall survive the Closing, subject to
the limitations specified in Section 13 hereof, and shall be unaffected by any
investigation made by any party at any time.
(i) Including. Wherever terms such as "include" or "including" are used in
this Agreement, they shall mean include or including without limiting the
generality of any description or word preceding such term.
(j) Gender. Throughout this Agreement, wherever the context so permits, the
masculine gender shall be deemed to include the feminine gender and vice
versa, and both shall be deemed to include the neuter and vice-versa, and the
singular shall be deemed to include the plural and vice-versa.
(k) Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
(l) Knowledge Defined. The phrases, "knowledge," "to the knowledge" or
similar words or phrases used herein with respect to the Seller or the
Subsidiaries shall mean the actual knowledge of the Chief Executive Officer
and Chief Financial Officer of the Seller, the Controller, the Vice President
of Operations and Engineering, and Vice President of Regulatory Affairs and
Customer Service of ATNG, and the President of ATEMCO, without investigation.
(m) Schedules. For purposes of this Agreement, any item set forth on a
Schedule of any party shall be deemed set forth on all Schedules of such
party.
(n) Further Assurances. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, Seller and
Buyer will take or cause to be taken such further action (including the
execution and delivery of such further instruments and documents) as the other
party reasonably may request, all without further consideration.
(o) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated.
(p) No Third Party Beneficiary. This Agreement does not confer upon any
person not a party hereto (other than an assignee of a party hereto) any
rights or remedies hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
SELLER:
ATRION CORPORATION
/s/ Jerry A. Howard
By: _________________________________
Its President
BUYER:
MIDCOAST ENERGY RESOURCES, INC.
/s/ Dan C. Tutcher
By: _________________________________
Its President
A-28
<PAGE>
APPENDIX B
[LOGO OF RAYMOND JAMES & ASSOCIATES, INC. APPEARS HERE]
March 19, 1997
Board of Directors
Atrion Corporation
3230 Second Street
Muscle Shoals, AL 35661
Gentlemen:
Atrion Corporation (the "Company"), intends to enter into an Asset Purchase
Agreement (the "Agreement") to sell to Midcoast Energy Resources, Inc.
("Midcoast") all of the outstanding stock of three wholly-owned subsidiaries
of the Company engaged in the natural gas pipeline transportation and
marketing business for $39,373,000 in cash, subject to adjustment, and a
maximum of $2,000,000 in contingent payment obligations to be paid over an
eight year period (the "Purchase Price"). The sale of the stock of the three
natural gas subsidiaries is referred to herein as the "Sale Transaction" and
the three subsidiaries are referred to herein as the "Natural Gas
Subsidiaries". You have requested our opinion as to whether the Purchase Price
to be received by the Company pursuant to the Agreement is fair, from a
financial point of view, to the Company. We have not been requested to opine
as to, and our opinion does not in any manner address, the Company's
underlying business decision or financing strategy to proceed with or effect
the Sale Transaction, or the availability or advisability of any alternatives
to the Sale Transaction.
In connection with our review of the proposed Sale Transaction and the
preparation of our opinion herein, we have examined, among other things, (a)
the financial terms and conditions of the Agreement and associated schedules
dated March 19, 1997; (b) the audited financial statements of the Company; (c)
certain unaudited financial statements and operating reports of the Company
and the Natural Gas Subsidiaries; (d) certain internal financial analyses and
projections for the Company and the Natural Gas Subsidiaries as prepared by
the management of the Company; and (e) certain other publicly available
information concerning the Company. We have held discussions with members of
the senior management of the Company to discuss the foregoing and have
considered other matters that we have deemed relevant to our inquiry.
We have assumed and relied upon the accuracy and completeness of all such
information and have not attempted to verify independently any of such
information. Specifically, we have assumed that the representations and
warranties of the Company in the Agreement are true and correct and that the
assumption of employee benefit plans pursuant to Section 7(b) of the Agreement
will not result in any material liability to the Company. We have not
conducted a physical inspection of the properties and facilities of the
Company, including the Natural Gas Subsidiaries, or made or obtained an
independent appraisal of the assets or liabilities (contingent or otherwise)
of the Company or the Natural Gas Subsidiaries. With respect to financial
projections, we have assumed that they have been prepared in good faith on
reasonable bases reflecting the best currently available estimates and
judgments of the management of the Company, and we have relied upon the
Company to advise us promptly if any information previously provided became
inaccurate or was required to be updated during the period of our review. Our
opinion herein is based upon market, economic, financial and other
circumstances and conditions existing disclosed to us as of March 19, 1997,
and any material change in such circumstances and conditions would require a
reevaluation of this opinion.
[LOGO OF RAYMOND JAMES & ASSOCIATES, INC. APPEARS HERE]
B-1
<PAGE>
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (a) historical and projected revenues, operating
earnings, net income and capitalization of the Natural Gas Subsidiaries and
certain other publicly held companies we believe to be comparable to the
Natural Gas Subsidiaries in whole or in part; (b) the current and projected
financial position and results of operations of the Natural Gas Subsidiaries;
(c) the historical trading activity and prices of the common stock of certain
comparable companies; (d) financial information concerning a selected
completed business combination that we deemed to be comparable in part; and
(e) the general condition of the securities markets. We have also taken into
account our assessment of the general economic, market and financial
conditions and our experience in other transactions, as well as our experience
in securities valuation and our knowledge of the natural gas marketing and
distribution industry generally. We express no opinion as to the value of the
Company's common stock upon the consummation of the Sale Transaction or the
price at which the common stock of the Company will trade at any time.
We have not acted as financial advisor to the Company in connection with the
Sale Transaction. To the extent possible, we have reviewed efforts made to
date by the Company to sell the Natural Gas Subsidiaries. We have not been
requested to, nor did we, solicit any competing offers from other potential
purchasers of the Natural Gas Subsidiaries. Raymond James & Associates, Inc.
is actively engaged in the investment banking business and regularly
undertakes the valuation of investment securities in connection with public
offerings, private placements, business combinations, and similar
transactions. Raymond James & Associates, Inc. is also acting as financial
advisor to the Company in connection with certain other possible transactions
for which Raymond James & Associates, Inc. will receive a customary investment
banking fee. For our services including the rendering of this opinion, the
Company will pay us a fee upon delivery of this opinion. In addition, the
Company has agreed to indemnify us against certain liabilities arising out of
our engagement.
It is understood that this letter is for the information of the Board of
Directors of the Company only and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote on the
proposed Sale Transaction nor shall this letter be used for any other purpose,
without our prior written consent; provided, however, that it is understood
that the Company will request our consent to include this opinion in the proxy
statement relating to the Sale Transaction, and that we will not unreasonably
withhold our consent to such inclusion.
Based upon and subject to the foregoing, it is our opinion that, as of March
19, 1997, the Purchase Price to be received by the Company for the sale of the
Natural Gas Subsidiaries pursuant to the Agreement is fair, from a financial
point of view, to the Company.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
B-2
<PAGE>
ATRION CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John H. P. Maley, Roger F. Stebbing and John P. Stupp, Jr., or any of them,
proxies of the undersigned, with full power of substitution, to represent
and to vote all shares of common stock of Atrion Corporation which the
undersigned would be entitled to vote at the annual meeting of stockholders of
Atrion Corporation, to be held at the offices of Halkey-Roberts Corporation,
11600 Ninth Street North, St. Petersburg, Florida, on Thursday, May 29, 1997 at
10:00 a.m., Eastern Time, and at any adjournment or postponement thereof, in
the following manner:
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed [ ] AUTHORITY WITHHELD to
below (except as otherwise vote for all nominees
listed below) instructed below
Richard O. Jacobson, Jerome J. McGrath and Hugh J. Morgan, Jr.
To withhold authority to vote for any nominee, write that nominee's name in
the space provided below.
_________________________________________________________________________
2. PROPOSAL TO APPROVE THE SALE OF THE COMPANY'S NATURAL GAS PIPELINE AND
MARKETING SUBSIDIARIES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
<PAGE>
(Continued from other side)
3. PROPOSAL TO APPROVE THE COMPANY'S 1997 STOCK INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS INDEPENDENT ACCOUNTANTS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
The Board of Directors recommends a vote FOR Items 1, 2, 3 and 4. If
this proxy is properly signed and returned, the shares represented will be
voted FOR Items 1, 2, 3 and 4 unless you otherwise specify herein.
Dated:__________________________1997
____________________________________
Signature
____________________________________
Signature
Please sign this proxy exactly as your
name appears hereon. When signing as
executor, administrator, trustee, corporate
officer, etc., please give full title. In
case of joint owners, each joint owner should
sign.
Please Date, Sign and Return TODAY in the Enclosed Envelope.
No Postage Required if Mailed in the United States.
