File No. 70-9175
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
AMENDMENT NO. 3 TO
FORM U-1
APPLICATION - DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
________________________________________________
Names of Companies filing this statement and addresses of principal
executive offices:
National Fuel Gas Company National Fuel Gas Supply
10 Lafayette Square Corporation
Buffalo, New York 14203 10 Lafayette Square
Buffalo, New York 14203
Name of Top Registered Holding Company: NATIONAL FUEL GAS COMPANY
Names and Addresses of Agents for Service:
J. P. Pawlowski, J. R. Peterson,
Secretary Assistant Secretary
National Fuel Gas National Fuel Gas
Supply Corporation Company
10 Lafayette Square 10 Lafayette Square
Buffalo, New York 14203 Buffalo, New York 14203
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
D. W. Reitz
Assistant General Counsel
National Fuel Gas Supply Corporation
10 Lafayette Square, Suite 1500
Buffalo, New York 14203
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The amended and restated Form U-1 previously filed in this matter
as Amendment No. 1, as amended by Amendment No. 2, is amended and
restated as follows:
Item 1. Description of Proposed Transactions.
National Fuel Gas Company ("National") is a public utility
holding company registered under the Public Utility Holding
Company Act of 1935, as amended ("Act"). Joining in this
application is National Fuel Gas Supply Corporation ("Supply"), a
wholly-owned subsidiary of National engaged in the interstate
transportation and storage of natural gas subject to the
jurisdiction of the Federal Energy Regulatory Commission.
National and its subsidiaries are collectively referred to herein
as the "National Fuel Gas System." In addition to Supply,
National Fuel's subsidiaries consist of National Fuel Gas
Distribution Corporation ("Distribution"), Seneca Resources
Corporation, Utility Constructors, Inc., Leidy Hub, Inc., Horizon
Energy Development, Inc., Data-Track Account Services, Inc.,
National Fuel Resources, Inc., Highland Land & Minerals, Inc.,
Niagara Energy Trading Inc., Niagara Independence Marketing
Company, and Seneca Independence Pipeline Company. Distribution
is the only utility subsidiary of National. Distribution sells
natural gas and provides natural gas transportation services
through a local distribution system located in an area in western
New York and northwestern Pennsylvania that includes Buffalo,
Niagara Falls and Jamestown, New York, and Erie and Sharon,
Pennsylvania.
Cunningham Natural Gas Corporation ("Cunningham") is a New
York corporation with a principal business address of 165 Kennedy
Street, Bradford, Pennsylvania 16701. Cunningham operates two
natural gas wells, one in Allegany County, New York, and the
other in Potter County, Pennsylvania.
Supply and Cunningham are parties to an Asset Purchase and
Reorganization Agreement dated October 8, 1997, as amended (the
"Agreement"), under which Supply, subject to certain conditions
including Securities and Exchange Commission ("Commission")
approval of this application-declaration, will acquire
substantially all the assets of Cunningham in exchange for
registered shares of common voting stock, $1 par value, of
National, in a manner intended to qualify for non-recognition of
gain or loss pursuant to Section 368 of the Internal Revenue Code
(the "Exchange").
Pursuant to the Agreement, Supply would acquire all of
Cunningham's assets in the Exchange, with the exception of the
excluded assets identified below. The assets to be acquired by
Supply ("the Assets") include the following:
(1) Cunningham's two natural gas wells, and related
pipelines, equipment, vehicles, leases, sales agreements and
other property used in the production of natural gas;
(2) Cunningham's cash, cash equivalents and receivables,
except as identified below;
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(3) Approximately 640 acres of undeveloped timber property
in Allegany County, New York; and
(4) Any marketable securities that remain in Cunningham's
accounts with two investment brokers at the time the Exchange is
consummated (the "Closing"). (One account is with Salomon Smith
Barney, and the other is with Edward Jones. At this time, these
accounts consist entirely of money funds and certificates of
deposit.)
The following assets of Cunningham will be excluded from the
Exchange:
(1) Cunningham's oil wells and any equipment or other
property used by Cunningham in the production and sale of oil,
which have been or will be sold to one or more other parties in
separate transactions;
(2) an amount of cash or cash equivalents (not to exceed
$300,000) retained by Cunningham to pay deferred compensation
obligations predating the Agreement; and
(3) two pickup trucks and one brine truck, which will be
sold to one or more other parties in separate transactions.
In exchange for the Assets, Supply will deliver registered
shares of common stock of National ("the Shares") to Cunningham
having an aggregate market value ("the Consideration"), as of the
end of the last business day immediately preceding the Closing
("the Valuation Date"), equal to the sum of the following:
(1) the cash and cash equivalents to be transferred to
Supply;
(2) the market value as of the Valuation date of any
securities to be transferred to Supply (although it is expected
that no such securities will be transferred);
(3) the unpaid balance of Cunningham's receivables from its
gas sales customer;
(4) the fair market value of the real property owned by
Cunningham, according to appraisals performed for Supply and
Cunningham; and
(5) an agreed-upon amount of additional consideration.
Applicants have estimated that the Consideration will be
approximately $3,087,000. If, as assumed by the pro forma
financial statements included with this filing, the Exchange had
been consummated on January 31, 1999, the Shares would have
consisted of 72,948 Shares, or less than 2/10 of 1% of the
38,604,338 Shares issued and outstanding as of that date, and the
market value of the Shares ($3,087,000) would also have amounted
to a small fraction of 1% of the total assets of National and its
subsidiaries, which totaled $2,859,478,000 as of that date.
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The Shares to be exchanged for Cunningham's assets will be
registered with the Commission under the Securities Act of 1933,
issued and transferred in compliance with any applicable state
Blue Sky Laws, and listed on the New York Stock Exchange. The
Shares shall be exchanged without preference over any outstanding
common stock of National as to dividends or distribution, and
shall have equal voting rights with all such outstanding common
stock.
In order to effectuate the Exchange, National will issue the
Shares to Supply, and Supply will, in turn, pay National an
amount equal to the Consideration for the Shares.1/ Supply will
then exchange the Shares for the Assets.
The Agreement also contemplates that, following the
Exchange, Cunningham would wind up its affairs pursuant to a plan
of liquidation, under which its shareholders would receive the
Shares in exchange for their Cunningham common stock.
The acquisition of Cunningham's natural gas properties is
expected to improve operations of Supply's underground natural
gas storage facilities in Allegany and Steuben Counties, New
York.
This application-declaration is being submitted pursuant to
Sections 6(a), 7, 9(a) and 10 of the Act. With respect to
acquisition authorization under Sections 9(a) and 10, Section
2(b) of the Gas Related Activities Act of 1990, 15 U.S.C. Section
79k (Law Co-op. 1993) provides that the functional relationship
requirement of Section 11 of the Act will be deemed satisfied if
the Commission determines that
"(1) . . . such acquisition is in the interest of
consumers of each gas utility company of [the]
registered company or consumers of any other subsidiary
of such registered company; and
(2) . . . such acquisition will not be detrimental to
the interests of consumers of any such gas utility
company or other subsidiary or to the proper
functioning of the registered holding company system."
The Exchange is in the interest of Supply's direct and indirect
transportation and storage customers, including Distribution,
National's public utility subsidiary and its customers, because
the Exchange is expected to result in improved performance and
greater utilization of Supply's storage fields in Allegany and
Steuben Counties. Distribution purchases firm storage services
from Supply and relies upon the capacity and deliverability of
Supply's storage fields to meet its winter heating requirements.
________________
1/ Supply plans to finance this payment to National through
borrowings from the National Fuel Gas System money pool.
See Holding Co. Act Release No. 26847 (March 20, 1998); File
No. 70-9153.
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In addition, the Exchange will be in no way detrimental to such
customers, the public interest, investors, or the proper
functioning of the National Fuel Gas System.
While it does not appear that Supply's acquisition of
Cunningham's assets will be exempt under Rule 58 because it does
not involve the acquisition of securities, approval of this asset
acquisition would be fully consistent with the Commission's
purpose in issuing Rule 58; i.e., "to facilitate investments by
registered holding companies in energy-related and gas-related
companies."2/ As a producer of natural gas, Cunningham falls
within the definition of "gas-related company."
With respect to stock issuance authorization under Sections
6(a) and 7 of the Act, Section 7(d)(3) provides that a
declaration shall not become effective if financing by the issue
or sale of the particular security is not necessary or
appropriate to the economical and efficient operation of a
business in which applicant lawfully is engaged or has an
interest. As shown by the discussion above, issuance of the
Shares is necessary or appropriate to the economical and
efficient operation of Supply's business, and will satisfy this
and all other requirements of Section 7 of the Act.
Item 2. Fees, Commissions and Expenses
Registration Fees (Estimated) $1,231
Expenses of Counsel and
Auditors for National (Estimated) $5,000
Fees and Expenses of Counsel $140,000
for Supply (Estimated)
Appraisal Fees (Estimated) $7,000
Misc. Expenses (Estimated) $1,000
_______________________________________________
Total (Estimated) $154,231
_______________
2/ Holding Co. Act Release No. 26667 (February 14, 1997), 62 FR
7900 at 7902 (February 20, 1997).
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Item 3. Applicable Statutory Provisions
Sections 6(a), 7, 9(a), and 10 of the Act, and Rules 23, 24,
and 43 are considered or may be applicable to the proposed
transactions.
Sections 6(a) and 7 of the Act and Rule 43 will apply to the
issuance of the Shares by National.
Sections 9(a) and 10 may apply to Supply's acquisition of
Cunningham's assets. In addition, these sections would apply to
the acquisition by Supply of any marketable securities that
remain in Cunningham's investment accounts on the date of the
closing, to the extent such acquisition would not be exempt under
Rule 40.
The Gas Related Activities Act would be applicable to any
aspect of the Exchange that is subject to Sections 9(a) and 10.
To the extent that any aspect of the Exchange is considered
by the Commission to require authorization, approval or exemption
under any section of the Act or provision of the rules or
regulations other than those specifically referred to herein,
request for such authorization, approval or exemption is hereby
made.
Rule 54 applies to this application-declaration because
National's interests in foreign utility companies ("FUCO's")
satisfy subsections (a), (b) and (c) of Rule 53. Through its
subsidiaries, National owns a majority interest in four FUCO's in
the Czech Republic ("the Czech FUCO's"). Neither National nor
any of its subsidiaries has any ownership interest in any Exempt
Wholesale Generator as defined in Section 32 of the Act.
National's current Aggregate Investment as defined in Rule
53 (a)(1)(i) in the Czech FUCO's ($122,819,000 as of January 31,
1999, rounded to the nearest $1,000) is less than 50% of its
consolidated retained earnings ($468,059,000 as of January 31,
1999, rounded to the nearest $1,000), satisfying the requirements
of Rule 53(a)(1).
National and its subsidiaries maintain books and records to
identify investments in and earnings from FUCO's in which they
directly or indirectly own an interest. In addition, the books
and records and the financial statements of the Czech FUCO's are
kept in conformity with the requirements of Rule 53(a)(2)(ii)(A)
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and (B)3/, and National undertakes to provide the Commission
access to such books and records and financial statements that
are available to National upon the request of the Commission.
Thus, the Rule 53(a)(2) requirements are satisfied.
No more than two (2)% of the employees of National's
domestic public-utility company render services, at any one time,
directly or indirectly, to the FUCO's in which National directly
or indirectly holds an interest, thereby satisfying Rule
53(a)(3). A copy of any Form U-1 and certificate under section
250.24 to be filed with the Commission under Rule 53, as well as
a copy of Item 9 and the related exhibits of Form U5S, will be
submitted with every federal, state or local regulator having
jurisdiction over the retail rates of any affected public-utility
company.
None of the conditions described in Rule 53(b) exist with
respect to National, thereby satisfying Rule 53(b) and making
Rule 53(c) inapplicable. With respect to Rule 53(b)(2) in
particular, the average of National's consolidated retained
earnings (rounded to the nearest $1,000) for the four calendar
quarters ending March 31, 1998 ($446,565,000), June 30, 1998
($448,448,000), September 30, 1998 ($428,112,000) and December
31, 1998 ($448,433,000) (such average being $442,890,000) is not
more than 10% less (8.34% less to be exact) than the average of
National's consolidated retained earnings for the four calendar
quarters ending March 31, 1997 ($486,696,000), June 30, 1997
($489,060,000), September 30, 1997 ($472,595,000) and December
31, 1997 ($484,430,000) (such average being $483,195,000).
Item 4. Regulatory Approval
No consent or approval of any federal commission (other than
the Commission under the Act and the Securities Act of 1933) is
required with respect to the transactions proposed herein. By
agreement of the parties, Cunningham's obligation to consummate
the Exchange is contingent upon its receipt of a ruling from the
Internal Revenue Service that the Exchange will qualify as a tax-
free reorganization pursuant to Section 368(a)(1)(C) of the
______________
3/ The books and records of the Czech FUCO's are maintained by
those entities in accordance with the statutory rules of the
Czech Republic. However, National has identified the significant
differences between the Czech statutory accounting rules and the
United States generally accepted accounting principles ("GAAP").
The Czech statutory financial statements are modified to conform
to GAAP when they are included in the consolidated financial
statements of National. In performing the conversion to GAAP,
goodwill that arose from the acquisition of the majority
interests in the Czech FUCO's is allocated to the respective
entities. This goodwill does not appear in the books and records
of the Czech FUCO's because of the existence of a significant
minority interest and/or the existence of public debt.
Internal Revenue Code of 1986, as amended. On February 3, 1998,
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Cunningham submitted a request to the Internal Revenue Service
seeking such ruling, and on January 12, 1999, the Internal
Revenue Service issued a ruling that satisfies this contingency.
These transactions concern the acquisition of one natural
gas well permitted by the New York State Department of
Environmental Conservation, and one permitted by the Pennsylvania
Department of Environmental Protection. The only state
commission approvals necessary in regard to the proposed
transactions are that each of these environmental agencies must
approve the transfer of the well permits related to the wells
located in their respective jurisdictions. Section 213 of the
Pennsylvania Oil and Gas Act requires that the Department of
Environmental Protection be notified of a well transfer within 30
days after a sale occurs. Section 551.4(c)(1) of the regulations
of the New York Department of Environmental Conservation also
contemplates that the request for approval of a well transfer
will be made following the sale of the well. Supply will request
transfer approval from both state agencies within 30 days
following the Closing. There are no approvals necessary from any
state commissions that regulate public utilities.
Item 5. Procedure
The Commission is requested to issue an order permitting the
declaration to become effective as soon as practicable so that
the Exchange may be consummated on or before April 15, 1999.
The Agreement provides that the Exchange is contingent upon a
closing occurring on or before April 15, 1999. There is a
possibility that the Exchange will not be consummated if it does
not close by that time.
Applicant-Declarants respectfully request that the
Commission's Order herein be entered pursuant to the provisions
of Rule 23. If a hearing is ordered, Applicant-Declarants waive
a recommended decision by a Hearing Officer, or any other
responsible officer of the Commission, agree that the Division of
Investment Management may assist in the preparation of the
Commission's decision and request that there be no waiting period
between the issuance of the Commission's Order and the date on
which it becomes effective.
Applicant-Declarants hereby request that certain information
contained in the Exhibits hereto, as indicated in the index of
Exhibits (the "Information") be kept confidential pursuant to
Rule 104(b) [17 CFR Section 250.104(b)]. The Information
consists of a map showing the location of the natural gas
production properties to be acquired. This map is exempt from
disclosure pursuant to Subsection 552 (b) (9) of the Freedom of
Information Act, which specifically exempts "geological or
geophysical information and data, including maps, concerning
wells."
Item 6. Exhibits and Financial Statements
The following exhibits and financial statements are filed as
part of this application-declaration:
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(a) Exhibits:
A-1 Common Stock Shares to be issued by National.
B-1 Asset Purchase and Reorganization Agreement
between Supply and Cunningham.
B-2 Supplemental Agreement between Supply and
Cunningham.
C-1 Form S-4 Registration Statement under the
Securities Act of 1933 regarding the issuance of
the Shares by National.
D-1 Ruling by the Internal Revenue Service that the
Exchange qualifies as a tax-free reorganization
under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986.
E-1 Map showing generally the location of the natural
gas production properties to be acquired in
relation to the facilities of Supply. THIS EXHIBIT
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
UNDER RULE 104(b).
F-1 Opinion of New Jersey counsel for National.
F-2 Opinion of Pennsylvania counsel for Supply.
G-1 Financial Data Schedules.
I-1 The discussion of consideration originally
appearing as Exhibit I-1 has been withdrawn.
(b) Financial Statements
S-1 Pro forma consolidated financial statements for
National Fuel Gas Company and adjusting journal
entries.
S-2 Pro forma financial statements for National Fuel
Gas Company and adjusting journal entries.
S-3 Pro forma financial statements for National Fuel
Gas Supply Corporation and adjusting journal
entries.
S-4 Notes to consolidated financial statements of
National Fuel Gas Company.
Item 7. Information as to Environmental Effects
The proposed transactions involve the change in ownership of
existing properties and therefore involve no major action which
will significantly affect the quality of the human environment.
No federal agency has prepared or is preparing an environmental
impact statement with respect to the transactions proposed in
this application-declaration.
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused
this Statement to be signed on their behalf by the undersigned
thereunto duly authorized.
Dated: March 31, 1999 NATIONAL FUEL GAS COMPANY
By: /s/ James R. Peterson
___________________________
James R. Peterson
Assistant Secretary
NATIONAL FUEL GAS SUPPLY
CORPORATION
By: /s/ John R. Pustulka
___________________________
John R. Pustulka
Vice President
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Exhibit A-1
[front of stock certificate]
Common Stock Common Stock
Certificate for Certificate for
Not More Than Not More Than
100,000 100,000
Shares Shares
Number Shares
D_____ _________
Cusip 636180 10 1
See Reverse for Certain Definitions
NATIONAL FUEL GAS COMPANY
Incorporated Under the Laws of the State of New Jersey
This is to Certify That
is the Owner of
Fully Paid and Non-Assessable Shares of the Common Stock of
National Fuel Gas Company transferable on the books of the Company in
person or by duly authorized attorney upon the surrender of this
Certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Company and the signatures of its duly
authorized officers.
[corporate seal]
National Fuel Gas Company
1902
New Jersey
Dated:
/s/ Bernard J. Kennedy Countersigned and Registered:
________________________ CHEMICAL BANK
Chairman of the Board, Transfer Agent
President and Chief and Registrar
Executive Officer By:_________________________
/s/ J. P. Pawlowski Authorized Officer
________________________
Treasurer
[reverse side of stock certificate]
<PAGE>
NATIONAL FUEL GAS COMPANY
Upon request to the Secretary of National Fuel Gas Company, the
Company will furnish to any shareholder, without charge, a full statement
of the designations, relative rights, preferences and limitations of the
shares of each class or series authorized to be issued, so far as the same
have been determined, and of the authority of the board of directors to
divide the shares into series and to determine and change the relative
rights, preferences and limitations of any class or series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT
MIN ACT - _______ Custodian ________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _______ hereby sell, assign and transfer unto
[Please insert social security or other identifying number of Assignee]
____________________________________________________
________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee) _____________________________________________
_______________________________________________________________
_________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________
_______________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Company with full power of substitution in the premises.
Dated, __________________
___________________________________
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between National Fuel Gas
Company and Marine Midland Bank dated as of June 12, 1996 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive offices of
National Fuel Gas Company. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. National
Fuel Gas Company will mail to the holder of this certificate a copy of the
Rights Agreement as in effect on the date of mailing without charge within
five Business Days after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights
beneficially owned by an Acquiring Person may become null and void.
<PAGE>
Exhibit B-1
ASSET PURCHASE AND REORGANIZATION AGREEMENT
This Asset Purchase and Reorganization Agreement
("Agreement") dated as of the 8th day of October, 1997, by and
between NATIONAL FUEL GAS SUPPLY CORPORATION, a Pennsylvania
corporation, with its principal office at 10 Lafayette Square,
Buffalo, New York ("Buyer"), and CUNNINGHAM NATURAL GAS
CORPORATION, a New York corporation with its principal office at
326 Interstate Parkway, Bradford, Pennsylvania ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of producing
and selling natural gas, owning real property and owning
investment securities (the "Business") as well as the production
and sale of oil; and
WHEREAS, Seller desires to sell to Buyer and Buyer
desires to purchase from Seller substantially all of the assets
of the Seller utilized in the Business, all on the terms and
conditions hereinafter set forth; and
WHEREAS, Seller and Buyer intend the transaction
contemplated hereby to qualify as a tax-free reorganization
pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended; and
WHEREAS, Seller and Buyer are litigants in an action
entitled "National Fuel Gas Supply Corporation v. Cunningham
Natural Gas Corporation", currently pending in Supreme Court,
Erie County, New York (the "Action") and are entering into this
Agreement in settlement with a proposed resolution of the Action.
NOW, THEREFORE, in consideration of the premises and
mutual representations, warranties and covenants contained
herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Sale of Assets. At the Closing (as defined in
Section 2.1 hereof) and subject to all of the terms and
conditions of this Agreement, Seller shall sell, assign, transfer
and convey to Buyer good and marketable title, free and clear of
all liens, liabilities, encumbrances, security interests and
other restrictions, in and to all of Seller's assets, tangible
and intangible, real, personal and mixed, wherever located, which
are utilized in or useful to the conduct of the Business
excepting only the excluded assets (as hereinafter defined). The
B-1
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assets to be sold by Seller and purchased by Buyer pursuant to
this Agreement are sometimes hereinafter referred to as the
"Subject Assets". The Subject Assets shall include, but shall
not be limited to, the following:
(a) all cash and cash equivalents except as
otherwise specifically provided herein;
(b) all receivables due from North Penn Gas
Company (the "North Penn Receivable") and all contracts with
North Penn Gas Company;
(c) all securities owned by Seller including
those held in Seller's account #368-06414-16012 with Smith,
Barney and Seller's account #880-03810-1-7 (Branch 8805) with
Edward Jones;
(d) all real property owned by Seller more
particularly described on Schedule 1.1(a) and all timber rights
to all such real property;
(e) the Thomas Maxwell No. 2 Well and Frank Roche
Well and all pipelines, equipment, vehicles and other property
used in the production of natural gas;
(f) all royalty interests in the Cattaraugus
County gas wells as identified on Schedule 1.2(f); and
(g) all working interests, including those not
owned by Seller on the date of this Agreement, in the Thomas
Maxwell No. 2 Well.
Notwithstanding anything else contained in this
Agreement, the Subject Assets shall not include:
(i) any oil wells or any equipment or other property
used by Seller in the production and sale of oil;
or
(ii) any cash or cash equivalents in an amount not to
exceed $300,000 retained by Seller to pay deferred
compensation obligations predating this Agreement,
or
(iii) any other assets identified on Schedule 1.1(b)
hereto. The assets described in ((i), (ii) and
(iii) collectively are the "Excluded Assets").
1.2 Payment of the Purchase Price. In consideration
of the sale by Seller to Buyer of the Subject Assets and Seller's
performance of this Agreement, Buyer shall deliver to Seller at
the closing common stock of National Fuel Gas Company
("Securities") having a value, as of the end of the last business
day immediately preceding the closing date, (the "Valuation
Date") equal to the sum of (i) the cash and cash equivalents to
be transferred to Buyer pursuant to Section 1.1(a); (ii) the
value as of the Valuation Date, of the securities transferred
B-2
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pursuant to Section 1.1(c); (iii) the unpaid balance of the North
Penn Receivable as shown on Seller's books and records on the
Valuation Date; (iv) the fair market value of the real property
transferred under Section 1.1(d), and (v) $950,000.
1.3 Determination of Real Property Value. The fair
market value of the real property described in Section 1.1(d)
shall be determined by an appraisal to be conducted by an
appraiser mutually designated by Seller and Buyer, who shall
equally share the cost of the appraisal. Such appraiser shall be
designated by the parties within 30 days of the date of this
Agreement and instructed to deliver an appraisal no more than 120
days after the date of this Agreement.
1.4 No Assumption of Liability. Buyer shall not
assume any liability or obligation of Seller of any nature
whatsoever, whether accrued, absolute, contingent or otherwise.
1.5 Allocation and Adjustments. The Purchase Price
shall be allocated among the Subject Assets as provided in
Schedule 1.5. Schedule 1.5 also sets forth the basis for
adjustments to the Purchase Price for real property taxes and
similar items.
1.6 Pre-Closing Escrow Agreement. Contemporaneously
with the execution of this Agreement Buyer and Seller shall enter
into the Pre-Closing Escrow Agreement in the form annexed as
Exhibit 1.6 hereto.
ARTICLE II
CLOSING
2.1 Closing. The transactions contemplated by this
Agreement shall be consummated at a closing (the "Closing") to be
held at the offices of Phillips, Lytle, Hitchcock, Blaine &
Huber, 3400 Marine Midland Center, Buffalo, New York at 10:00
a.m. on the tenth (10th) business day after the latest to occur
of satisfaction of the conditions to Closing specified at
Sections 7.1(e),(g) and (h) and 8.1(c), provided all other
conditions to Closing specified in Sections 7.1 and 8.1 are also
satisfied, or such other place, date and time as the parties
hereto shall mutually agree.
2.2 Closing Documentation. At the Closing,
(a) Seller will deliver to Buyer:
(i) An executed Bill of Sale and Assignment
in the form of Exhibit 2.2(a)(i), proof of payment of any
transfer taxes due on the transfer of Seller's securities, and
such other instruments as Buyer shall reasonably request to
evidence the transfer of the Subject Assets free of any liens,
claims, encumbrances, security interests and/or transfer fees and
expenses; and
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(ii) A bargain and sale deed with covenant
against grantor's acts in form reasonably acceptable to Buyer
conveying good and marketable title to the real property
identified at Schedule 1.1(d) to Buyer; and
(iii) The opinion of counsel to Seller
required pursuant to Section 7.1(b); and
(iv) The executed certificate required
pursuant to Section 7.1(f); and
(v) Written instruction to the Escrow Agent
in form and content specified by Exhibit 1.6 directing the
delivery of the funds held in escrow to Buyer; and
(vi) A duly executed stipulation
discontinuing the Action on the merits and with prejudice; and
(vii) Such other documents as Buyer may
reasonably request.
(b) Buyer will deliver to Seller:
(i) The Securities constituting the Purchase
Price as referred to in Section 1.2 hereof; and
(ii) A duly executed stipulation
discontinuing the Action on the merits and with prejudice; and
(iii) The opinion of counsel to Buyer required
pursuant to Section 8.1(c); and
(iv) The executed certificate required
pursuant to Section 8.1(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Seller represents and warrants to Buyer as
follows:
(a) Corporate Status. Seller is a corporation
duly organized, validly existing and in good standing under the
laws of New York and Pennsylvania and has full power and
authority to carry on the Business as now and heretofore
conducted. The character and location of the properties owned,
operated or leased by Seller and the nature of the business
conducted by it do not require qualification of Seller in any
jurisdictions other than New York and Pennsylvania.
Exhibit 3.1(a) hereto contains true and complete copies of
Seller's Certificate of Incorporation, as amended, certified by
the New York Secretary of State and its by-laws, as amended,
certified by its Secretary.
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(b) Authority Relative to Agreement. The
execution, delivery and performance of this Agreement and all
other agreements contemplated hereby (collectively, the "Other
Agreements") by Seller and consummation by Seller of the
transactions contemplated hereby and thereby have been duly and
effectively authorized by all necessary action, and this
Agreement constitutes and the Other Agreements when executed will
constitute, legal, valid and binding obligations of Seller
enforceable against Seller in accordance with their respective
terms.
(c) Effect of Agreement. Except as indicated on
Schedule 3.1(c), the execution, delivery and performance of this
Agreement and the Other Agreements by Seller and the consummation
by Seller of the transactions contemplated hereby and thereby (i)
do not require the filing with, or the consent, waiver, approval,
license or authorization of any person, government agency or
public or regulatory authority; (ii) do not require any filing
with, or the consent or approval from any governmental agency or
regulatory authority to enable the Business, after the Closing,
to be conducted as now and heretofore conducted; (iii) do not
violate, with or without the giving of notice or the passage of
time, any provision of law applicable to Seller; (iv) do not
conflict with or result in a breach of Seller's Certificate of
Incorporation, as amended or its by-laws, as amended, or any
mortgage, deed of trust, license, indenture or other agreement or
other instrument, or any order, judgment, decree, statute,
regulation or any other restriction of any kind or character, to
which Seller is a party or by which Seller or any of its assets
may be bound or give to others any right to terminate, or result
in termination of any provision of such instruments; and (v) do
not result in the creation of any liability, lien, encumbrance,
claim or other restriction upon any of the property or assets of
Seller or in the acceleration or maturity of any debt of Seller.
(d) Capital Stock. All of the issued and
outstanding capital stock of Seller is owned as indicated by
Schedule 3.1(d) annexed hereto, free and clear of any lien,
liability, encumbrance or other restriction.
(e) Financial Statements. The unaudited balance
sheet of Seller as at December 31, 1996 and the related
statements of earnings, stockholder's investment and changes in
financial position for the year then ended (including the notes
thereto) and the unaudited balance sheet of Seller as of July 31,
1997 and the related unaudited statement of income and retained
earnings for the seven (7) month period then ended delivered by
Seller to Buyer, present fairly the financial position of Seller
as of such dates and the results of its operations and changes in
its financial position for such periods. Copies of such
financial statements are attached in Schedule 3.1(e) hereto. The
Balance Sheet of Seller as of July 31, 1997 is hereinafter
referred to as the "Balance Sheet", and July 31, 1997 is
hereinafter referred to as the "Balance Sheet Date".
(f) Absence of Certain Changes or Events. Since
the Balance Sheet Date except as specified in Schedule 3.1(f)
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hereto, Seller has not (i) undergone any change in its condition
(financial or other), properties, assets, liabilities, business,
operations or prospects except changes in the ordinary and usual
course of its business and consistent with its past practice and
which have not been, either in any case or in the aggregate,
adverse to it; (ii) mortgaged, pledged or subjected to any lien,
lease, security interest, encumbrance or other restriction any of
its properties or assets; (iii) acquired or disposed of any
interest in any material asset or material property except the
purchase of materials and supplies and the sale of inventory in
the ordinary and usual course of its business and consistent with
its past practice; (iv) adopted or amended any profit sharing or
deferred compensation plan, agreement, arrangement or practice
for the benefit of any director, officer or employee or changed
the current or deferred compensation (including bonuses) to be
paid to any director, officer, or employee; (v) suffered any
damage, destruction or loss (whether or not covered by insurance)
which adversely affects its condition (financial or other),
properties, assets, business, operations or prospects;
(vi) declared any bonus or increase in the salary or
compensation, current or deferred, of any employee; (vii) without
limiting the generality of any of the foregoing, entered into any
transaction except in the ordinary and usual course of its
business and consistent with its past practice.
(g) Liabilities. Seller does not have any
liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, except (i) as set forth in the
Balance Sheet; and (ii) those trade payables incurred in the
ordinary and usual course of its business and consistent with its
past practice since the Balance Sheet Date which in the aggregate
do not exceed $20,000.
(h) Insurance. Included in Schedule 3.1(h)
hereto is a list of all policies of property, fire, liability,
life and other forms of insurance, and indemnity bonds, carried
by Seller identifying the nature of risks covered and the amount
of coverage in each case. All such policies identified in
Schedule 3.1(h) as being currently effective are in full force.
Seller has given due and timely notice of any claim and of any
occurrence known to Seller which may give rise to a claim which
may be covered by any such insurance and has otherwise complied
in all respects with the provisions of such policies.
(i) Tax Matters. Seller has duly filed with the
appropriate foreign, federal, state and local governmental
agencies all tax returns and reports which are required to be
filed, and has paid in full all taxes (including interest and
penalties) owed by Seller. The tax returns listed on
Schedule 3.1(i) are all of the tax returns filed by Seller for
the last five (5) years. Adequate accrual has been made in the
Balance Sheet for all the accrued and unpaid foreign, federal,
state and local taxes (including interest and penalties) of
Seller for the period then ended whether or not yet due and
payable and whether or not disputed. Except as described in
Schedule 3.1(i), the federal income tax returns of Seller have
never been audited by the Internal Revenue Service. Seller has
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not executed or filed with the Internal Revenue Service or any
other taxing authority, any agreement extending the period for
assessment or collection of any taxes. Seller has not received
notice of any intention to audit any of its tax returns. Seller
is not a party to any pending action or proceeding, nor is any
action or proceeding threatened, by any governmental authority
for assessment or collection of taxes, and no claim for
assessment or collection of taxes, has been asserted against
Seller.
(j) Title to and Condition of Real Estate. All
of the real property presently owned or occupied by Seller and/or
used or utilized in the Business is described in Schedule 3.1(j)
hereto (the "Premises"). Seller is, except as noted on Schedule
3.1(j), the owner of a fee simple estate in the Premises, subject
to no mortgage, pledge, lien, option, conditional sale agreement,
security interest, encumbrance or any other restriction. The
Premises, and all improvements located thereon, comply with all
zoning, land use, environmental, building and fire laws, codes,
ordinances and regulations. There are no actions, suits,
proceedings or investigations pending or, to the knowledge of the
Seller, threatened before any federal, state, municipal,
regulatory or administrative authority affecting the Premises.
Seller is not in default with respect to any order, judgment,
injunction or decree of any court or other governmental authority
with respect to the Premises. Seller is not in default under any
agreement, contract or lease relating to the Premises. The
improvements located on the Premises are in working order. The
improvements located on the Premises do not contain asbestos of
any kind whatsoever, or urea formaldehyde foam insulation. There
are no leases or subleases affecting the Premises except as noted
on Schedule 3.1(j). All water, sewer, gas, electric, telephone
and drainage facilities and all other utilities required for the
use and operation of the Premises are available and in working
condition.
Except as consistent with applicable Environmental
Laws, (as hereinafter defined) Seller has not deposited or caused
to be deposited and has no knowledge of any Regulated Substances
(as hereinafter defined) on or below the surface of the Premises
or any improvements located thereon. Seller has not used the
Premises for the manufacture, refining, generating, treatment,
storage, or disposal of any Regulated Substances. Seller, to the
best of its knowledge, has no potential to be liable for cleanup
or response costs with respect to the emission, discharge, or
release of any Regulated Substance or for any other matter
arising under the Environmental Laws due to its ownership or use
of the Premises. To the best of Seller's knowledge, no
"underground storage tank" (as that term is defined in
regulations promulgated by the Environmental Protection Agency)
is located in the Premises. As used in this Agreement,
"Regulated Substances" shall mean waste, substance, materials,
smoke, gas or particulate matter proscribed or otherwise
regulated as hazardous, toxic, contaminating, polluting,
poisonous or dangerous under any Environmental Law and
"Environmental Law" shall mean the Comprehensive Environmental
Response Compensation and Liability Act and any other law
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commonly referred to as "superfund" or "superlien", the Clean
Water Act, the Clean Air Act or any successor to such laws or any
other applicable federal, state or local environmental, health or
safety law, rules or regulations imposing liability or standards
concerning or in connection with hazardous, toxic or dangerous
waste, substance, materials, smoke, gas or particulate matter.
Seller has no knowledge of any pending or threatened
assessments for municipal improvements which may affect or become
a lien on the Premises.
(k) Title to and Condition of Properties and
Assets. Seller has good and marketable title to all of the
Subject Assets, subject to no mortgage, pledge, lien, conditional
sale agreement, security interest, encumbrance or other
restriction. Except as otherwise specified in Schedule 3.1(k)
hereto, the tangible assets included in the Subject Assets,
including all vehicles, machinery and equipment are in working
order.
(l) Contracts; No Defaults. Seller is not a
party to or subject to any agreement, contract or commitment
(whether oral or written) except as described in Schedule 3.1(l)
hereto. All such agreements, contracts and commitments are
valid, binding and in full force and effect and Seller is not in
default or alleged to be in default thereunder and Seller has no
knowledge that any other party thereto is in default. Each
contract so identified on Schedule 3.1(l) may be assigned to
Buyer without the consent of any other person and without giving
notice to any person regarding this Agreement or the sale and
transfer of the Subject Assets or other transactions contemplated
hereby. Seller has in service sufficient equipment, properly
maintained, to enable it to perform its contractual commitments
and conduct business in the ordinary course.
(m) Labor Matters. Seller is not party to any
union, collective bargaining or other similar agreements. Seller
has paid in full all wages, salaries, commissions, bonuses and
other compensation (including severance pay and vacation
benefits) for all services performed by its employees.
Schedule 3.1(m) describes the vacation and severance policies of
Seller. Seller is not liable for any arrears of wages or any
payroll taxes or any penalties or other damages for failure to
comply with any applicable foreign, federal, state and local laws
relating to the employment of labor. All of Seller's employees
may be terminated "at will".
(n) Employee Benefit Plans. Except for the plans
described on Schedule 3.1(n)("Plans"), Seller does not maintain
or contribute to, and has never maintained or contributed to, any
deferred compensation, pension, profit sharing, thrift, stock
bonus, stock option, employee stock purchase, life insurance,
health care, sickness or disability plan or other employee
benefit plan as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Except as described on Schedule 3.1(n), each Plan that is
intended to qualify under Section 401(a) or Section 403(a) of the
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Internal Revenue Code of 1986, as amended ("Code") has been
determined by the Internal Revenue Service to so qualify, and
does so qualify, and there has been no termination, partial
termination or discontinuance of contributions to such Plan.
Except as described on Schedule 3.1(n), each Plan is now and at
all times has been operated in compliance with all applicable
provisions of ERISA and the Code, and all applicable regulations,
rulings and announcements issued thereunder. Except as described
in Schedule 3.1(n), Seller has never contributed to any
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA
and has never withdrawn from any such multiemployer plan, nor has
Seller ever maintained or contributed to any employee pension
benefit plan subject to Title IV of ERISA or subject to the
minimum funding standards of Section 412 of the Code or
Section 302 of ERISA. Seller does not provide health benefits to
any retiree, other former employee or dependent or spouse of a
retiree or other former employee. No Plan nor any fiduciary
thereof or other person has engaged in a prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code.
(o) Transactions with Certain Persons. Except as
disclosed on Schedule 3.1(o), after the date of this Agreement
there will be no transactions between Seller and any current or
former director, officer or employee of Seller except employment
arrangements as disclosed in the Agreement or Schedule 3.1(o).
(p) Salary. Schedule 3.1(p) hereto contains the
names and current annual salary of all present officers and
salaried employees of Seller. Schedule 3.1(p) hereto also
contains a description of the wage rates of all hourly employees
of Seller.
(q) Patents, Trademarks and Trade Secrets. The
Business as heretofore conducted does not infringe or constitute,
and has not infringed or constituted, an unlawful invasion of any
proprietary rights of any person and no notice of any such
infringement or invasion has been received by Seller.
(r) Banking Relations. Each arrangement which
Seller has with any banking or financial institution is described
in Schedule 3.1(r) hereto, indicating with respect to each
arrangement the type of arrangement maintained and the person or
persons authorized to act on behalf of Seller in respect thereof.
Seller has not given any person a power of attorney to act on its
behalf.
(s) Litigation and Claims. Except for the
Action, there is no pending or threatened action, suit,
proceeding, claim, investigation or notice by or against Seller
(whether or not covered by insurance), and there is no
outstanding order, notice, writ, injunction or decree of any
court, government or governmental agency against or affecting
Seller.
(t) Permits; Burdensome Agreements. Seller holds
all licenses, permits, and other approvals that are required to
permit it to conduct the Business as now conducted and all such
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licenses, permits, and other approvals are described in Schedule
3.1(t) and are valid and in full force and effect and assignable
to Buyer without the consent of any other party.
(u) Compliance with Law. Seller is and has been
in compliance with all laws, ordinances, regulations, orders,
licenses, franchises and permits applicable to it, its properties
and assets, and to the operation of the Business, including, but
not limited to such laws and regulations relating to protection
of the public health or environment, waste disposal, hazardous
substances or wastes and occupational health and safety.
(v) Books and Records. The books and records of
Seller are complete and correct and accurately reflect the basis
for the financial condition and results of operations of Seller
as set forth in the financial statements referred to in Section
3.1(e) hereof.
(w) Finders' Fees. No person acting on behalf of
Seller or any shareholder of Seller has claims to, or is entitled
to, under any contract or otherwise, any payment as a broker,
finder or intermediary in connection with the origin,
negotiation, execution or consummation of the transactions
provided for in this Agreement.
(x) General Representation and Warranty. Neither
this Agreement nor any Schedule or other documents furnished by
or on behalf of Seller in connection with this Agreement contains
any untrue statement of a material fact or omits to state any
material fact necessary to make the statements contained herein
or therein not misleading. There is no fact or circumstance
known to Seller which materially adversely affects, or in the
future, as now reasonably foreseeable, is likely to materially
adversely affect the condition (financial or other), properties,
assets, liabilities, business, operations or prospects of the
Business which has not been set forth in this Agreement or the
Schedules hereto. The Subject Assets constitute all of the
assets necessary to conduct the Business as heretofore conducted
by Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Buyer represents and warrants to Seller as
follows:
(a) Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania and has full power and
authority to own, operate and lease its properties as presently
owned, operated and leased and to carry on its business as now
and heretofore conducted.
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(b) Authority Relative to Agreement. The
execution, delivery and performance of this Agreement by Buyer
and consummation by it of the transactions contemplated hereby
have been duly and effectively authorized by all necessary
corporate action, and this Agreement constitutes a legal, valid
and binding obligation of Buyer enforceable against it in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
arrangement, or similar laws affecting the rights of creditors
generally subject to the discretion of courts to award equitable
remedies. The Securities when delivered to Seller will be duly
issued, fully paid and non-assessable.
(c) Effect of Agreement. The execution, delivery
and performance of this Agreement by Buyer and the consummation
by it of the transactions contemplated thereby (i) do not require
the filing with, or the consent, waiver, approval, license or
authorization of, any person, government agency or public or
regulatory authority except as noted in Article VII; (ii) do not
violate, with or without the giving of notice or the passage of
time, any provision of law applicable to Buyer; and (iii) do not
conflict with or result in a breach of Buyer's Certificate of
Incorporation or its by-laws or any mortgage, deed of trust,
license, indenture, or other agreement or instrument or any
order, judgment, decree, statute, regulation or any other
restriction of any kind or character to which Buyer is a party or
by which Buyer or any of its assets may be bound or give to
others any right to terminate, or result in termination of any
provision of such instruments.
(d) Finders' Fees. No person acting on behalf of
Buyer has claims to, or is entitled to under any contract or
otherwise, any payment as a broker, finder or intermediary in
connection with the origin, negotiation, execution or
consummation of the transactions provided for in this Agreement.
ARTICLE V
COVENANTS OF SELLER
5.1 Conduct of Business Pending Closing. From the
date of this Agreement to the Closing Date:
(a) Negative Covenants. Except as otherwise
expressly provided by this Agreement, or as Buyer may otherwise
consent to in writing, Seller shall not engage in any activity or
enter into any transaction outside of the ordinary and usual
course of its business or which would be inconsistent with its
past practice or with the terms of this Agreement or which would
render inaccurate as of the Closing Date any of the
representations and warranties set forth in Article III as if
such representations and warranties were made at and as of the
Closing Date.
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(b) Conduct of Business. Seller shall preserve
intact the Business and preserve its good will with all
suppliers, customers, and others having business relations with
the Business.
(c) Access to Information. Seller shall afford
Buyer and its representatives full access, during normal business
hours and upon reasonable notice, to all of the assets,
properties, books, records, and agreements of Seller, and shall
furnish to Buyer and its representatives such information
regarding Seller, the Business, and/or the assets to be sold
hereunder as Buyer may reasonably request. Seller shall also
cooperate with Buyer in an inspection of the Premises and all
improvements thereon, including, without limitation, an
environmental audit and/or any environmental testing Seller may
request of the Premises. The investigation by Buyer and
furnishing of information to Buyer shall not affect the right of
Buyer to rely on the representations, warranties, covenants and
agreements of Seller in this Agreement.
(d) Performance of Pre-Closing Escrow Agreement.
Seller will deliver funds to the Escrow Agent as required under
the Pre-Closing Escrow Agreement and otherwise perform as
required by the Pre-Closing Escrow Agreement.
5.2 Consents of Others. Prior to the Closing, Seller
shall have obtained, and to the extent necessary shall have fully
cooperated with Buyer to assist Buyer's efforts to obtain all
authorizations, consents and permits of others required to permit
the consummation of the transactions contemplated by this
Agreement and the continuation of the Business by Buyer. Seller
shall take all action necessary to obtain required shareholder
approval of the transactions contemplated by this Agreement and
shall take such action as Buyer may reasonably request to obtain
such shareholder approval.
5.3 Change in Representations and Warranties. In the
event Seller learns that any of the representations and
warranties of Seller contained in or referred to in this
Agreement is or will become inaccurate, Seller shall give
immediate detailed written notice thereof to Buyer.
5.4 Cooperation. After the Closing, Seller shall
assist and cooperate with Buyer in effecting a transition of
ownership of the Business to Buyer without a material disruption
of the operations of the Business and to best preserve the good
will of those having business relationships with the Business.
5.5 I.R.S. Ruling. No later than 30 days after the
execution of this Agreement Seller shall apply for, and shall
diligently pursue, the application for the tax ruling required by
Section 8.1(c).
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ARTICLE VI
COVENANTS OF BUYER
6.1 Consents of Others. Prior to the Closing, Buyer
shall have obtained all authorizations, consents and permits of
others required of it to permit it to consummate the transactions
contemplated by this Agreement. Buyer shall make the necessary
filings contemplated by Section 7.1(f) and (g) no later than 30
days after the execution of this Agreement.
6.2 Change in Representations and Warranties. In the
event Buyer learns that any of the representations and warranties
of Buyer contained in or referred to in this Agreement is or will
become inaccurate, Buyer shall give immediate detailed written
notice thereof to Seller.
ARTICLE VII
CONDITIONS TO OBLIGATION OF
BUYER TO CONSUMMATE CLOSING
7.1 Conditions. The obligation of Buyer under this
Agreement to consummate the Closing is subject to the conditions
that:
(a) Covenants, Representations and Warranties.
Seller shall have performed all obligations and agreements and
complied with all covenants contained in this Agreement to be
performed and complied with by Seller prior to or at the Closing
Date. The representations and warranties of Seller set forth in
this Agreement shall be accurate in all respects, at and as of
the date made and also at and as of the Closing Date, with the
same force and effect as though made on and as of the Closing
Date.
(b) Opinion of Seller's Counsel. Buyer shall
have received from counsel to Seller the favorable opinion, dated
the Closing Date, in the same form and on the same terms as
Schedule 7.1(b) hereto.
(c) No Adverse Change. There shall have been, in
the good faith judgment of Buyer, no material adverse change in
the Business or Subject Assets since the date of this Agreement.
(d) Consents. Buyer shall be assured that all
permits, licenses and other governmental and official
authorizations necessary to Buyer to continue to conduct the
Business as heretofore conducted and to consummate the
transactions contemplated by this Agreement have been obtained
and will be in effect. Based upon the results of Buyer's
environmental audit of the Premises, Buyer shall be satisfied
that there is no Regulated Substance on or beneath the Premises
which would violate or require removal or remediation under any
federal, state or local law, rule or regulation.
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(e) Certificates. Buyer shall have received
certificates executed by an authorized officer of Seller dated
the Closing Date, in the same form and on the same terms as
Exhibit 7.1(e) hereto.
(f) Securities Registration. The Securities
shall have been duly registered under the Securities Act of 1933
and Buyer and/or the issuer of the Securities shall be lawfully
permitted to issue the Securities to Seller.
(g) Other Filings and Approvals. Any required
filings and approvals under the Public Utility Holding Company
Act or any other applicable regulatory act shall be completed and
received.
(h) Working Interests. Seller shall have
acquired all working interests in its natural gas wells owned by
third parties to this transaction, including but not limited to
the Smole interest, and shall have provided Buyer with evidence
of such acquisition.
(i) Maxwell Rights and Interests. Buyer shall
have acquired the rights and interests specified in the letter
dated July 23, 1997 from Buyer to the named heirs and assigns of
Thomas Maxwell, unless this condition is otherwise waived by
Buyer.
(j) Inspections. Seller, exercising reasonable
business judgment, shall be satisfied with the results of the
environmental audit and/or environmental testing of the Premises
and that the tangible assets included in the Subject Assets are
in working order.
(k) Further Commitment. The shareholders of
Seller listed on Schedule 7.1(k) shall have executed the
agreement annexed as Exhibit 7.1(k) undertaking, after the
closing, not to be involved as owner, operator or otherwise in
any well drilling activity that will invade or presents a
material risk of invading the State Line Field.
ARTICLE VIII
CONDITIONS TO OBLIGATION OF
SELLER TO CONSUMMATE CLOSING
8.1 Conditions. The obligations of Seller under this
Agreement to consummate the Closing are subject to the conditions
that:
(a) Covenants, Representations and Warranties.
Buyer shall have performed all obligations and agreements and
complied with all covenants contained in this Agreement to be
performed and complied with by Buyer prior to or at the Closing
and the representations and warranties of Buyer set forth in
Article IV shall be accurate in all respects, at and as of the
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Closing Date, with the same force and effect as though made on
and as of the Closing Date.
(b) Certificate. Seller shall have received a
certificate executed by Buyer, dated the Closing Date, in the
same form and on the same terms as Schedule 8.1(b) hereto.
(c) Opinion of Buyer's Counsel. Seller shall
have received from counsel to Buyer the favorable opinion, dated
the Closing Date, in the same form and on the same terms as
Schedule 8.1(c).
(d) IRS Ruling. Seller shall have received a
ruling from the Internal Revenue Service that the performance of
this Agreement will qualify as a tax-free reorganization pursuant
to Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) Mutual Consent. Upon the mutual consent of
all parties hereto;
(b) Adverse Proceedings. By either Buyer or
Seller if any order to restrain, enjoin or otherwise prevent the
consummation of this Agreement or transactions contemplated
hereby shall have been entered or, on the Closing Date, there is
any pending or threatened litigation in any court, or any
proceeding by or before any governmental body, with a view to
seeking to restrain or prohibit consummation of this Agreement or
in which damages are sought in connection with this Agreement, or
if any investigation by any governmental body is pending or
threatened which might result in any such litigation or other
proceeding;
(c) Conditions to Buyer's Obligations. By Buyer
if any of the conditions provided in Article VII hereof shall not
have been satisfied, complied with or performed in any respect on
or before the Closing Date and Buyer shall not have waived in
writing such failure of satisfaction, non-compliance or non-
performance; or
(d) Conditions to Seller's Obligations. By
Seller if any of the conditions provided in Article VIII hereof
shall not have been satisfied, complied with or performed in any
material respect on or before the Closing Date and Seller have
not waived in writing such failure of satisfaction, non-
compliance or non-performance.
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(e) Delayed Closing. By either party if the
Closing shall not have occurred by April 1, 1998.
9.2 Effect of Termination. Termination of this
Agreement pursuant to this Article IX shall not result in any
liability on the part of any party hereto or their respective
representatives, directors, officers, shareholders or agents;
provided, however, if this Agreement is terminated pursuant to
this Article IX by any party as a result of another party's
breach of a representation, warranty or covenant, then the
breaching party shall pay all costs and expenses (including
attorneys' fees) incurred by the terminating party in connection
with the negotiation and execution of this Agreement and all
Other Agreements. The parties recognize that if this Agreement
is terminated either party will have the right to proceed with
the Action.
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS AND INDEMNIFICATION
10.1 Survival. The representations, warranties,
covenants, agreements and obligations of the parties hereto shall
survive the Closing.
10.2 Indemnification. Seller hereby agrees to defend,
indemnify and hold harmless Buyer from and against any and all
damages, claims, liabilities, losses, costs and expenses
whatsoever (including attorneys fees) arising out of,
attributable to, resulting from, or incurred with respect to (i)
any breach of warranty or misrepresentation by or on behalf of
Seller under this Agreement or any Other Agreement, or the breach
or non-performance of any covenant, agreement, or obligation to
be performed by Seller under this Agreement or any Other
Agreement between Buyer and Seller; (ii) any misrepresentation
in, or omission from, any certificate or instrument executed and
delivered or to be executed and delivered by or on behalf of
Seller in connection with this Agreement; (iii) any act or
omission of Seller in the operation of the Business prior to the
Closing Date; (iv) any liability or obligation of Seller not
expressly assumed under this Agreement by Buyer; (v) any failure
of Buyer and Seller to comply with any bulk sales act or similar
law.
Buyer agrees to defend, indemnify and hold Seller
harmless from and against any and all damages, claims,
liabilities, losses, costs and expenses whatsoever (including
reasonable attorney's fees) arising out of, attributable to,
resulting from or incurred with respect to (i) any breach of
Buyer's warranties at Article IV of this Agreement, or (ii) the
breach or nonperformance by Buyer of any covenant set out at
Article VI of this Agreement.
10.3 Limitations. Buyer may not assert a claim
against the Seller based upon a breach of the representations
contained in Article III after the Closing Date unless Buyer
B-16
<PAGE>
shall have notified Seller in writing of such breach prior to the
first anniversary of the Closing Date; provided however, that
this time limitation shall not apply to a breach of Seller's
representations of warranties contained in Sections 3.1(g),
3.1(i), 3.1(j) and 3.1(n) of this Agreement.
10.4 Nonexclusivity. The rights to indemnification
provided by this Article XI are not exclusive and shall not be
construed to exclude or preclude the exercise of, and shall be in
addition to, any other rights of the parties hereto, express or
implied, under this Agreement or applicable law for
misrepresentation, breach of contract or warranty or the breach
or non-performance of any agreement, covenant or obligation.
10.5 Security for Indemnification. To provide security
to Buyer for Seller's indemnification obligations hereunder,
Buyer and Seller shall at the Closing execute the Post-Closing
Escrow Agreement annexed as Exhibit 10.5.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Agreement constitutes the
entire Agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof and no party
shall be liable or bound to the other in any manner by any
warranties, representations, covenants or agreements except as
specifically set forth herein or expressly required to be made or
delivered pursuant hereto.
11.2 Modifications. Any amendment, change or
modification of this Agreement shall be void unless in writing
and signed by all parties hereto.
11.3 Further Assurances. From time to time after the
Closing Date, Seller will execute all such instruments and take
all such actions as Buyer shall reasonably request in order more
effectively to convey and transfer all of the Subject Assets to
Buyer. Seller and Buyer shall also execute and deliver to the
appropriate other party such other instruments as may be
reasonably required in connection with the performance of this
Agreement and each shall take all further actions as may be
reasonably required to carry out the transactions contemplated by
this Agreement.
11.4 Binding Effect and Benefits. This Agreement
shall be binding upon and shall inure to the benefit of Buyer and
Seller and their respective successors, permitted assigns,
transferees and legal representatives. This Agreement shall not
be assignable by any party hereto except Buyer may assign this
Agreement to a wholly-owned subsidiary corporation of Buyer or of
National Fuel Gas Company.
B-17
<PAGE>
11.5 Expenses. Seller and Buyer shall each bear and
pay all costs and expenses respectively incurred by each of them
on their behalf in connection with this Agreement, including,
without limitation, fees and expenses of their own financial
consultants, accountants and counsel.
11.6 Knowledge or Belief. The knowledge of a
shareholder or any officer of Seller shall be deemed to be
knowledge of Seller.
11.7 Notices. Any notices or other communications
required or permitted to be given pursuant to this Agreement
shall be deemed to have been given if in writing and delivered
personally or sent by certified mail, postage prepaid, addressed
as follows:
(a) To Buyer:
National Fuel Gas Supply Corporation
10 Lafayette Square
Buffalo, New York 14203
Attn: John R. Pustulka - Vice-President
and David W. Reitz, Esq. - Assistant
General Counsel
With a copy to:
Phillips, Lytle, Hitchcock, Blaine & Huber
3400 Marine Midland Center
Buffalo, New York 14203
Attn: Richard F. Griffin, Esq.
(b) To Seller:
Cunningham Natural Gas Corporation
326 Interstate Parkway
Bradford, Pennsylvania
Attn:
With a copy to:
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, New York 14202
Attn: James D. Gauthier, Esq.
or such other addresses as shall be furnished in writing by any
party to the other party.
11.8 Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise
affect the meanings hereof.
B-18
<PAGE>
11.9 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
11.10 Governing Law. This Agreement shall be
governed, construed and enforced in accordance with the laws of
the State of New York without regard to principles of conflicts
of law.
IN WITNESS WHEREOF, each of the parties hereto have
duly executed this Agreement as of the date above first written.
NATIONAL FUEL GAS SUPPLY CORPORATION
By /s/ John R. Pustulka
CUNNINGHAM NATURAL GAS CORPORATION
By /s/ Martin M. Glesk
B-19
<PAGE>
Exhibit B-2
SUPPLEMENTAL AGREEMENT
SUPPLEMENTAL AGREEMENT made this 15th day of March,
1999, by and between NATIONAL FUEL GAS SUPPLY CORPORATION
("Buyer") and CUNNINGHAM NATURAL GAS CORPORATION ("Seller").
(1) Buyer and Seller herewith agree that Section
9.1(e) of the Asset Purchase and Reorganization Agreement between
Buyer and Seller dated as of October 8, 1997 ("Agreement") is
amended to read as follows:
"(e) Delayed Closing. By either party
if the Closing shall not have occurred by
April 15, 1999."
Buyer and Seller further agree that, provided that
the conditions to Closing specified in the Agreement are
satisfied prior to April 15, 1999, they will take all reasonable
action to close the transaction as soon as reasonably practicable
after the fulfillment of all such conditions to closing.
(2) Buyer and Seller acknowledge that the value of the
real property and timber rights referenced at Section 1.1(d) of
the Agreement have been valued pursuant to Section 1.3 of the
Agreement and that the total value of such real property and
timber rights is $465,019.
(3) The parties acknowledge that they have further
supplemented the provisions of the Agreement as follows:
At the Closing, the Buyer will deliver to the
Seller the Securities constituting the Purchase Price in a
single stock certificate registered to Seller, subject to
the provisions of this Supplemental Agreement set out below
and the Post-Closing Escrow Agreement, a copy of which is
annexed hereto and which shall constitute Exhibit 10.5 to
the Agreement. The parties acknowledge that some of the
owners of Seller's shares have been or by the Closing will
be identified and located (the "Locateds") and other owners
of Seller's shares have not and by the Closing will not have
been identified and/or located (the "Unlocateds").
Immediately after the Closing, Seller shall surrender to the
transfer agent for the Securities the stock certificate
delivered to Seller at the Closing and shall direct said
transfer agent to issue stock certificates as follows:
(a) For each of the Locateds, two stock
certificates which together shall represent
each of the Locateds' pro-rata share of the
Securities based upon the total issued and
outstanding shares of the Seller. One of the
certificates for each of the Locateds shall
be for the number of shares which equals that
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<PAGE>
shareholder's pro-rata portion of the
Securities to be held as the Escrow Fund
under the Post-Closing Escrow Agreement. The
second certificate for each of the Locateds
shall be for the number of shares
representing the balance of that
shareholder's pro-rata interest in the
Securities. This second certificate shall be
delivered to the Seller which shall be
responsible for delivering it to the
shareholder in whose name it is registered.
(b) As to that portion of the Securities
representing the Purchase Price attributable
to the Unlocateds, Seller shall direct the
transfer agent for the Securities to issue
two stock certificates in the name of the
Seller. One certificate shall represent that
portion of the Securities attributable to the
Unlocateds which is to be held in the Escrow
Fund pursuant to the provisions of paragraph
3 of the Post-Closing Escrow Agreement. The
balance of the Securities attributable to the
Unlocateds shall be held by the Escrow Agent
pursuant to paragraph 8 of the Post-Closing
Escrow Agreement and shall be distributable
as therein provided below.
Within twenty (20) days of the Closing, the Seller
shall obtain an Order from the Court in which the Action is
pending which Order shall direct Seller to give notice to the New
York State Attorney General to show cause why a further order
should not be entered directing the Escrow Agent (i) to deliver
the Securities held pursuant to paragraph 8 of the Post-Closing
Escrow Agreement to the Locateds on a pro-rata basis, (ii) to the
extent that any of the Securities attributable to the Unlocateds
which are held pursuant to paragraph 3 of the Post-Closing Escrow
Agreement are ultimately distributable to the registered owner,
to distribute such shares to the Locateds on a pro-rata basis.
The shares representing the interest of the Unlocateds
held under paragraph 8 of the Post-Closing Escrow Agreement shall
be distributed in accordance with a final Order (i. e., after all
appeals have been taken and finally decided and/or the time for
further appeal has expired) in such proceeding. Seller and Buyer
shall direct the Escrow Agent under the Post-Closing Escrow
Agreement to distribute Securities attributable to the Unlocateds
in accordance with the provisions of such final Order. Upon such
distribution, the parties shall conclude the Action by
appropriately filing the Stipulations of Discontinuance exchanged
at the Closing and by seeking and obtaining a final Order
concluding the Action on the basis of such Stipulations. Said
final Order shall also govern the distribution of Securities
attributable to the Unlocateds held under paragraph 3 of the
Post-Closing Escrow Agreement to the extent no claim is
successfully made against the Escrow Fund pursuant to the Post-
Closing Escrow Agreement.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
NATIONAL FUEL GAS SUPPLY CORPORATION
By: /s/ John R. Pustulka
_______________________________
CUNNINGHAM NATURAL GAS CORPORATION
By: /s/ Martin M. Glesk
_______________________________
- 3 -
<PAGE>
Exhibit 10.5
POST-CLOSING
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made as of the
_____ day of ___________, 1999, by and between NATIONAL FUEL GAS
SUPPLY CORPORATION, a Pennsylvania corporation with its principal
office at 10 Lafayette Square, Buffalo, New York 14203 ("NFG")
and CUNNINGHAM NATURAL GAS CORPORATION, a New York corporation
with its principal office at 326 Interstate Parkway, Bradford,
Pennsylvania ("CNGC").
WHEREAS, NFG and CNGC are parties to an Asset Purchase
and Reorganization Agreement dated October 8, 1997 as modified by
a Supplemental Agreement dated March 15, 1999 (the
"Reorganization Agreement"); and
WHEREAS, pursuant to the Reorganization Agreement NFG
is transferring shares of stock of National Fuel Gas Company (the
"Securities") to CNGC and CNGC is transferring to NFG certain
assets; and
WHEREAS, the Reorganization Agreement provides certain
representations and warranties to NFG by CNGC in connection with
the exchange of the Securities for assets; and
WHEREAS, NFG has requested security for the
indemnification undertaking of CNGC in the event that there is
any material breach of the representations and warranties made by
CNGC; and
WHEREAS, CNGC has agreed to deposit a portion of the
Securities into escrow on the terms and conditions herein
provided to provide security to NFG.
NOW, THEREFORE, in consideration of the mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Escrow Agent. NFG and CNGC hereby
appoint _____________________ as their Escrow Agent to receive,
hold and administer the Escrow Fund (as hereinafter defined)
subject to the terms and conditions of this Agreement.
2. Delivery of Securities to Escrow Agent.
Contemporaneously with the execution of this Agreement and until
the occurrence of a Termination Event (as hereinafter defined)
CNGC shall deliver Securities transferred to it by NFG at the
Closing of the Reorganization Agreement and having a fair market
value of $500,000 as of the Closing to the Escrow Agent. Said
Securities are hereinafter referred to as the "Escrow Fund". In
addition to the Securities, CNGC shall deliver to the Escrow
Agent an Assignment Separate from Certificate, duly executed by
each registered owner of Securities comprising the Escrow Fund,
authorizing the transfer of the Securities in the Escrow Fund to
NFG.
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<PAGE>
3. Regarding the Escrow Fund. The following terms
and conditions shall be in effect so long as the Escrow Agent is
in possession of the Escrow Fund:
a. The Securities comprising the Escrow Fund
shall at all times remain as issued and outstanding on the
books and records of National Fuel Gas Company and shall
appear as registered to the individual shareholders of
Cunningham in proportionate amounts as furnished to the
transfer agent of NFG by CNGC. Securities in the Escrow
Fund attributable to CNGC shareholders who have not been
identified and/or located by CNGC shall be registered to
CNGC;
b. Any and all dividends paid on the Securities
held as the Escrow Fund and the Unrestricted Escrow
Securities shall be paid to the registered owner;
c. All voting rights to the Securities held as
the Escrow Fund and the Unrestricted Escrow Securities shall
remain with the registered owner and the Escrow Agent shall
vote such Securities as directed by the registered owner;
d. The only restrictions on the return of the
Escrow Fund to the registered owner are the terms and
conditions of this Agreement.
4. Termination Event. A "Termination Event" shall
occur if:
a. twelve months have elapsed from the Closing
and no notice has been given to the Escrow Agent of any
claim against the Escrow Fund.
b. In the event a claim is made against the
Escrow Fund, the Escrow Agent receives written notice from
CNGC and NFG that such claim has been resolved and such
notice further directs the Escrow Agent as to the
disposition of the Escrow Fund.
In no event shall the Escrow Fund be held
more than four years and eleven months after the date
hereof. Unless instructed to the contrary by NFG and CNGC,
or by an order from a court of competent jurisdiction, after
four years and eleven months the Escrow Agent shall deliver
the Escrow Fund to each registered owner of the Securities.
5. Resolution of Claims. In the event a claim is
made against the Escrow Fund, such claim shall be resolved by an
arbitration conducted in accordance with the rules of the
American Arbitration Association then obtaining. Any such
arbitration may be demanded by either NFG or CNGC after the
assertion of a claim against the Escrow Fund. Any arbitration
shall be conducted in Erie County, New York. The arbitrator(s)
shall be authorized to award so much of the Securities to NFG as
the arbitrator(s) conclude represents the loss incurred by NFG
within the scope of the indemnification obligation owed to NFG by
CNGC pursuant to Article X of the Reorganization Agreement.
- 2 -
<PAGE>
6. Limited Liability of Escrow Agent. The duties and
obligations of the Escrow Agent hereunder shall be limited solely
to such duties as are expressly set forth herein. The Escrow
Agent shall be entitled to rely upon, as genuine and accurate,
any written instrument, notice, opinion, or other document
furnished to the Escrow Agent by any party hereto, reasonably
believed by the Escrow Agent to be genuine and to have been
signed by the party or parties purporting to have executed such
document.
In the event of any disagreement between the
parties to this Agreement resulting in adverse claims and demands
being made in connection with or against the Escrow Fund, the
Escrow Agent shall be entitled, in its sole discretion, to refuse
to release the Escrow Fund until any such disagreement is finally
resolved by a court of competent jurisdiction, by an arbitration
proceeding held in accordance with Section 5 hereof or by mutual
agreement of NFG and CNGC, and in so doing, the Escrow Agent
shall not be or become liable to any party hereto. If either NFG
or CNGC shall name the Escrow Agent as party to any legal
proceeding regarding the appropriate disposition of the Escrow
Fund, the entity so naming the Escrow Agent a party shall pay, on
demand, the Escrow Agent's reasonable legal fees. If a
registered owner of Securities other than CNGC names the Escrow
Agent a party to any such legal proceeding, then CNGC shall pay
the Escrow Agent's legal fees. The Escrow Agent may withhold
distribution of the Escrow Fund pending payment of any such legal
fees or disbursements.
7. Notices. Written notices and other communications
shall be sent by first class mail, or given personally, to a
party at its address set forth above. Notice to National Fuel
Gas shall be sent to the attention of or given to John R.
Pustulka, Vice President and David W. Reitz, Esq., Assistant
General Counsel. A copy of notices or other communications
shall, if sent or given to NFG, also be sent or given to
Richard F. Griffin, Esq. at Phillips, Lytle, Hitchcock, Blaine &
Huber, 3400 Marine Midland Center, Buffalo, New York 14203.
Notice to CNGC shall be sent to the attention of or given to
Martin Glesk, President. A copy of notices or other
communications, shall, if sent or given to CNGC, also be sent or
given to James D. Gauthier, Esq. at Hurwitz & Fine, P.C., 1300
Liberty Building, Buffalo, New York 14202.
8. Additional Escrow. Pursuant to the terms of a
Supplemental Agreement dated March 15, 1999, in addition to the
Securities delivered pursuant to paragraph 2 hereof to the Escrow
Fund provided for in paragraph 3 hereof, CNGC shall also deliver
to the Escrow Agent Securities not subject to paragraph 3 hereof,
representing the balance of the interest of the Unlocateds (as
defined in said Supplemental Agreement) in the Securities. These
additional shares shall be referred to as the "Unrestricted
Escrow Securities". The Escrow Agent shall hold the Unrestricted
Escrow Securities until receipt of instructions for distribution
from CNGC and NFG following the issuance of a final Order as
provided for in the Supplemental Agreement and shall distribute
such Unrestricted Escrow Securities as provided for in such
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<PAGE>
instructions. In the event that any claim to an interest in the
Securities attributable to the Unlocateds is made, the Escrow
Agent shall hold any Unrestricted Escrow Securities, and any
related Escrow Securities under paragraph 3 hereof that become
available for distribution and are subject to any such claim,
until the final disposition of any proceeding contesting the
ownership of such Securities, unless otherwise instructed by CNGC
and NFG.
9. Miscellaneous. This Agreement shall not be
amended, modified or changed, except by written agreement of all
parties hereto. No waiver by any party hereto of any rights it
may have hereunder or with respect hereto shall be effective
unless by a written instrument, and a waiver of any rights by any
party shall not constitute a waiver of any other rights
hereunder.
This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements and
understandings relating to the subject matter hereof.
The paragraph headings of this Agreement are for
convenience or reference only, do not modify this Agreement or
form a part hereof, and shall not in any way be referred to in
interpreting or construing the intentions of the parties.
This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of New York
without regard to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
NATIONAL FUEL GAS SUPPLY CORPORATION
By:____________________________________
CUNNINGHAM NATURAL GAS CORPORATION
By:
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<PAGE>
Exhibit C-1
As filed with the Securities and
Exchange Commission on March 23, 1999 REGISTRATION STATEMENT NO. 333-____
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
________________________
NATIONAL FUEL GAS COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-1086010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Lafayette Square
Buffalo, New York 14203
(716) 857-7786
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
_______________________
PHILIP C. ACKERMAN
Senior Vice President
JAMES R. PETERSON
Assistant General Counsel
NATIONAL FUEL GAS COMPANY
10 Lafayette Square
Buffalo, New York 14230
(716)857-7702
(Names, addresses, including zip codes, and telephone
numbers, including area codes, of agents for service)
____________________
It is respectfully requested that the Commission send copies
of all orders, notices and communications to:
GARY F. KOTASKA, ESQ. ROGER L. ROSS, ESQ.
PAUL K. WUSTRACK, JR., ESQ. HURWITZ & FINE, P.C.
PHILLIPS, LYTLE, HITCHCOCK 1300 Liberty Building
BLAINE & HUBER LLP Buffalo, New York 14202-3670
3400 Marine Midland Center
Buffalo, New York 14203
___________________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement is declared effective
and all other conditions to the asset purchase and reorganization
agreement, dated October 8, 1997, described in the Proxy
Statement/Prospectus have been satisfied or waived.
____________________
<PAGE>
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
____________________
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration number of the
earlier effective registration statement for the same offering. [ ]
____________________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
Proposed
Title of each Proposed maximum
class of sec- maximum aggregate Amount of
urities to Amount to be offering price offering registra-
be registered registered per note (1) price (1) tion fee(1)(2)
___________________________________________________________________________
Common Stock, 102,000 $43.40625 $4,427,437.50 $1,230.83
$1.00 par shares
value
Common Stock
Purchase 102,000
Rights rights (3) -- -- --
_____________________
(1) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457(c), under the Securities Act of 1933. The
registration fee is calculated as follows: .000278 multiplied by the
product of $43.40725, the average of the high and low prices of the Common
Stock on the New York Stock Exchange consolidated reporting system on
March 18, 1999, and the number of shares to be registered.
(2) Pursuant to Rule 457(b), the registration fee has been reduced by the
$631.60 paid to the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, in connection with the filing
of the preliminary proxy materials related to the Reorganization.
(3) Since no separate consideration is paid for the Common Stock Purchase
Rights ("Rights"), the registration fee for such securities is included in
the fee for the Common Stock. The value attributable to the Rights, if
any, is reflected in the market price of the Common Stock.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
CUNNINGHAM NATURAL GAS CORPORATION
165 Kennedy Street
Bradford, Pennsylvania 16701
March 12, 1999
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of Cunningham Natural Gas Corporation
("Cunningham"), a New York corporation, to be held on March 31,
1999, at The Old Library Restaurant, 116 South Union Street, City
of Olean, County of Cattaraugus, New York, commencing at 2:00
p.m. local time. As set forth in the attached Notice of Special
Meeting of Shareholders, the purpose of the Special Meeting is to
consider and vote upon two proposals. The first proposal relates
to the exchange (the "Exchange") of substantially all of
Cunningham's assets for shares of voting common stock (the
"Shares" or the "National Common Stock"), par value $1.00 per
share, of National Fuel Gas Company ("National"). The second
proposal relates to the liquidation (the "Liquidation") of
Cunningham in connection with the distribution of National Common
Stock to the holders (the "Shareholders") of Cunningham's
outstanding Class A preferred stock, par value $1.00 per share,
(the "Cunningham Preferred Stock") and Class B common stock, par
value $.10 per share (the "Cunningham Common Stock" and together
with the Cunningham Preferred Stock, the "Cunningham Stock") in
exchange for all outstanding shares of Cunningham Stock.
(Together the Exchange and the Liquidation are being referred to
as the "Reorganization"). Details of the proposals are set forth
in the accompanying Proxy Statement/Prospectus.
The Board of Directors of Cunningham (the "Cunningham
Board") has considered the terms and conditions of the
Reorganization and believes that it is in the best interests of
Cunningham and the Shareholders. The Cunningham Board, after
careful consideration, authorized and approved the Asset Purchase
and Reorganization Agreement (the "Agreement") between National
Fuel Gas Supply Corporation ("Supply Corporation"), a
Pennsylvania corporation which is a wholly-owned subsidiary of
National, and Cunningham dated October 8, 1997. The Board of
Directors recommends that you vote "FOR" the first proposal to
approve the Agreement and all of the transactions contemplated
thereby, including the Exchange and "FOR" the second proposal to
approve the Liquidation.
As you know, Cunningham held a Special Meeting of
Shareholders on October 29, 1997 for the purpose of determining
whether the litigation between Cunningham and Supply Corporation
could be settled by agreeing to pursue the proposed
Reorganization. Since the Reorganization would involve the sale
of all or substantially all of the assets of Cunningham,
Section 909 of the New York Business Corporation Law would
require that the Shareholders approve such sale by a vote at a
meeting of Shareholders of the holders of two-thirds (2/3rds) of
all outstanding shares entitled to vote thereon. The vote at the
October 29, 1997 Special Meeting of Shareholders confirmed the
<PAGE>
pending settlement and assessed the viability of the settlement
by determining whether the required two-thirds (2/3rds) vote in
favor of the Reorganization might be obtainable before the
commencement of the involved, complicated and time consuming
processes to obtain the approvals necessary to consummate the
transactions as structured in the Agreement, including
application for an IRS "Private Letter Ruling" to the effect that
the transaction qualifies as a tax-free reorganization under the
Code. See "Certain Federal Income Tax Consequences" in the
accompanying Proxy Statement/Prospectus".
Now that the Private Letter Ruling has been received, we are
calling the Special Meeting described in the attached Notice of
Special Meeting of Shareholders to seek to obtain the approval of
the Reorganization by the holders of two-thirds (2/3rds) of all
outstanding shares entitled to vote thereon.
ANY VOTE YOU MAY HAVE CAST AT THE OCTOBER 29, 1997
SHAREHOLDERS MEETING IS NOT BINDING AT THIS TIME. YOU ARE FREE
TO VOTE "FOR", "AGAINST" OR YOU MAY ABSTAIN FROM VOTING AS YOU
MAY DETERMINE BASED ON YOUR EVALUATION OF THE CONTENTS OF THE
PROXY STATEMENT/PROSPECTUS ACCOMPANYING THIS LETTER AND ANY OTHER
FACTORS YOU DEEM RELEVANT. PLEASE NOTE THAT UNDER APPLICABLE
RULES AN ABSTENTION WILL HAVE THE SAME EFFECT AS VOTING AGAINST
THE PROPOSALS DESCRIBED IN THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS.
In connection with the Reorganization, National has filed
with the Securities and Exchange Commission ("Commission"), and
the Commission has declared effective, a Registration Statement
to register the Shares to be issued by National. One of the
conditions to the Reorganization is that the Registration
Statement continue to be effective at the time of the Closing.
If the Exchange and the Liquidation are both approved by the
Shareholders, the Closing will be held as promptly as practicable
after, among other things as described in this Proxy
Statement/Prospectus, receipt of any required orders under the
Public Utility Holding Company Act. After the Closing, the
Shareholders will receive instructions concerning their
certificates representing shares of Cunningham Stock.
ACCORDINGLY, SHAREHOLDERS SHOULD NOT SEND ANY CUNNINGHAM STOCK
CERTIFICATES WITH THE ENCLOSED PROXY. DO NOT MAIL YOUR
CERTIFICATES REPRESENTING CUNNINGHAM STOCK TO CUNNINGHAM OR
NATIONAL. YOU WILL BE ADVISED LATER AS TO WHERE AND HOW TO
DELIVER YOUR CERTIFICATES EVIDENCING THE CUNNINGHAM STOCK IN
EXCHANGE FOR NATIONAL COMMON STOCK.
Your vote as a Shareholder is very important. The presence
at the Special Meeting, in person or by proxy, of the holders of
a majority of the outstanding shares of Cunningham Stock entitled
to vote is required to constitute a quorum for the transaction of
business. The affirmative vote of the holders of at least two-
thirds of the outstanding shares of the Cunningham Stock is
required for the approval of each proposal.
We hope you will attend the Special Meeting in person.
Whether or not you expect to attend, to assure your
representation at the Special Meeting and the presence of a
<PAGE>
quorum, please complete, date, sign and promptly mail the
enclosed proxy in the return envelope provided. If you decide to
attend this Special Meeting, you may revoke your proxy and vote
your shares in person at the Special Meeting.
On behalf of the Cunningham Board, I thank you for your
support and urge you to vote "FOR" approval of the Agreement and
all of the transactions contemplated thereunder including the
Exchange, and "FOR" the Liquidation.
Regards,
Martin M. Glesk
President
<PAGE>
CUNNINGHAM NATURAL GAS CORPORATION
165 Kennedy Street
Bradford, Pennsylvania 16701
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 31, 1999
TO: The Shareholders of Cunningham Natural Gas Corporation
NOTICE IS HEREBY GIVEN that a Special Meeting ("Special
Meeting") of the holders (the "Shareholders") of the outstanding
Class A preferred stock, par value $1.00 per share, (the
"Cunningham Preferred Stock") and Class B common stock, par value
$.10 per share, (the "Cunningham Common Stock" and together with
the Cunningham Preferred Stock, the "Cunningham Stock") of
Cunningham Natural Gas Corporation, a New York corporation
("Cunningham"), will be held at The Old Library Restaurant,
116 South Union Street, City of Olean, County of Cattaraugus,
New York at 2:00 p.m. local time on March 31, 1999, for the
following purposes, which are described in more detail in the
accompanying Proxy Statement/Prospectus:
1. To approve and adopt the Asset Purchase and
Reorganization Agreement, dated October 8, 1997, as amended (the
"Agreement"), by and between National Fuel Gas Supply Corporation
("Supply Corporation"), a Pennsylvania corporation, and a wholly-
owned subsidiary of National Fuel Gas Company ("National"), and
Cunningham, and all of the transactions contemplated thereby,
including the transfer to Supply Corporation of substantially all
of the assets (as defined herein) of Cunningham in exchange (the
"Exchange") for an amount currently estimated to be 72,948 shares
of National Common Stock (the "National Common Stock" or the
"Shares");
2. To approve a plan of Liquidation (the "Liquidation"),
as contemplated by the Agreement. Pursuant to the Agreement,
immediately prior to the Liquidation, Cunningham will transfer a
number of Shares of National Common Stock having a fair market
value equal to $500,000 as of the Closing (the "Escrow Shares")
to an Escrow Agent, as defined herein, for the purpose of
securing its obligation to indemnify Supply Corporation for any
material breach of the representations and warranties made by
Cunningham to Supply Corporation in the Agreement. Following
this transfer and pursuant to the Liquidation, (A) each holder of
Cunningham Preferred Stock will receive, in exchange for each
share of Cunningham Preferred Stock held by such holder, that
number of Shares of National Common Stock with a value equal to
the sum of (i) a liquidation dividend to be paid to such holders
in the amount of six cents ($.06) per share/per year for the
period from 1933 to the present, (ii) $1.00 per share and
(iii) the pro rata amount of National Common Stock remaining
after the payment of $1.00 per share to the holders of the
Cunningham Common Stock, as described below, such remainder to be
divided equally among the Shareholders on a per share basis; and
(B) each holder of Cunningham Common Stock will receive in
exchange for each share of Cunningham Common Stock held by such
holder, that number of shares of National Common Stock with a
value equal to the sum of (y) $1.00 per share and (z) the pro
<PAGE>
rata amount of National Common Stock remaining after the payment
of the liquidation dividends to the holders of Cunningham
Preferred Stock, as described above, and the additional payment
to the holders of Cunningham Preferred Stock of that number of
shares of National Common Stock with a value equal to $1.00 per
share, such remainder to be divided equally among the
Shareholders on a per share basis. The total amount of
liquidation dividends to be paid to the holders of the Cunningham
Preferred Stock is currently estimated to be $941,325. The
dividends will be paid in shares of National Common Stock as
noted above. The number of shares of National Common Stock that
each Shareholder will receive at Liquidation will be reduced by
the Shareholder's pro rata interest in the Escrow Shares.
Any Escrow Shares remaining in the escrow account after a
minimum of twelve (12) months or a maximum of four years and
eleven months after the Closing, will be distributed to the
Shareholders on a pro rata basis. There can be no assurances
that a claim will not be made or that an award will not be
granted against the Escrow Shares or, if an award is granted, the
dollar amount of any such award. Accordingly, at this time it is
not possible to estimate the number of Escrow Shares, if any,
that may be remaining and available for distribution to the
Shareholders at the conclusion of this period. See "Summary--The
Reorganization--Exchange Procedures" and "Exchange Procedures."
If all of the Shareholders are not located at the time of
the Closing, the Shares (including Escrow Shares) that are
attributable to Unlocated Shareholders will be delivered to the
Escrow Agent. Cunningham has agreed to seek, within twenty (20)
days after the Closing, an order from the Court directing
Cunningham to give notice to the New York State Attorney General
to show cause why an order should not be entered allocating the
interest in the Shares of the Unlocated Shareholders to those
Shareholders who have been located. Such Shares will be
allocated pursuant to a final, non-appealable order ("Order") of
the Court and distributed as provided in such Order and
consistent with the terms of the Post-Closing Escrow Agreement.
The Shares of Unlocated Shareholders may be subject to
claims by the State of New York under Article V of the New York
Abandoned Property Law and certain sections of the New York
Business Corporation Law. It is possible that the abandoned
property laws of other states might apply where the last known
addresses of Unlocated Shareholders are in such states. However,
the large majority of last known addresses are in New York.
Accordingly, there can be no assurance that any Shares
attributable to Unlocated Shareholders will be distributed
pursuant to the Order to Shareholders who have been located.
Because the Shares of Unlocated Shareholders may be subject to
claims as noted above, Shareholders should consider and vote on
the Reorganization with the expectation that they will not be
entitled to receive any Shares of the Unlocated Shareholders.
3. To transact such other business as may properly come
before the Special Meeting, or any adjournments or postponements
thereof.
<PAGE>
Although proposals 1 and 2 above will be voted on
separately, each proposal is conditioned upon the approval of the
other. Both proposals must be approved by the holders of at
least two-thirds of all of the outstanding shares of the
Cunningham Stock, voting together, and entitled to vote thereon.
In accordance with New York law, only Shares voted "FOR" adoption
of the proposals, and not abstentions, will be counted as voting
in favor in determining whether the proposals are adopted. As a
consequence, abstentions will have the same effect as votes
against adoption of the proposals.
Under New York Law, any Shareholder who does not vote in
favor of the Agreement and the Liquidation may, if the Share
Exchange is consummated, obtain payment in cash for the fair
market value of his or her shares by complying with the
requirements of Section 623 of the New York Business Corporation
Law. See "Summary -- Statutory Appraisal Rights" and "Rights of
Dissenting Shareholders."
The Cunningham Board has fixed the close of business on
March 1, 1999 as the record date (the "Record Date") for
determining the Shareholders entitled to notice of, and to vote
at, the Special Meeting and any adjournments or postponements
thereof.
Shareholders who execute proxies solicited by the Cunningham
Board retain the right to revoke them at any time before the
actual vote. Unless so revoked, the shares of Cunningham Stock
represented by such proxies will be voted at the Special Meeting
in accordance with the directions given therein. If a
Shareholder returns a duly executed proxy which is not revoked
and such proxy does not specify a vote, the proxy will be voted
in favor of the above proposals.
Further information regarding the Special Meeting is set
forth in the attached Proxy Statement/Prospectus and the
appendices thereto.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL
MEETING. HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND
THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY WITHOUT DELAY IN
THE ENCLOSED POSTPAID ENVELOPE. THE PROXY IS REVOCABLE
AND WILL NOT BE USED IF YOU ARE PRESENT AND PREFER TO
VOTE IN PERSON.
By Order of the Board of Directors,
Martin M. Glesk
President
Dated: March 12, 1999
<PAGE>
NATIONAL FUEL GAS COMPANY
102,000 Shares of Common Stock
(One Dollar ($1.00) Par Value)
_______________
This Proxy Statement/Prospectus constitutes the prospectus of National
Fuel Gas Company ("National") with respect to the issuance of up to 102,000
shares of National Common Stock issuable in exchange (the "Exchange") for
substantially all of the assets of Cunningham Natural Gas Corporation
("Cunningham"), all as is more fully described herein.
This Proxy Statement/Prospectus constitutes the proxy statement of
Cunningham relating to the solicitation of proxies from the holders (the
"Shareholders") of the outstanding Class A preferred stock (the "Cunningham
Preferred Stock") and the holders of the outstanding Class B common stock
(the "Cunningham Common Stock" and, together with the Cunningham Preferred
Stock, the "Cunningham Stock") by the Cunningham Board for use at a Special
Meeting of Shareholders to be held at 2:00 p.m. on March 31, 1999, at The
Old Library Restaurant, 116 South Union Street, City of Olean, County of
Cattaraugus, New York, also as more fully described herein, and at any
adjournments or postponements thereof. Only holders of record of
Cunningham Stock at the close of business on March 1, 1999 (the "Record
Date") are entitled to notice of and to vote at the Special Meeting and any
adjournments or postponements thereof. On the Record Date, there were
232,426 shares of Cunningham Preferred Stock and 474,925 shares of
Cunningham Common Stock outstanding, a total of 707,351 outstanding shares
of Cunningham Stock. This Proxy Statement/ Prospectus, the enclosed Notice
of Special Meeting and the enclosed proxy are first being mailed to the
Shareholders on or about March 12, 1999.
At the Special Meeting, the Shareholders as of the Record Date will be
asked to consider and act upon the following proposals:
1. To approve and adopt the Agreement and all of the transactions
contemplated thereby, including the Exchange;
2. To approve the Liquidation, as contemplated by the Agreement; and
3. To transact such other business as may properly come before the
Special Meeting, or any adjournment thereof.
_______________
THE EXCHANGE AND THE LIQUIDATION CONSTITUTE MATTERS OF GREAT
IMPORTANCE TO THE SHAREHOLDERS. ACCORDINGLY, SHAREHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN
THIS PROXY STATEMENT/PROSPECTUS.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_______________
The date of this Proxy Statement/Prospectus is ,
1999.
<PAGE>
AVAILABLE INFORMATION
National is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the Commission. Such
reports, proxy statements and other information filed by National
with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048; and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Electronic filings made through the
Commission's EDGAR system are publicly available at the
Commission's Website (http://www.sec.gov). Such reports, proxy
statements and other information can also be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York, on which certain of National's securities are
listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by National with the
Commission are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended
September 30, 1998;
2. Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998;
3. The National Proxy Statement on Schedule 14A dated
December 31, 1998;
4. Registration Statement on Form 8-A, dated June 14,
1996.
All documents filed by National pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Proxy Statement/Prospectus and prior to the
date of the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement/Prospectus and to be a part
hereof from the date of filing of such reports and documents.
Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is
deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy
Statement/Prospectus.
<PAGE>
This Proxy Statement/Prospectus incorporates documents
by reference which are not presented herein or delivered
herewith. National undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this
Proxy Statement/Prospectus has been delivered, upon the written
request of any such person, a copy of any or all of the documents
referred to above which have been or may be incorporated in this
Proxy Statement/Prospectus by reference, other than exhibits to
such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests for
such copies should be directed to: Mr. David W. Reitz, Assistant
General Counsel, National Fuel Gas Supply Corporation,
10 Lafayette Square, Buffalo, New York 14203 via telephone at
(716) 857-7949 or via e:mail at [email protected]. In order to
ensure timely delivery of the documents, any request should be
made by March 22, 1999.
No other person has been authorized to give any
information or to make any representations other than those
contained in this Proxy Statement/Prospectus, including documents
incorporated herein by reference, and, if given or made, such
information or representations must not be relied upon as having
been authorized by National. Neither the delivery of this Proxy
Statement/Prospectus nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there
has been no change in the affairs of National since the date
hereof or thereof, as the case may be. This Proxy Statement/
Prospectus does not constitute an offer or solicitation by anyone
in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation.
All information contained in the Proxy Statement/
Prospectus with respect to Cunningham has been provided by
Cunningham and National is relying upon the accuracy of that
information. All information with respect to National has been
provided by National and Cunningham is relying upon the accuracy
of that information.
<PAGE>
Table of Contents
Page
Summary . . . . . . . . . . . . . . . . . . . . . 1
The Special Meeting . . . . . . . . . . . . . . . 9
The Companies . . . . . . . . . . . . . . . . . . 10
Selected Historical Financial Data
of Cunningham. . . . . . . . . . . . . . . . . 15
Cunningham--Management's Discussion and
Analysis of Financial Condition and
Results of Operation . . . . . . . . . . . . . 18
Selected Historical Financial Data of National. . 22
Background of the Reorganization. . . . . . . . . 25
Reasons for the Reorganization; Recommendation
of the Cunningham Board. . . . . . . . . . . . 28
The Reorganization . . . . . . . . . . . . . . . 29
Certain Federal Income Tax Consequences . . . . . 33
Exchange Procedures . . . . . . . . . . . . . . . 35
Comparison of Shareholder Rights. . . . . . . . . 37
Dividends and Price Range . . . . . . . . . . . . 44
Description of National Common Stock. . . . . . . 45
Cunningham Stock. . . . . . . . . . . . . . . . . 49
Rights of Dissenting Shareholders . . . . . . . . 49
Experts . . . . . . . . . . . . . . . . . . . . . 51
Legal Opinions. . . . . . . . . . . . . . . . . . 51
Other Business. . . . . . . . . . . . . . . . . . 52
Index to Cunningham Financial Statements. . . . . 53
Appendix A - Form of Proxy
Appendix B - Asset Purchase and Reorganization Agreement,
including Exhibit 10.5 - Post-Closing
Escrow Agreement
Appendix C - Supplemental Agreement
Appendix D - Appraisal Rights: Sections 623 and 910 of the
New York Business Corporation Law
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This combined Proxy Statement/Prospectus contains
"Forward-Looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. Forward-Looking statements made
by National should be read with the cautionary statement included
in National's Form 10-K for the fiscal year ended September 30,
1998, which is incorporated by reference herein, at Item 7
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the heading "Safe Harbor for
Forward-Looking Statements." The Forward-Looking statements
included or incorporated by reference are based on National's
historical operating trends and other information available to
the management of National. These statements assume the
settlement of the Action, as defined herein, and that no
significant undisclosed changes will occur in the operating
environment for National prior to the Closing. National cautions
that the Forward-Looking statements are subject to all the risks
and uncertainties discussed under the captions "Summary,"
"Background of the Reorganization," "Reasons for the
Reorganization," "The Reorganization," "Certain Federal Income
Tax Consequences" and in the documents incorporated by reference
herein. None of the events discussed in these sections can be
predicted with certainty; therefore, actual results may vary
materially from the Forward-Looking statements and there is no
assurance that the assumptions used are the most likely to occur.
Forward-Looking statements are all statements other than
statements of historical fact, including, without limitation,
those statements that are identified by the use of the words
"anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and similar expressions. National
disclaims any obligation to update any Forward-Looking statements
to reflect events or circumstances after the date hereof.
SUMMARY
The following is a summary of certain information
contained elsewhere in this Proxy Statement/Prospectus.
Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus and
in the appendices hereto including, but not limited to, the
Agreement set forth in Appendix B and the Supplemental Agreement
set forth in Appendix C hereto. Unless otherwise defined,
capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus. Shareholders of Cunningham are urged to
read carefully and in their entirety this Proxy
Statement/Prospectus, the appendices and the documents
incorporated by reference herein. Unless the context requires
otherwise, the term "Cunningham" refers to Cunningham Natural Gas
Corporation, the term "Supply Corporation" refers to National
Fuel Gas Supply Corporation and the term "National" refers to
National Fuel Gas Company.
- 1 -
<PAGE>
The Reorganization
Background of the Reorganization
Supply Corporation and Cunningham have entered into the
Agreement in settlement of and with a proposed resolution of an
action (the "Action") entitled "National Fuel Gas Supply
Corporation v. Cunningham Natural Gas Corporation" in which
Supply Corporation and Cunningham are litigants. The Action is
currently pending in the Supreme Court of the State of New York,
County of Erie (the "Court"). In the Action, Supply Corporation
seeks to recover damages from Cunningham for Cunningham's alleged
conversion of natural gas from Supply Corporation's underground
natural gas storage facility through a certain gas well operated
by Cunningham. See "Background of the Reorganization."
The Agreement
Pursuant to the Agreement, National intends to acquire
substantially all of the assets of Cunningham in exchange for
Shares of National Common Stock in a manner intended to qualify
as a tax-free reorganization, subject to review by the IRS.
The number of Shares to be issued by National and
exchanged by Supply Corporation for the Subject Assets, as
defined herein, is currently estimated to be 72,948 Shares. The
aggregate number of Shares ultimately issued will have a value,
as of the end of the last business day immediately preceding the
Closing Date, (the "Valuation Date") equal to the sum of:
(i) Cunningham's cash and cash equivalents except an amount not
to exceed $300,000 retained by Cunningham to pay deferred
compensation obligations predating the Agreement, (ii) the value
as of the Valuation Date of any securities owned by Cunningham,
(iii) the unpaid balance of all receivables due from North Penn
Gas Company (the "North Penn Receivable") as of the Valuation
Date, (iv) $465,019, the fair market value of certain real
property consisting of approximately 640 acres of timber property
owned by Cunningham the value of which was determined by
appraisals conducted by independent appraisers and (v) $950,000.
It is currently expected that, in addition to the
amount of cash to be retained by Cunningham as set forth in the
Agreement, as noted above, an additional amount of cash will be
deducted from the cash to be delivered by Cunningham to cover the
costs related to the settlement of the Action and this
solicitation, which costs will include legal, accounting,
management, printing and mailing expenses.
Exchange Procedures
If the Reorganization is approved, pursuant to the
Post-Closing Escrow Agreement between Cunningham and Supply
Corporation, Cunningham will transfer a number of Shares of
National Common Stock having a fair market value equal to
$500,000 as of the Closing (the "Escrow Shares") to an Escrow
- 2 -
<PAGE>
Agent, as defined herein, for the purpose of securing its
obligation to indemnify Supply Corporation for any material
breach of the representations and warranties made by Cunningham
to Supply Corporation in the Agreement. Subject to this
transfer, (A) each holder of Cunningham Preferred Stock will
receive in exchange for each share of Cunningham Preferred Stock
held by such holder, that number of shares of National Common
Stock with a value equal to the sum of (i) the liquidation
dividend to be paid to such holder in the amount of six cents
($.06) per share/per year for the period from 1933 to the
present, (ii) $1.00 per share and (iii) the pro rata amount of
National Common Stock remaining after the payment of $1.00 per
share to the holders of the Cunningham Common Stock, as described
below, such remainder to be divided equally among the
Shareholders on a per share basis; and (B) each holder of
Cunningham Common Stock will receive in exchange for each share
of Cunningham Common Stock held by such holder, that number of
shares of National Common Stock with a value equal to the sum of
(y) $1.00 per share and (z) the pro rata amount of National
Common Stock remaining after the payment of the liquidation
dividends to be paid to the holders of Cunningham Preferred
Stock, as described above, and the additional payment to the
holders of the Cunningham Preferred Stock of that number of
shares of National Common Stock with a value equal to $1.00 per
share, such remainder to be divided equally among the
Shareholders on a per share basis. The total amount of dividends
to be paid to the holders of the Cunningham Preferred Stock is
currently estimated to be $941,325. These dividends will be paid
in shares of National Common Stock as noted above. The number of
shares of National Common Stock that each Shareholder will
receive at Liquidation will be reduced by the Shareholder's pro
rata interest in the Escrow Shares.
Any Escrow Shares remaining in the escrow account after
a minimum of twelve (12) months or a maximum of four years and
eleven months after the Closing, will be distributed to the
Shareholders on a pro rata basis, except that Escrow Shares
attributable to Unlocated Shareholders will be distributed in
accordance with the Order of the Court as noted below. There can
be no assurances that a claim will not be made or an award will
not be granted against the Escrow Shares or, if an award is
granted, the dollar amount of any such award. Accordingly, at
this time it is not possible to estimate the number of Escrow
Shares, if any, that may be remaining and available for
distribution to the Shareholders at the conclusion of this
period. See "Exchange Procedures."
Cunningham has an aggregate of 707,351 shares issued
and outstanding, comprised of 232,426 shares of Cunningham
Preferred Stock and 474,925 shares of Cunningham Common Stock.
These shares originally were held by 1,115 Shareholders. A large
majority of the Shareholders have had no contact with Cunningham
for decades. Following execution of the Agreement, special
efforts have been made to locate the Unlocated Shareholders,
including those of a Court-appointed Guardian Ad Litem. As of
January 29, 1999, 889 Cunningham Preferred Stock Shareholders
- 3 -
<PAGE>
holding 141,064 shares and 1 Cunningham Common Stock Shareholder
holding 1,300 shares continue to be Unlocated Shareholders. The
search for Unlocated Shareholders is continuing and it is not
possible to estimate the number of Unlocated Shareholders who
might be found prior to the date of Distribution.
If all of the Shareholders are not located at the time
of the Closing, the Shares (including Escrow Shares) that are
attributable to Unlocated Shareholders will be delivered to the
Escrow Agent. Cunningham has agreed to seek, within twenty (20)
days after the Closing, an order from the Court directing
Cunningham to give notice to the New York State Attorney General
to show cause why an order should not be entered allocating the
interest in the Shares of the Unlocated Shareholders to those
Shareholders who have been located. Such Shares will be
allocated pursuant to a final, non-appealable order ("Order") of
the Court and distributed as provided in such Order and
consistent with the terms of the Post-Closing Escrow Agreement.
The Shares of Unlocated Shareholders may be subject to
claims by the State of New York under Article V of the New York
Abandoned Property Law and certain sections of the New York
Business Corporation Law. It is possible that the abandoned
property laws of other states might apply where the last known
addresses of Unlocated Shareholders are in such states.
However, the large majority of last known addresses are in New
York. Accordingly, there can be no assurance that any Shares
attributable to Unlocated Shareholders will be distributed
pursuant to the Order to Shareholders who have been located.
Because the Shares of Unlocated Shareholders may be subject to
claims as noted above, Shareholders should consider and vote on
the Reorganization with the expectation that they will not be
entitled to receive any Shares of the Unlocated Shareholders.
Reasons for the Reorganization; Recommendation of the Cunningham
Board
The Cunningham Board recommends that the Shareholders
approve the Agreement and all of the transactions contemplated
thereunder including the Exchange and the Liquidation and
believes that the Reorganization is in the best interests of the
Shareholders because, among other things, it will (i) settle the
Action, (ii) provide the Shareholders with the ability to derive
an economic benefit from their investment by receiving Shares of
National Common Stock, and (iii) provide the Shareholders with
this economic benefit through a transaction that is expected to
qualify as a tax-free reorganization to the Shareholders. See
"Certain Federal Income Tax Consequences."
Further, the Cunningham Board believes that if the
Action is not settled, the continuation of the litigation would
be likely to result in bankruptcy of Cunningham and the
distribution of the remaining assets, if any, to the Shareholders
in a taxable transaction.
- 4 -
<PAGE>
The Companies
Cunningham
Cunningham, a New York corporation, was incorporated in
July, 1931 by Mr. John T. Cunningham and currently operates as a
private oil and natural gas development and production company in
the southwestern tier of New York state and northwestern
Pennsylvania. Cunningham's current operations are limited to two
natural gas wells.
Cunningham's principal executive offices are located at
165 Kennedy Street, Bradford, Pennsylvania 16701, and its
telephone number at that address is (814) 368-7991.
National
National, a registered holding company under the Public
Utility Holding Company Act of 1935, as amended (the "Holding
Company Act"), was organized under the laws of the state of New
Jersey in 1902. National is engaged solely in the business of
owning and holding all of the securities issued by its subsidiary
companies. National and its subsidiaries ("System") comprise a
diversified energy company represented by five major business
segments: Utility, which sells and transports natural gas to
retail customers and end users, respectively, in western New York
and northwestern Pennsylvania; Pipeline and Storage, which
provides interstate natural gas transportation and storage
services for affiliated and nonaffiliated companies; Exploration
and Production, which is engaged in natural gas and oil
exploration, development and production; International, which
engages in foreign and domestic energy related investment
opportunities; and Other Nonregulated, which engages in natural
gas and electricity marketing and brokerage, sawmill and dry kiln
operations, and the marketing of timber.
National's principal executive offices are located at
10 Lafayette Square, Buffalo, New York 14203, and its telephone
number at that address is (716) 857-7786.
The Special Meeting
Date, Time and Place
The Special Meeting will be held on March 31, 1999 at
The Old Library Restaurant, 116 South Union Street, City of
Olean, County of Cattaraugus, New York at 2:00 p.m., local time.
Record Date; Shareholders Entitled to Vote
Only the holders of record of Cunningham Stock, at the
close of business on March 1, 1999 (the "Record Date") are
entitled to receive notice of and to vote at the Special Meeting.
On that date, there were 707,351 shares of Cunningham Stock
outstanding. Each share of Cunningham Preferred Stock and Common
Stock will entitle the holder to one vote.
- 5 -
<PAGE>
Purpose of the Special Meeting
The Special Meeting has been called to consider and
take action on the approval and adoption of the Agreement and all
of the transactions contemplated thereby including the Exchange
and approval of the Liquidation.
Vote Required; Quorum
Shareholders present in person and by proxy owning a
majority of the outstanding shares of Cunningham Stock will
constitute a quorum for the transaction of business at the
Special Meeting, and the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Cunningham Stock
entitled to vote thereon will be necessary to approve the
Agreement and all of the transactions contemplated thereby
including the Exchange and to approve the Liquidation. Only
shares voted "FOR" adoption of the proposals, and not
abstentions, will be counted as voting in favor in determining
whether the proposals are adopted. As a consequence, abstentions
will have the same effect as votes against adoption of the
proposals. Each proposal must be voted on separately, although
the implementation of each proposal is contingent upon the other.
Interests of Certain Directors and Officers
Directors and executive officers of Cunningham
beneficially own 422,258 shares of Cunningham Stock, or 59.7% of
the outstanding shares of Cunningham Stock. Approximately 54.5%
of these shares are held in the Mary Alice Cunningham Trust (the
"Trust"). Ms. Helen L. Shuman and Mr. James Thompson are
beneficiaries of the Trust and serve as directors of Cunningham.
Ms. Shuman also serves as one of the two trustees (the
"Trustees") of the Trust. Mr. Martin M. Glesk serves, pursuant
to a judicial appointment, as the other Trustee of the Trust, in
addition to his position as the President and a director of
Cunningham. Since the death of John S. Cunningham, formerly the
third Trustee of the Trust, there must be unanimous consent of
the two remaining Trustees to an action to constitute an
authorized action of the Trust. The Trustees have indicated
their intention to vote "FOR" approval of the Agreement and all
of the transactions contemplated thereby including the Exchange
and "FOR" the Liquidation. Mr. David L. Hill, who also serves as
a director, holds, either individually or jointly with another,
5.2% of the outstanding shares of Cunningham Stock. Mr. Hill has
expressed his intention to vote his shares "FOR" the Agreement
and all the transactions contemplated thereby including the
Exchange and "FOR" the Liquidation.
Accounting Treatment
The Exchange is intended to be accounted for as a
purchase of assets under generally accepted accounting
principles.
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<PAGE>
Summary of Federal Income Tax Consequences
Consummation of the Reorganization is conditioned upon,
among other things, Cunningham's receipt of a private letter
ruling (the "Ruling") from the IRS to the effect that the
transaction qualifies for non-recognition of gain or loss by
Cunningham and the Shareholders as a type C reorganization
pursuant to Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). Cunningham requested and received a ruling
from the IRS to the effect that a Shareholder will not recognize
gain or loss on the exchange of Shares of Cunningham Stock for
the Shares, except to the extent the Shareholder receives cash in
lieu of fractional Shares or unclaimed Shares that were to be
distributed to Unlocated Shareholders. In addition, if a
Shareholder receives money or property other than Shares in the
liquidation of Cunningham, the Shareholder will recognize gain
(but not loss) for federal income tax purposes equal to the
lesser of (a) the sum of such money and the fair market value of
such other property and (b) the gain realized on the deemed
redemption of Shares for such money and other property. See
"Certain Federal Income Tax Consequences."
Regulatory Approvals
No consent or approval of any federal commission (other
than the Commission under the Holding Company Act) is required
with respect to the transactions proposed herein. Cunningham has
received a favorable Ruling from the IRS to the effect that the
Exchange will qualify as a tax-free reorganization. See "Certain
Federal Income Tax Consequences."
The Exchange concerns the acquisition of two natural
gas wells, one permitted by the New York State Department of
Environmental Conservation and one permitted by the Pennsylvania
Department of Environmental Protection. Each of these
environmental agencies must approve the transfer of the well
permits related to the wells located in their respective
jurisdictions, which approvals are the only state commission
approvals necessary for the Exchange to proceed. There are no
approvals necessary from any state commissions that regulate
public utilities.
Conditions Precedent to the Closing of the Transaction
The obligation of Supply Corporation and Cunningham to
effect the Reorganization are subject, among other things to the
fulfillment of certain conditions, including without limitation:
(i) the filing of a Registration Statement covering the Shares
pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), the declaration of the effectiveness of that
Registration Statement prior the Special Meeting and its
continued effectiveness at the Closing; (ii) the approval of the
Exchange and the approval of the Liquidation by the requisite
vote of the Shareholders; (iii) the receipt of a Commission order
permitting the Application-Declaration filed pursuant to the
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<PAGE>
Public Utility Holding Company Act to become effective; (iv) the
acquisition by Cunningham of all working interests in its natural
gas wells which are owned by third parties to this transaction;
and (v) the receipt of a favorable Ruling from the IRS. See "The
Reorganization--Conditions Precedent to the Closing of the
Reorganization--Conditions to Closing."
Representations and Warranties
The obligations of Supply Corporation and Cunningham to
effect the Reorganization are also subject to additional
conditions, including the absence of any breach or breaches of
certain enumerated representations and warranties. See "The
Reorganization--Representations and Warranties."
Termination of the Agreement
Either Supply Corporation or Cunningham may terminate
the Agreement if the Closing has not occurred by April 15, 1999.
Comparative Rights of Holders of Cunningham and National Common
Stock
The rights of the Shareholders are currently governed
by New York law, the Cunningham Certificate of Incorporation and
the Cunningham By-laws. National is a New Jersey corporation.
If the Reorganization is completed pursuant to the terms of the
Agreement, the Shareholders will become holders of National
Common Stock and their rights will be governed by New Jersey law,
National's Restated Certificate of Incorporation and National's
By-laws, as amended. The rights of the Cunningham Shareholders
prior to the Reorganization are not identical to the rights as a
holder of National Common Stock. See "Comparison of Shareholder
Rights" for a description of such differences.
Statutory Appraisal Rights
Eligible Shareholders of Cunningham who do not vote for
the Reorganization and who timely dissent and follow the
procedures in Section 623 of the New York Business Corporation
Law (the "BCL") will then have certain rights as a result of
these transactions to demand payment in cash for the "fair value"
of their shares of Cunningham Stock. Failure to take any
required action on a timely basis may result in the loss of those
rights. The amount obtained upon a valid exercise of those
rights is subject to determination by judicial proceeding and, as
a result, cannot be estimated at this time. See "Rights of
Dissenting Shareholders" and Appendix D.
Stock Exchange Listing
The National Common Stock is, and the additional Shares
of National Common Stock to be issued in connection with the
Exchange are expected to be, listed on the New York Stock
Exchange.
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<paeg>
Pro Forma Financial Information
Pro forma financial information showing the effects of
the Exchange upon National is not presented in this Proxy
Statement/Prospectus because the acquisition of Cunningham will
not have a material effect upon National.
THE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished to the
Shareholders in connection with the solicitation of proxies by
the Cunningham Board to be used at the Special Meeting that is to
be held on March 31, 1999, and any adjournments or postponements
thereof.
The accompanying proxy is solicited by the Cunningham
Board and will be voted in accordance with the instructions
contained thereon, if it is returned duly executed and is not
revoked. If no choice is specified on the proxy, it will be
voted "FOR" the approval and adoption of the Agreement, and all
of the transactions contemplated thereby including the Exchange,
and "FOR" the approval of the Liquidation as contemplated by the
Agreement.
A proxy may be revoked at any time before it is
exercised by delivery of written notice to the President of
Cunningham at Cunningham's executive offices or by a duly
executed proxy bearing a later date.
The costs of soliciting proxies will be borne by
Cunningham. In addition to solicitation by mail, Cunningham's
directors, officers and employees, without additional
compensation, may solicit proxies by telephone, mail and personal
interview.
Time, Place and Date of the Special Meeting. The
Special Meeting will be held on March 31, 1999 at The Old Library
Restaurant, 116 South Union Street, City of Olean, County of
Cattaraugus, New York at 2:00 p.m., local time.
Record Date; Shareholders Entitled to Vote. Only the
holders of record of Cunningham Stock on March 1, 1999 (the
"Record Date") are entitled to receive notice of and to vote at
the Special Meeting. On that date, there were 707,351 shares of
Cunningham Stock outstanding. Each share of Cunningham Preferred
Stock and Cunningham Common Stock will entitle the holder to one
vote.
Purpose of the Special Meeting. The Special Meeting
has been called to consider and take action on the approval and
adoption of the Agreement and all other transactions contemplated
thereby including the Exchange and approval of the Liquidation.
Vote Required; Quorum. Shareholders present in person
or by proxy owning a majority of the outstanding shares of
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<PAGE>
Cunningham Stock will constitute a quorum for the transaction of
business at the Special Meeting, and the affirmative vote of the
holders of record of at least two-thirds of the outstanding
shares of Cunningham Stock entitled to vote thereon will be
necessary to approve the Agreement and all of the transactions
contemplated thereby including the Exchange and to approve the
Liquidation. Only Shares voted "FOR" adoption of the proposals,
and not abstentions, will be counted as voting in favor in
determining whether the proposals are adopted. As a consequence,
abstentions will have the same effect as votes against adoption
of the proposals. Each proposal must be voted on separately,
although the implementation of each proposal is contingent upon
the approval of the other.
Interests of Certain Directors and Executive Officers.
Directors and executive officers of Cunningham beneficially own
422,258 shares of Cunningham Stock, or 59.7% of the outstanding
shares of Cunningham Stock. Approximately 54.5% of these shares
of Cunningham Stock are held in the Trust. Ms. Helen L. Shuman
and Mr. James Thompson are members of the Cunningham Board and
beneficiaries of the Trust. Ms. Shuman also serves as one of the
two Trustees of the Trust. Mr. Martin M. Glesk serves, pursuant
to a judicial appointment, as the other Trustee of the Trust, in
addition to his position as the President of Cunningham and
member of the Cunningham Board. Since the death of Mr. John S.
Cunningham, formerly the third Trustee of the Trust, the
unanimous assent of the two Trustees of the Trust is required to
constitute an authorized action of the Trust. The Trustees have
indicated their intention to vote "FOR" the approval and the
adoption of the Agreement and all of the transactions
contemplated thereby, including the Exchange, and "FOR" the
Liquidation. Mr. David L. Hill, also serving as a director on
the Cunningham Board, holds, either individually or jointly with
another, 5.2% of the outstanding shares of Cunningham Stock.
Mr. Hill has expressed his intention to vote his shares "FOR" the
Agreement and all the transactions contemplated thereby including
the Exchange and "FOR" the Liquidation.
The Board of Directors urges you to vote
"FOR" the Agreement and all of the
transactions contemplated thereby, including
the Exchange, and "FOR" the Liquidation.
THE COMPANIES
CUNNINGHAM
Cunningham is a New York corporation which was
incorporated in July, 1931 by Mr. John T. Cunningham and is
currently engaged in the business of producing and selling
natural gas and oil. Cunningham is a private oil and natural gas
development and production company operating in the southwestern
tier of New York state and northwestern Pennsylvania where it
also owns real property interests which include timber
properties. Cunningham has not been in the business of drilling
- 10 -
<PAGE>
new wells since the early 1960's, but has focused all of its
efforts since that time on the production and maintenance of its
existing oil and natural gas wells. Its current operations are
limited to two natural gas wells, one of which is currently
producing. In 1998, Cunningham completed the plugging of its
non-producing oil wells in Pennsylvania. Cunningham sold its
interests in its remaining oil leases in Pennsylvania in
December, 1998 for $61,250. In January, 1999, Cunningham sold
its timber properties on which the plugged oil wells had been
located for $255,000. See "The Reorganization--The Subject
Assets." Cunningham is not and has never been affiliated with
National.
Exploration, Development and Production
As of February 15, 1999, Cunningham is producing
natural gas from one natural gas well (the "Maxwell Well") in
Allegany County, New York. Substantially all other wells
previously drilled by Cunningham were closed because their
production curve declined to the extent that they no longer
produced oil or natural gas in commercially saleable quantities.
Since 1992, substantially all of Cunningham's producing
reserves were generated from the Maxwell Well. The gas from the
Maxwell Well is sold to North Penn Gas Company at a current
contracted rate of $1.45/Mcf. Oil was sold to American Refining
Group at the prevailing oil prices until all oil operations were
discontinued in July of 1998 and then all of Cunningham's
interests in its oil leases as well as its owned Pennsylvania oil
properties were sold in December, 1998 and January, 1999,
respectively. Natural gas and oil sales for the last three years
are set forth below.
1998 1997 1996
Gas (Mcf) 195,254 200,304 272,149
Oil (bbls) 2,224 2,092 1,686
Cunningham owns property and has mineral leaseholds in
New York and formerly owned property and mineral leaseholds in
Pennsylvania. The Pennsylvania properties and leaseholds were
sold in December, 1998 and January, 1999, respectively. The
primary value of the land held in fee is related to the timber
value. Additional information with respect to income produced by
Cunningham's oil and natural gas producing properties is set
forth in the Cunningham financial statements included herein.
See "Cunningham--Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Index to
Cunningham Financial Statements."
Competition
The oil and gas industry is highly competitive in all
its phases, but Cunningham generally competes exclusively in the
production and sale of oil and natural gas. Cunningham competes
- 11 -
<PAGE>
with other production companies of various sizes to provide oil
and natural gas to purchasers within the southwestern tier of
New York state and northwestern Pennsylvania generally on the
basis of price. Substantially all of Cunningham's competitors
have financial resources greater than those of Cunningham.
Regulation
The production and sale of natural gas and oil is
subject to state and federal laws and regulations. Such laws and
regulations govern a wide variety of matters including allowable
rates of production, marketing, pricing and protection of the
environment. In addition, new legislation and new regulations
concerning the oil and gas production business are constantly
being proposed and enacted. Compliance with these laws and
regulations is expected to continue to increase Cunningham's cost
of doing business.
Operating Hazards and Uninsured Risks
Cunningham's oil and gas operations are subject to all
operating hazards and risks normally incident to drilling for and
producing oil and natural gas, such as blow-outs, environmental
pollution and personal injury. Cunningham pays a minimal fee in
lieu of a bond with the Department of Environmental Conservation
in New York and because all its wells were drilled prior to 1978,
is not required to maintain a bond with the Department of
Environmental Resources in Pennsylvania to cover plugging
liability for the wells it has drilled.
Leasehold Interest in Properties
Cunningham's leasehold interests are subject to certain
landowner royalty interests, other third party overriding royalty
interests and certain third party working interests which are
customary in contractual and leasing arrangements in the oil and
natural gas business.
Legal Proceedings
Cunningham is a party to the Action and is also the
Plaintiff in a certain action pending in New York State Supreme
Court in Allegany County entitled Cunningham Natural Gas
Corporation vs. Jay Paul Kahle and Karen M. Perrigo (the
"Kahle/Perrigo Action"). In the Kahle/Perrigo Action, Cunningham
is seeking to recover damages against Kahle and Perrigo for
breach of their respective fiduciary and other legal duties to
Cunningham as former officers, directors, employees and attorneys
for Cunningham. Kahle and Perrigo have raised certain defenses
and Kahle has asserted a counter-claim against Cunningham for the
payment of deferred compensation which he alleges is owed to him
by Cunningham. Cunningham's claim for damages in the
Kahle/Perrigo Action is for $87,000.00 in the aggregate and
Mr. Kahle's counter-claim seeks to recover $100,000.00. Although
Cunningham's counsel in the Kahle/Perrigo Action has advised
Cunningham that its legal theory of recovery is well grounded and
in its favor under applicable law, it is not possible to predict
the outcome with any reasonable degree of certainty.
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<PAGE>
Facilities and Personnel
Cunningham operates from Bradford, Pennsylvania, but
has no specified office space. Cunningham has field shops for
equipment storage in Allegany County, New York. Two full-time
field employees in Allegany County are Cunningham's only full-
time employees. Part-time workers have been employed on an as-
needed-basis. Mr. Glesk, Mr. Hill, Mr. Wymer, and Ms. Bouquin
provide professional services to Cunningham as required, billing
on an hourly basis. See "Management of Cunningham" below.
Management of Cunningham
The following table sets forth the names and ages of
all of Cunningham's directors and executive officers together
with their business experience during the last five years and
offices currently held with Cunningham.
Name Age Position
Martin M. Glesk 57 President, Chief Executive
Officer and Director
<PAGE>
Christopher G. Hauser 44 Secretary, Director
Dennis P. Wymer 37 Treasurer
Anne Bouquin 35 Assistant Treasurer
Helen L. Shuman 79 Director
James Thompson 51 Director
David L. Hill 43 Director
Martin M. Glesk has served as the President, Chief
Executive Officer and as a director since his election at the
Cunningham 1996 annual meeting. Pursuant to judicial
appointment, Mr. Glesk became a trustee of the Mary Alice
Cunningham Trust in February 1996. From 1983, to the present, he
has been an assistant professor of business management at the
University of Pittsburgh at Bradford. He is also managing
partner of Bradford Associates, a management consulting firm, and
Executive Director of the Bradford Area Alliance, a CEO-led
organization dedicated to economic revitalization. Until 1981,
he was a senior consultant with Arthur D. Little, Inc., an
international management consulting firm in Cambridge,
Massachusetts. Mr. Glesk is a graduate of Duke University and
Harvard Business School.
Christopher G. Hauser has served as the Secretary and a
director since his election at the 1997 annual meeting.
Mr. Hauser is a partner in the law firm of McDowell, Wick, Daly,
Gallup, Hauser, and Hartle in Bradford, Pennsylvania. Mr. Hauser
has practiced law in the Bradford area for twenty years. He is
also a director and secretary of Control Chief Corporation.
Mr. Hauser is a graduate of Washington and Jefferson College and
Dickinson School of Law.
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<PAGE>
Dennis P. Wymer has served as the Treasurer of Cunningham since
his election at the November, 1996 Cunningham Board meeting. Mr.
Wymer is a sole practitioner in public accounting in Olean,
New York and is a graduate of St. Bonaventure University.
Anne Bouquin was elected as Assistant Treasurer of
Cunningham at the November, 1996 Cunningham Board meeting. From
1988 to the present, Ms. Bouquin has been the Controller at State
Line Supply Company in Bradford, Pennsylvania. Ms. Bouquin is a
graduate of the University of Pittsburgh.
Helen L. Shuman has served as a director of Cunningham
for over thirty years. She was an employee and Vice President of
Cunningham until August 1994 when she became President. She
resigned as President at the 1996 annual meeting. She has been a
trustee of the Mary Alice Cunningham Trust since the death of
Mary Alice Cunningham, her mother, in 1967. She is a beneficiary
of the Mary Alice Cunningham Trust.
James Thompson has served as a director of Cunningham
since the 1996 annual meeting. From 1975 to the present, Mr.
Thompson has been a school teacher at Hampton High School in
Hampton, Virginia. As the sole heir of his mother
Pauline Cunningham Thompson, a beneficiary of the Trust who died
on May 4, 1996, Mr. Thompson is a beneficiary of the Mary Alice
Cunningham Trust. He is a graduate of Old Dominion University.
David L. Hill was elected to the Cunningham Board at
its regular September, 1998 Board Meeting. Mr. Hill's wife,
Alisha (Cunningham) Hill, is the daughter of the late John S.
Cunningham, a former director of Cunningham and a former Trustee
of the Mary Alice Cunningham Trust. Since the death of her
father, Mrs. Alisha Hill has become a beneficiary of the Mary
Alice Cunningham Trust. Mr. Hill was appointed as Superintendent
of Field Operations at a Cunningham Board meeting in September,
1996. He has been co-owner of Hill Drilling Company since 1980.
Mr. Hill is a graduate of Pennsylvania State University.
Security Ownership of Management of Cunningham
The following table sets forth information with respect
to the beneficial ownership of certain securities as of
February 15, 1999 by (i) each of Cunningham's directors and
officers, and (ii) all directors and executive officers as a
group. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned.
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<PAGE>
Class A Preferred Stock Class B Common Stock
Amount and Amount and
nature of nature of
beneficial Percent beneficial Percent
Name(1) ownership of Class ownership of Class
Mary Alice
Cunningham Trust (2) 28,265 12.00 357,313 75.00
Christopher G. Hauser 0 0 0 0
Dennis P. Wymer 0 0 0 0
Anne Bouquin 0 0 0 0
David L. Hill 3,868 2.0 32,812 7.00
All directors and
executive officers as
a group (7 persons) 32,133 14.00 390,125 82.00
______________________________
(1) The address for each of the parties listed below is: c/o
Cunningham Natural Gas Corporation, 165 Kennedy Street, Bradford,
Pennsylvania 16701.
(2) Shares are held in trust for the children of Cunningham's
founders, John T. Cunningham and Mary Alice Cunningham. The
beneficiaries of the Trust include Ms. Helen L. Shuman and Mr.
James Thompson who currently serve as directors of Cunningham.
Ms. Shuman formerly served as an executive officer of Cunningham
and also serves as one of the two Trustees of the Trust. Since
the death of the third Trustee, Mr. John S. Cunningham, the
shares in the Trust must be voted by the unanimous consent of the
two Trustees, Ms. Helen L. Shuman and Mr. Martin M. Glesk. Mr.
Glesk is also the President and a director of Cunningham. Mr.
Shuman, Mr. Thompson and Mr. Glesk may be deemed to be the
beneficial owners of the shares held in the Trust. Mr. Glesk
disclaims beneficial ownership of these shares. See "Interests
of Certain Persons in the Transaction."
SELECTED HISTORICAL FINANCIAL DATA
OF CUNNINGHAM
The following selected financial data for the five
years ended December 31, 1998 are derived from the unaudited
financial statements of Cunningham. The unaudited financial
statements include all adjustments, consisting of normal
recurring accruals, which Cunningham considers necessary for a
fair presentation of the financial position and results of
operations for those periods. The data should be read in
conjunction with the financial statements, related notes, and
other financial information included herein. See "Index to
Financial Statements--Cunningham Natural Gas Corporation."
- 15 -
<PAGE>
<TABLE>
CUNNINGHAM NATURAL GAS
SELECTED FINANCIAL DATA
YEAR END DECEMBER 31
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (Dollars)
Operating Revenues $ 228,885 $ 241,122 $ 324,237 $ 527,858 $ 673,391
__________ __________ __________ __________ __________
Operating Expenses:
Development and production expense 227,988 233,008 176,284 146,441 273,403
General and administrative expense 218,671 196,449 245,655 213,655 197,419
__________ __________ __________ __________ __________
Total Operating Expenses 446,659 429,457 421,939 360,388 470,822
__________ __________ __________ __________ __________
Operating Income (Loss) (217,774) (188,335) (97,702) 167,470 202,569
__________ __________ __________ __________ __________
Other Income 188,884 437,543 66,139 68,786 42,208
__________ __________ __________ __________ __________
Income Before Provision for Taxes (28,890) 249,208 (31,563) 236,256 244,777
Provision for taxes 7,396 56,242 (55,410) 0 57,686
__________ __________ __________ __________ __________
Net Income (Loss) Available for
Stockholders $ (36,286) 192,966 23,847 236,256 187,091
========== ========== ========== ========== ==========
PER COMMON SHARE DATA
Earnings (Loss) (0.08) 0.41 0.05 0.50 0.39
Dividends Declared 0 0 0 0 0
Dividends Paid 0 0 0 0 0
Weighted Ave. Common Shares 474,925 474,925 474,925 474,925 474,925
Outstanding 232,426 232,426 232,426 232,426 232,426
Weighted Ave. Preferred Shares
Outstanding
CURRENT ASSETS $1,728,077 $1,913,541 $2,093,981 $2,043,272 $1,773,858
NET PROPERTY AND EQUIPMENT 45,482 64,246 13,024 19,971 57,171
__________ __________ __________ __________ __________
Total Assets $1,773,559 $1,977,787 $2,107,005 $2,063,243 $1,831,029
========== ========== ========== ========== ==========
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<PAGE>
Capitalization
Preferred Stock $ 253,832 $ 253,832 $ 253,832 $ 253,832 $ 253,832
Common Stock 57,430 57,430 57,430 57,430 57,430
Unrealized appreciation of
marketable securities 0 0 330,181 184,522 0
Retained earnings 1,396,852 1,433,138 1,240,172 1,216,325 980,069
Treasury Stock - at cost (97,063) (97,063) (97,063) (97,063) (97,063)
__________ __________ __________ __________ __________
Total Capitalization $1,611,051 $1,647,337 $1,784,552 $1,615,046 $1,194,268
========== ========== ========== ========== ==========
</TABLE>
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<PAGE>
CUNNINGHAM - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations
and financial condition of Cunningham for each of the periods
outlined below should be read in conjunction with Cunningham's
financial statements and notes related thereto, included under
"Index to Cunningham Financial Statements".
Results of Operations
Significant Results Since December 31, 1998
In January, 1999, Cunningham completed the sale of its
Pennsylvania properties. During 1998, Cunningham plugged all of
its non-producing oil wells on leased and owned parcels in
Pennsylvania. Cunningham closed its sale of all of its interests
in Pennsylvania oil leases in December of 1998 for $61,250.
(This transaction is reflected in the 1998 financial results.)
In January, 1999, Cunningham sold its owned properties in
Pennsylvania (upon which plugged non-producing oil wells had been
located) as timber properties for a total of $255,000. These
funds will be reflected as an increase in the Company's Cash
Account on the Balance Sheet.
Year Ended December 31, 1998 Compared to December 31, 1997
Net sales decreased slightly, by $12,237 from $241,122
in 1997 to $228,885 in 1998. Although gas production from the
Maxwell Well has fallen steadily for the last five years,
production stabilized in 1998. There was only a slight decline
in gas sales from the Maxwell Well from 1997 to 1998 - i.e.,
$6,094. Cunningham ceased production from its oil wells in July,
1998 in preparation for plugging the wells and selling its
interests in its owned and leased properties in Pennsylvania.
Despite operating for only seven (7) months in 1998, oil
production was increased from 2,092 barrels in 1997 to 2,234
barrels in 1998. The lower revenue from oil sales in 1998 was
due to a continued decline in oil prices.
Cunningham completed the plugging of all abandoned and
non-producing oil wells on its McKean County, Pennsylvania
properties in 1998. This action dramatically reduced the risk of
environmental liability for the Corporation and significantly
increased the market value of the properties. Cunningham sold
its interests in its oil leases on December 4, 1998 for $61,250.
In addition, before the end of 1998, Cunningham had entered into
a contract to sell its owned Pennsylvania properties as timber
properties.
Development and production expenses changed only
slightly, declining by $5,020 between 1997 and 1998. Because
operations of the Corporation were stabilized, the Board of
Directors met less frequently during 1998. This resulted in a
savings of $11,591 in directors fees and expenses from 1997 to
1998. For the same reasons, consulting fees for management and
financial services were also significantly reduced by $25,942.
- 18 -
<PAGE>
However, the preparation of information for the Internal Revenue
Service in connection with seeking the Ruling and for the
Securities and Exchange Commission in order to prepare this
Preliminary Proxy Statement and National's Registration Statement
resulted in a significant increase in expenses for accounting and
legal services. The amount of the increase in accounting and
legal expenses from 1997 to 1998 was $55,083. In addition,
Cunningham has been involved in an extensive campaign over the
last two years to locate shareholders with whom the Corporation
had lost contact. The cost of these search efforts are reflected
in the foregoing increase in legal and accounting expenditures.
For the reasons outlined, total general and administrative
expenses increased by $22,222 from 1997 to 1998.
The loss from operations in 1998 was $217,774 which
represents an increase of $29,439 from 1997. Continued declines
in gas production, the costs involved in phasing out all oil and
certain gas operations, the legal and administrative costs
associated with the Asset and Purchase Agreement with Supply
Corporation all contributed to the loss from operations.
Other income generated in 1998 was primarily from the
sale of stock, the sale of equipment, the sale of Cunningham's
interests in its oil leases and the interest generated from money
market funds. Other income offset the loss from operations
resulting in a Net Loss of $36,286 for 1998.
Year Ended December 31, 1997 Compared to December 31, 1996
Net sales decreased $83,115 from $324,237 in 1996 to
$241,122 in 1997, due primarily to declining production of gas
from the Maxwell Well. Oil sales increased $3,863, a slight
increase from $28,925 in 1996 to $32,788 in 1997. Oil sales
increased, despite a lower selling price per barrel, due to
increased production from several old wells that Cunningham had
not been utilizing and brought back into production in 1997.
Production expenses increased due to efforts begun to bring a
limited number of old oil wells back into production and to begin
plugging Cunningham's oils wells in order to clean-up
environmental contaminants resulting from the operation of such
oil wells.
General and administrative expense decreased by $49,206
from 1996 to 1997. In late 1996, to reduce expenses, the
Cunningham Board eliminated salaried officers and contracted for
management and financial services on an hourly basis. This
action resulted in no expenses for officer's salaries in 1997,
compared to $105,618, including salaries and payroll taxes, in
1996. However, consulting, legal and accounting fees increased
by $72,333, from $86,710 in 1996 to $159,043 in 1997, which
increase is attributable to payments for contracted management
and financial services and increased legal expenses related to
the Action and settlement negotiations with National. See
"Background of the Reorganization."
- 19 -
<PAGE>
Overall, total expenses, including development and
production expense and general and administrative expense,
increased by $7,518 from 1996 to 1997.
Cunningham continued to experience losses from its
operations in 1997. The loss from operations increased from 1996
to 1997 by $90,633, primarily due to declining oil and gas
revenues and rising development and production expenses.
In early 1997, the Cunningham Board sold all of
Cunningham's investments in marketable securities (primarily
common stock held in two brokerage accounts) and transferred the
proceeds into lower risk money market funds in contemplation of
the sale of these assets to Supply Corporation in the Exchange as
required under the Agreement. This sale of the marketable
securities was a one-time event which resulted in a gain on sale
of stock of $348,799 in 1997 and also increased interest income
by $50,505. The effect of this sale is that other income in 1997
increased by $371,404 over 1996.
Cunningham's income tax expense increased from a
benefit of $55,410 in 1996 to an expense of $56,242 in 1997.
This increase was primarily due to the fact that in 1996
Cunningham recorded a deferred tax benefit for net operating loss
carryforwards. In 1997, Cunningham utilized a portion of these
net operating loss carryforwards to offset current income tax
expense and recorded a valuation allowance of $25,689 against the
remaining net operating loss carryforwards.
Liquidity and Capital Resources
As of December 31, 1998, Cunningham had cash and cash
equivalents of $1,487,811. Cash decreased by $271,838 primarily
due to escrow payments on the production from the Maxwell Well
(discussed below) and the payments associated with the completion
of the plugging program of all abandoned and non-producing oil
wells on Cunningham's owned and leased properties in McKean
County, Pennsylvania. The escrow payment shown under current
assets are revenues set aside from the sale of gas from the
Maxwell Well under the terms of the "Pre-Closing Escrow
Agreement" with Supply Corporation.
The Escrow Deposit shown as payable under "Current
Liabilities" reflects the amount of royalty payments due and
owing to a yet-to-be-located heir of a deceased holder of an
interest in the Roche Well. The death of the Executor of the
decedent's Estate has further complicated the process.
Cunningham is aggressively pursuing a resolution of this matter.
NATIONAL FUEL GAS COMPANY
National, a registered holding company under the
Holding Company Act was organized under the laws of the state of
New Jersey in 1902. National is engaged solely in the business
of owning and holding all of the securities issued by its
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<PAGE>
subsidiary companies. Except as otherwise indicated below,
National owns all of the outstanding securities of its
subsidiaries which include, National Fuel Gas Distribution
Corporation ("Distribution Corporation"), National Fuel Gas
Supply Corporation ("Supply Corporation"), Seneca Independence
Pipeline Company ("SIP"), Seneca Resources Corporation
("Seneca"), Horizon Energy Development, Inc. ("Horizon"), Upstate
Energy, Inc., Niagara Independence Marketing Company, Leidy
Hub, Inc., Utility Constructors, Inc., Highland Land & Minerals,
Inc., Data-Track Account Services, Inc., and National Fuel
Resources, Inc.
National and its subsidiaries comprise a diversified
energy company represented by five major business segments.
The Utility segment is carried out by Distribution
Corporation, which sells natural gas and provides natural gas
transportation services to retail customers and end users,
respectively, through a local distribution system located in
western New York and northwestern Pennsylvania (principal
metropolitan areas: Buffalo, Niagara Falls and Jamestown,
New York; Erie and Sharon, Pennsylvania.)
The Pipeline and Storage segment is carried out by
Supply Corporation and by SIP. Supply Corporation provides
interstate natural gas transportation and storage services for
affiliated and nonaffiliated companies through (i) an integrated
pipeline system extending from southwestern Pennsylvania to the
New York-Canadian border at the Niagara River, and (ii) 29
underground natural gas storage fields owned and operated by
Supply Corporation and four other underground storage fields
operated jointly with various major interstate gas pipeline
companies. SIP has purchased a one-third general partnership
interest in Independence Pipeline Company ("Independence") which,
after regulatory approvals and upon securing sufficient customer
interest, plans to construct and operate the Independence
Pipeline to transport natural gas from Defiance, Ohio to Leidy,
Pennsylvania.
The Exploration and Production segment is carried out
by Seneca. Seneca is engaged in exploration for, and the
development and purchase of, natural gas and oil reserves in the
Gulf Coast of Texas, Louisiana, and Alabama, in California, in
Wyoming and in the Appalachian region of the United States.
The International segment is carried out by Horizon,
which was formed to engage in foreign and domestic energy
projects through investments as sole or substantial owner in
various business entities.
The Other Nonregulated segment is carried out by
various subsidiaries which engage in natural gas and electricity
marketing and brokerage, sawmill and dry kiln operations and the
marketing of timber.
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<PAGE>
Financial information about each of National's business
segments can be found in National's Annual Report on Form 10-K,
its consolidated financial statements, related notes, and other
financial information included and incorporated herein by
reference. See "Available Information", "Incorporation of
Certain Documents by Reference."
SELECTED HISTORICAL FINANCIAL DATA OF NATIONAL
The following selected financial data for the five
years ended September 30, 1998 are derived from the audited
consolidated financial statements of National. The data should
be read in conjunction with the consolidated financial
statements, related notes, and other financial information
included and incorporated herein by reference. See "Available
Information", "Incorporation of Certain Documents by Reference."
- 22 -
<PAGE>
<TABLE> SELECTED HISTORICAL FINANCIAL DATA OF NATIONAL
CAPTION>
Year Ended September 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (Thousands)
Operating Revenues $1,248,000 $1,265,812 $1,208,017 $ 975,496 $1,141,324
_______________________________________________________________________________________________________________
Operating Expenses:
Purchased Gas 441,746 528,610 477,357 351,094 497,687
Fuel Used in Heat and Electric
Generation 37,592 1,489 -- -- --
Operation and Maintenance 320,014 286,537 309,206 292,505 291,390
Property Franchise and Other Taxes 92,817 100,549 99,456 91,837 103,788
Depreciation, Depletion and
Amortization 118,880 111,650 98,231 71,782 74,764
Impairment of Oil and Gas Producing
Properties 128,996 -- -- -- --
Income Taxes 24,024 68,674 66,321 43,879 47,792
______________________________________________________________________________________________________________
1,164,069 1,097,509 1,050,571 851,097 1,015,421
______________________________________________________________________________________________________________
Operating Income 83,931 168,303 157,446 124,399 125,903
Other Income 35,870 3,196 3,869 5,378 3,656
______________________________________________________________________________________________________________
Income Before Interest Charges and Minority
Interest in Foreign Subsidiaries 119,801 171,499 161,315 129,777 129,559
Interest Charges 85,284 56,811 56,644 53,883 47,124
______________________________________________________________________________________________________________
Minority Interest in Foreign
Subsidiaries (2,213) -- -- -- --
______________________________________________________________________________________________________________
Income Before Cumulative Effect 32,304 114,688 104,671 75,894 82,435
Cumulative Effect of Changes in
Accounting (9,116) -- -- -- 3,237
______________________________________________________________________________________________________________
Net Income Available for Common
Stock $ 23,188 $ 114,688 $ 104,671 $ 75,894 $ 85,672
==============================================================================================================
PER COMMON SHARE DATA
Basic Earnings Per Common Share $ 0.61** $ 3.01 $ 2.78 $ 2.03 $ 2.32*
Diluted Earnings Per Common Share $ 0.60** $ 2.98 $ 2.77 $ 2.03 $ 2.31*
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<PAGE>
Dividends Declared $ 1.77 $ 1.71 $ 1.65 $ 1.60 $ 1.56
Dividends Paid $ 1.76 $ 1.70 $ 1.64 $ 1.59 $ 1.55
Dividend Rate at Year-End $ 1.80 $ 1.74 $ 1.68 $ 1.62 $ 1.58
At September 30
NUMBER OF COMMON SHAREHOLDERS 23,743 20,267 21,640 21,429 22,465
==============================================================================================================
NET PROPERTY, PLANT AND EQUIPMENT (Thousands)
Utility $ 906,754 $ 889,216 $ 855,161 $ 822,764 $ 787,794
Pipeline and Storage 460,952 450,865 452,305 463,647 443,622
Exploration and Production 638,886 443,164 375,958 339,950 295,418
International 202,590 942 1,274 70 --
Other Nonregulated 38,946 35,168 24,893 22,620 18,579
Corporate 9 11 15 131 137
______________________________________________________________________________________________________________
Total Net Plant $2,248,137 $1,819,366 $1,709,606 $1,649,182 $1,545,550
==============================================================================================================
Total Assets (Thousands) $2,684,459 $2,267,331 $2,149,772 $2,036,823 $1,980,806
==============================================================================================================
CAPITALIZATION: (Thousands)
Common Stock Equity $ 890,085 $ 913,704 $ 855,998 $ 800,588 $ 780,288
Long-Term Debt, Net of Current
Portion 692,669 581,640 574,000 474,000 462,500
Total Capitalization $1,582,754 $1,495,344 $1,429,998 $1,274,588 $1,242,788
==============================================================================================================
*1994 includes Cumulative Effect of Changes in Accounting of $0.09 (basic and diluted), which resulted from the adoption
of SFAS 109, "Accounting for Income Taxes" and SFAS 112, "Employers' Accounting for Postemployment Benefits."
**1998 includes oil and gas asset impairment of ($2.06) basic, ($2.04) diluted and cumulative effect of a change in
depletion methods of ($0.24) basic and diluted.
</TABLE>
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<PAGE>
Regulation
National is subject to regulation by the Commission
under the broad regulatory provisions of the Holding Company Act,
including provisions relating to the issuance of securities,
sales and acquisitions of securities and utility assets, intra-
company transactions and limitations on diversification. The
Utility segment's rates, services and other matters are regulated
by the Public Service Commission of the State of New York with
respect to services provided in New York, and by the Pennsylvania
Public Utility Commission with respect to services provided
within Pennsylvania. The Pipeline and Storage segment's rates,
services and other matters are regulated by the Federal Energy
Regulatory Commission ("FERC"). SIP is not regulated by the
FERC, but its sole business will be the ownership of an interest
in Independence, whose rates, services and other matters will be
regulated by the FERC. In the International segment, rates
charged for the sale of thermal energy and electric energy at the
retail level are subject to regulation and audit in the Czech
Republic by the Czech Ministry of Finance. The regulation of
electric energy rates at the retail level indirectly impacts the
rates charged by the International segment for its electric
energy sales at the wholesale level. In addition, National is
subject to the same federal, state and local regulations on
various subjects as other companies doing similar business in the
same locations. National's current operations other than the
Utility segment, the Pipeline and Storage segment and the
International operations are not regulated as to prices or rates
for services.
BACKGROUND OF THE REORGANIZATION
The Action
Supply Corporation and Cunningham entered into the
Agreement in settlement of the Action, entitled "National Fuel
Gas Supply Corporation v. Cunningham Natural Gas Corporation," in
which Supply Corporation and Cunningham are litigants. The
Action is currently pending in the Supreme Court of the State of
New York, County of Erie (the "Court"). In the Action, Supply
Corporation seeks to recover damages in connection with a certain
gas well operated by Cunningham.
The Action was commenced on January 6, 1995, by Supply
Corporation to recover damages from Cunningham for Cunningham's
alleged conversion of natural gas from Supply Corporation's
underground natural gas storage facility (known as the "Beech
Hill Facility") located in Allegany County, New York. Supply
Corporation alleged that in 1980, following the creation of the
Beech Hill Facility by Supply Corporation's predecessor,
production increased at two Cunningham wells, one in Willing
Township, Allegany County, New York (the "Maxwell Well") and the
second in Genesee Township, Potter County, Pennsylvania (the
"Roach Well", together the "Cunningham Wells"), and that the
source of the increased production was natural gas which had
migrated from the Beech Hill Facility. Supply Corporation
alleged that Cunningham had been illegally converting and selling
- 25 -
<PAGE>
such gas from the Cunningham Wells and sought to enjoin
Cunningham from continuing to convert this gas and to recover
damages in excess of $5,000,000 together with interest thereon
and the costs and disbursements related to the Action, among
other things.
A motion for preliminary injunction was filed by Supply
Corporation in November 1995 and denied by the Court on April 29,
1996. The Court supervised extensive discovery and discussions
between the parties from April 29, 1996 to the present to
facilitate a settlement without further court proceedings. A
settlement agreement was reached pursuant to which Supply
Corporation is to acquire substantially all of the assets of
Cunningham, including its lease and right to operate the
Cunningham Wells. The settlement agreement was incorporated into
the Agreement, which was executed by both parties on October 8,
1997 following considerable negotiations, supervised by the
Court. Satisfaction of all conditions of the Agreement will
continue to be monitored by the Court until the Closing.
Pursuant to the Agreement, Supply Corporation will purchase
substantially all of the assets of Cunningham in exchange for
Shares of National Common Stock. Pursuant to a Plan of
Liquidation, Cunningham will be liquidated following the
distribution of the National Common Stock to the Shareholders in
exchange for all outstanding shares of Cunningham Stock held by a
Shareholder and following the sale of Cunningham's remaining
assets. See "The Reorganization."
Corporate Actions
The Cunningham Board held monthly meetings from
January, 1996 to February, 1997 with additional meetings in
April, May, June, September and December, 1997 and February, May
and September, 1998. In addition to regular corporate
governance, the Cunningham Board was routinely advised of the
status of the Action at its meetings by Mr. Glesk, the President
of Cunningham, and from time-to-time by its litigation counsel.
Following the Court's denial of Supply Corporation's
motion for a preliminary injunction on April 29, 1996, the
Cunningham Board recommended that its attorneys actively explore
a settlement of the Action. The Cunningham Board determined that
the cost of continuing the Action was becoming seriously
detrimental to Cunningham's revenues and the discovery process
was significantly disruptive to Cunningham's ongoing business.
Although Cunningham's litigation counsel advised the Cunningham
Board in May 1996 that counsel believed that Cunningham's
defenses to the claim presented in the Action were meritorious,
counsel recommended seeking an acceptable settlement because the
attendant risks and uncertainties with respect to the outcome of
the Action were sufficiently serious to the continued operations
of Cunningham.
After considerable negotiations between Supply
Corporation and Cunningham, a settlement agreement was reached
between the parties and incorporated into the Agreement. On
September 19, 1997, the Cunningham Board approved the Agreement
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<PAGE>
and all of the transactions contemplated thereunder, including
the Exchange and the Liquidation, and then moved to have the
matter submitted to a vote of the Shareholders. On or about
October 1, 1997 the Cunningham Board provided the Shareholders
with a notice of a special meeting of Shareholders to be held on
October 29, 1997.
On October 29, 1997, a special meeting of Shareholders
was held for the purpose of authorizing the Cunningham Board to
enter into the Agreement to sell substantially all of the assets
of Cunningham to Supply Corporation, in accordance with Section
909 of the New York Business Corporation Law (the "BCL").
Section 909 requires such authorization by the Shareholders
because the sale of substantially all of Cunningham's assets
pursuant to the terms of the Agreement is not being made in the
usual or regular course of business actually conducted. The
Shareholders affirmatively authorized the Cunningham Board to
enter into the Agreement at the October 29, 1997 meeting by a
vote of the holders of more than two-thirds of all outstanding
shares of the Cunningham Stock entitled to vote thereon either
present in person or by proxy. However, this vote will not allow
the Reorganization to be effected as the Shareholder vote must be
solicited according to the terms and conditions described in this
Proxy Statement/Prospectus pursuant to the Exchange Act and the
National Common Stock must be registered pursuant to the
Securities Act.
The Cunningham Board did not obtain an independent
business valuation, asset appraisal or other independent expert
opinion as to whether the anticipated Purchase Price is a fair
price. The determination of the Cunningham Board in this regard
was based on the unique circumstances of the Reorganization. The
Reorganization is proposed as a means to settle a lawsuit with
Supply Corporation in which Supply Corporation seeks substantial
damages from Cunningham. In light of the pendency of the Action,
it is the opinion of the Cunningham Board that it is extremely
unlikely that any other buyer would be found. In addition, if
Cunningham did not prevail in the Action, the entire value of the
Company potentially would be consumed to pay damages. It is the
opinion of the Board that given these unique circumstances, an
independent valuation would be irrelevant since it necessarily
would contain speculation concerning the outcome of litigation
which no independent appraiser is qualified to give. The
Cunningham Board determined that the advice of its Special
Counsel and its own expertise were sufficient to evaluate the
fairness of the Purchase Price.
The Cunningham Board determined to sell, in a taxable
transaction prior to the completion of the Reorganization, its
interests in oil wells and related assets. Cunningham closed the
sale of its oil wells and related assets in two (2) separate
actions in December, 1998 and January, 1999. The aggregate sale
price was $316,250. The net proceeds from the sale will be added
to the total cash or cash equivalents, both Subject Assets, as
defined herein, to be transferred to Supply Corporation in the
exchange and will correspondingly increase the number of shares
provided in the exchange for these Subject Assets. See "The
Reorganization--Subject Assets."
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<PAGE>
REASONS FOR THE REORGANIZATION;
RECOMMENDATION OF THE CUNNINGHAM BOARD
The Cunningham Board recommends that the Shareholders
approve the Agreement and all transactions contemplated
thereunder including the Exchange and the Liquidation and
believes that the Reorganization is in the best interests of the
Shareholders because, among other things, it will (i) settle the
Action, which settlement will forestall any outcome requiring
Cunningham to pay significant damages to Supply Corporation, the
payment of which would have a materially adverse impact on
Cunningham's ability to continue its operations; (ii) provide the
Shareholders with the ability to derive an economic benefit from
their investment by receiving Shares of National Common Stock
that are registered, as well as listed and publicly traded on the
New York Stock Exchange, which Shares have historically received
quarterly dividends whereas, there is no market for the
Cunningham Stock and dividends have not been paid since 1931; and
(iii) provide the Shareholders with this economic benefit through
a transaction that is expected to qualify as a tax-free
reorganization to the Shareholders. See "Certain Federal Income
Tax Consequences."
Shares of National Common Stock received by Cunningham
Shareholders will be freely transferable, except that Shares
received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act) of Cunningham prior to
the Exchange may be sold by them only in transactions permitted
by the resale provisions of Rule 145 under the Securities Act,
pursuant to an effective registration statement covering such
resales or as otherwise permitted under the Securities Act.
National intends to use its best efforts to cause Shares held by
such "affiliates" to be registered under the Securities Act.
Further, the Cunningham Board believes that if the
Action is not settled, the continuation of the litigation would
be likely to result in bankruptcy of Cunningham and the
distribution of the remaining assets, if any, to the Shareholders
in a taxable transaction.
For a discussion of the steps taken by the Cunningham
Board in reaching its decision and the background and reasons for
the Exchange and the Liquidation, see "Background of the
Reorganization."
The Cunningham Board unanimously recommends that the
Shareholders vote "FOR" the approval of the Agreement and all of
the transactions contemplated therein, including the Exchange,
and "FOR" the Liquidation.
- 28 -
<PAGE>
THE REORGANIZATION
The Agreement
The following summary of the Agreement is qualified in
its entirety by reference thereto. The Agreement is incorporated
by reference herein and is attached as Appendix B to this Proxy
Statement/Prospectus. Any terms used, but not defined herein,
are used as defined in the Agreement.
General
Pursuant to the Agreement, Supply Corporation intends
to acquire substantially all of the assets of Cunningham utilized
in the Business for registered shares of National Common Stock in
a manner intended to qualify as a tax-free reorganization
pursuant to Section 368(a)(1)(C) of the Code. The Shares to be
exchanged for the Subject Assets, as defined below, will be
registered with the Commission and are listed on the New York
Stock Exchange. The Shares will be exchanged without preference
as to dividends or distribution over, and have equal voting
rights with, all currently outstanding shares of National Common
Stock.
The Subject Assets
In settlement of the Action, Supply Corporation plans
to exchange its Shares for the following items, with the
exception of the excluded assets identified below, which
collectively hereinafter will be referred to as the "Subject
Assets": (i) all cash and cash equivalents of Cunningham, except
as provided below, (ii) all securities owned by Cunningham
including securities held in certain brokerage accounts,
(iii) the unpaid balance of all receivables due from North Penn
Gas Company (the "North Penn Receivable") as of the Valuation
Date, (iv) approximately 640 acres of timber property owned by
Cunningham and all timber rights to all such real property,
(v) the Cunningham Wells and all pipelines, equipment, vehicles
and other property used in the production of natural gas,
(vi) all royalty interests in certain other natural gas wells
located in Cattaraugus County, New York, and (vii) all working
interests in Cunningham's natural gas wells.
The Subject Assets will not include (a) certain oil
wells, property and equipment related to the sale and production
of oil, (b) an amount of cash and cash equivalents (not to exceed
$300,000) retained by Cunningham for the purpose of paying
certain obligations predating the Agreement, and (c) two pickup
trucks and one brine truck. If the oil wells, property and
equipment related to the sale and production of oil are sold
prior to the Closing, any cash and cash equivalents received will
be included in the Subject Assets.
The number of Shares to be issued by National and
exchanged by Supply Corporation as consideration for the Subject
Assets was determined by arms-length negotiations between the
parties, and will have a value, as of the last business day
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<PAGE>
immediately preceding the Closing Date, (the "Valuation Date")
equal to the sum of: (i) the cash and cash equivalents
transferred to Supply Corporation by Cunningham, as set forth
above, (ii) the value as of the Valuation Date of any securities
owned by Cunningham including securities held in certain
brokerage accounts, (iii) the unpaid balance of the North Penn
Receivable as of the Valuation Date; (iv) $465,019, the fair
market value of certain real property consisting of approximately
640 acres of timber property owned by Cunningham the value of
which was determined by appraisals conducted by independent
appraisers; and (v) $950,000.
It is currently expected that, in addition to the
amount of cash to be retained by Cunningham as set forth in the
Agreement, as noted above, an additional amount of cash will be
deducted from the cash to be delivered by Cunningham to cover the
costs related to the settlement of the Action and this
solicitation, which costs will include legal, accounting,
management, printing and mailing expenses.
Except as otherwise specifically agreed, Supply
Corporation is not assuming any existing liabilities of
Cunningham, whether accrued, absolute, contingent or otherwise.
Conditions Precedent to the Closing of the Transaction
The Exchange and all other transactions contemplated by
the Agreement will be consummated at the Closing, which shall
occur, absent agreement of the parties to a different date, on
the 10th business day after the satisfaction of the latest to
occur of the following conditions to Closing, provided that all
other conditions to Closing have been satisfied: (i) the Shares
have been registered under the Securities Act pursuant to an
effective registration statement and National will be lawfully
permitted to issue, and Supply Corporation will be lawfully
permitted to deliver, the Shares to Cunningham; (ii) any required
filings and orders under the Holding Company Act, or any other
applicable regulatory act has been completed and received;
(iii) Cunningham has acquired all working interests in its
natural gas wells which are owned by third parties to this
transaction, including but not limited to the Smole interest, and
has provided Supply Corporation with evidence of this
acquisition; and (iv) Cunningham has received a favorable Ruling
from the IRS.
Representations and Warranties
The Agreement contains various other conditions which
must be satisfied prior to Closing. Such conditions include the
accuracy of certain standard representations and warranties of
Cunningham and National, relating to, among other things, the
following: (i) their incorporation, existence, good standing,
corporate power and similar corporate matters; (ii) their
capitalization; (iii) their authorization, execution, delivery
and performance and the enforceability of the Agreement and all
of the Other Agreements contemplated pursuant to the terms of the
Agreement; (iv) the absence of requirements under any regulatory
- 30 -
<PAGE>
authority; (v) the absence of any violation of any provision of
law applicable to either party; (vi) the absence of any breach or
conflicts with their respective certificates of incorporation and
by-laws or any mortgage, deed of trust, license, indenture or
other agreement or any other instrument, or any order, judgment,
decree, statute, regulation or any other restriction to which
either is a party or any of their assets may be bound; and
(vii) the absence of any finders' fee owed to any intermediary
operating on behalf of either party in connection with the
origin, negotiation, execution or consummation of the
Reorganization.
Cunningham made additional representations and
warranties as to: (i) its stock; (ii) financial statements;
(iii) the absence of certain material changes or events since the
date of its balance sheet; (iv) pending liabilities or
obligations; (v) the compliance with all outstanding insurance
policies; (vi) tax matters; (vii) environmental matters;
(viii) labor and employee benefit matters; (ix) title to and
condition of all of its real property and the Subject Assets;
(x) patents, trademarks and trade secrets; (xi) pending or
threatened investigations or litigation; and (xii) the accuracy
of the information supplied pursuant to the Agreement.
Cunningham has agreed to indemnify Supply Corporation
for any material breach of these representations and warranties.
Pursuant to the terms of the Post-Closing Escrow Agreement, as
defined below, Supply Corporation has certain rights to the
Shares held in an escrow account for a period of twelve months
from the Closing as security for this indemnification. See
"Other Agreements."
Closing/Termination
Subject to the provisions of the Agreement, as set
forth above, the consummation of the transactions contemplated by
the Agreement will take place at the Closing, as indicated above.
Either party may terminate the Agreement if the Closing has not
occurred by April 15, 1999.
Among other things, at the Closing Cunningham will
deliver to Supply Corporation: (i) exclusive possession of the
Subject Assets (with evidence that upon transfer, the Subject
Assets are free of any liens, claims, encumbrances, security
interests and/or transfer fees and expenses), (ii) an opinion of
Hurwitz & Fine, special counsel to Cunningham as to, among other
things, the due organization and good standing of Cunningham,
appropriate corporate authority to enter into the Agreement and
the Other Agreements, as defined below, approval of the Agreement
by the Shareholders, the absence of any other proceedings or
claims against Cunningham or with respect to its assets or the
absence of additional governmental requirements, (iii) an
executed Officer's certificate as to the receipt by Cunningham of
all permits, licenses and other governmental and official
authorizations necessary for National to conduct the Business and
to consummate the transactions contemplated by the Agreement,
- 31 -
<PAGE>
(iv) written instructions directing the release of all funds in
the Pre-Closing Escrow Agreement, as defined below, to Supply
Corporation and (v) a duly executed stipulation discontinuing the
Action on the merits and with prejudice.
Among other things, at the Closing, Supply Corporation
will deliver to Cunningham, (w) the certificates representing the
Shares, (x) an opinion of counsel as to the legality of the
National Common Stock, (y) an executed certificate confirming
that conditions to the Closing for which Buyer is responsible
have been satisfied and (z) a duly executed stipulation
discontinuing the Action on the merits and with prejudice.
Other Agreements
The obligations of Supply Corporation and Cunningham to
deliver certain items and the effecting of certain conditions to
Closing, as set forth above, include the satisfaction of the
release of funds under a Pre-Closing Escrow Agreement (the "Pre-
Closing Escrow Agreement") and the maintenance of a post-closing
escrow account pursuant to the terms of the Post-Closing Escrow
Agreement (the "Post-Closing Escrow Agreement" and together with
the Pre-Closing Escrow Agreement, the "Other Agreements").
On October 8, 1997, Supply Corporation, Cunningham and
Marine Midland Bank entered into the Pre-Closing Escrow Agreement
pursuant to the terms of the Agreement. Cunningham is required
thereunder to deliver a sum equal to 50% of its net operating
revenue from natural gas operations during each month on and
after May 1, 1997 to Marine Midland Bank (the "Escrow Agent")
until Closing. The escrowed funds will be delivered to Supply
Corporation immediately upon the Escrow Agent receiving written
notice jointly executed by Cunningham and Supply Corporation
confirming the Closing.
Pursuant to the Agreement, Cunningham and Supply
Corporation will enter into a Post-Closing Escrow Agreement at
the Closing pursuant to which a post-closing escrow account will
be established as security to Supply Corporation for Cunningham's
indemnification obligations under the Agreement. A portion of
the National Common Stock delivered to Cunningham at Closing
having a fair market value equal to $500,000 as of the Closing
will be deposited in a post-closing escrow account prior to
distribution to the Shareholders. The number of Shares of
National Common Stock that each Shareholder will receive at
Liquidation will be reduced by the Shareholder's pro rata
interest in the Escrow Shares. The Escrow Shares will remain in
escrow until twelve months have elapsed from the Exchange, if no
claim has been made by Supply Corporation under the Post-Closing
Escrow Agreement. In the event a claim is made by Supply
Corporation, the Escrow Shares will remain in escrow until the
Escrow Agent receives written notice from Supply Corporation and
Cunningham that such claim has been resolved. In no event,
however, shall the Escrow Shares be held in escrow longer than
four years and eleven months from the date of the Exchange. Any
claim made by Supply Corporation under the Post-Closing Escrow
Agreement shall be resolved by arbitration if demanded by either
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Cunningham or Supply Corporation. Any Shares remaining in the
post-closing escrow account upon expiration of its term, a
minimum period of twelve months and a maximum of four years and
eleven months, will be returned to Cunningham and will be
distributed to the Shareholders on a pro-rata basis, except that
Escrow Shares attributable to Unlocated Shareholders will be
distributed in accordance with the Order of the Court. See
"Exchange Procedures."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material
federal income tax consequences of the transaction to Supply
Corporation, National, Cunningham and the Shareholders and
assumes, in the case of the Shareholders, that each of them is a
citizen or resident of the United States who holds his or her
shares of Cunningham Stock as a capital asset.
THE FOLLOWING DISCUSSION IS INCLUDED AS
GENERAL INFORMATION ONLY. NECESSARILY IT IS
NOT SPECIFIC TO THE SITUATION OF ANY
PARTICULAR PARTY AND DOES NOT ADDRESS THE
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF
THE REORGANIZATION. THE DISCUSSION IS BASED
UPON CURRENT EXISTING PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED
("CODE"), EXISTING AND PROPOSED TREASURY
REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS.
ALL OF THE FOREGOING ARE SUBJECT TO CHANGE
AND ANY SUCH CHANGES COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. EACH
PARTY SHOULD CONSULT SUCH PARTY'S OWN TAX
ADVISORS WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE REORGANIZATION TO SUCH
PARTY, INCLUDING THE APPLICATION AND AFFECTS
OF STATE, LOCAL AND FOREIGN TAX LAWS.
Pursuant to the Agreement the Closing is conditioned
upon Cunningham's receipt of a favorable private letter ruling
("Ruling") from the IRS to the effect that the Reorganization
qualifies for non-recognition of gain or loss by Cunningham and
the Shareholders as a type C reorganization pursuant to
Section 368 of the Code. Cunningham requested and received a
Ruling from the IRS as to the federal income tax consequences of
the Reorganization. Neither Cunningham, Supply Corporation nor
National has requested an opinion from its respective counsel as
to the tax effects of the Reorganization and no such opinion will
be obtained.
In the Ruling, the IRS made the following rulings:
(1) The acquisition by Supply Corporation of substantially
all of the assets of Cunningham in exchange solely for
National voting common stock, as described above, will
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qualify as a tax-free reorganization under Code
Section 368(a)(1)(C).
(2) National, Supply Corporation and Cunningham will each
be "a party to a reorganization" within the meaning of
Code Section 368(b).
(3) No gain or loss will be recognized by the shareholders
of Cunningham upon the receipt of National common stock
in exchange for their Cunningham stock.
(4) The basis of the shares of National voting common stock
received by the Cunningham shareholders in exchange for
their Cunningham voting stock will be the same as the
basis of the Cunningham voting stock surrendered in
exchange therefor.
(5) No gain or loss will be recognized by Cunningham by
reason of its transfer of substantially all of its
assets to Supply Corporation in exchange for National
voting common stock.
(6) No gain or loss will be recognized by National or
Supply Corporation upon Supply Corporation's receipt of
substantially all of the assets of Cunningham in
exchange for shares of National voting common stock.
(7) The basis of the assets of Cunningham in the hands of
Supply Corporation will be, in each instance, the same
as the basis of those assets in the hands of Cunningham
immediately prior to the proposed transaction.
(8) The holding period of Cunningham's assets in the hands
of Supply Corporation will include the period during
which the assets were held by Cunningham.
(9) The holding period of the National voting stock
received by the Cunningham shareholders will include
the holding period during which the Cunningham common
stock surrendered in exchange therefor was held,
provided that such stock is held as a capital asset in
the hands of the Cunningham shareholders on the date of
the exchange.
(10) The issuance of National stock by Supply Corporation in
exchange for substantially all of the assets of
Cunningham will not result in gain or loss recognition
to National or Supply Corporation.
In the Ruling, the IRS expressed no opinion as to the
federal income tax treatment to the located Shareholders of
Cunningham of the distribution of any additional shares of
National stock attributable to Unlocated Shareholders and stated
that a determination of the appropriate tax treatment to these
Cunningham Shareholders will be made by the appropriate District
Directors' office upon audit of the federal income tax returns in
which the proposed transaction is reported. A located Cunningham
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Shareholder who receives Shares that were to be distributed to
Unlocated Shareholders may be required to include the fair market
value of such Shares (or a lesser amount) in his or her gross
income (as either capital gain or ordinary income) for federal
income tax purposes. National expresses no opinion as to the
correct federal income tax treatment of a Shareholder's receipt
of unclaimed Shares that were to be distributed to Unlocated
Shareholders.
The foregoing description of the federal income tax
consequences of the Reorganization is based on the Ruling. The
request for such Ruling, which was filed by Cunningham, includes
a number of factual representations made by Cunningham for itself
and/or its Shareholders, including, without limitation, a
representation as to the lack of a plan or intention by
Shareholders who own 1% or more of the Cunningham Stock to
dispose of a number of Shares that would reduce the Shareholders'
ownership of Shares to a number of shares having a value, as of
the date of the Reorganization of less than 50% of the value of
all of the formerly outstanding Cunningham Stock as of the same
date and a representation that the Subject Assets being acquired
by Supply Corporation, constitute at least 90% of the fair market
value of the net assets and at least 70% of the fair market value
of the gross assets held by Cunningham immediately prior to the
transaction. If either of these or any other representation set
forth in the request for the Ruling were determined to be
incorrect, the parties may not be able to rely upon the Ruling
and, in that event, National can give no assurance that the
foregoing description of the material federal income tax
consequences of the transaction is correct or that the
Reorganization qualifies as a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code. If the Reorganization does
not qualify as a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, among the federal income tax
consequences that would result, Cunningham would recognize gain
or loss on any assets it transfers to Supply Corporation in
exchange for the Shares (measured by the difference between
Cunningham's federal income tax basis for each asset and the
value of the Shares received therefor) and a Shareholder would
recognize gain or loss upon the Liquidation of Cunningham
(measured by the difference between such Shareholder's federal
income tax basis in his or her shares of Cunningham Stock and the
sum of the amount of any money and the fair market value of any
property including the Shares received in the Liquidation).
EXCHANGE PROCEDURES
If both the Agreement and all transactions contemplated
thereunder including the Exchange and the Liquidation are
approved by the Shareholders and if all the conditions precedent
to the Closing have been fulfilled upon Closing, Cunningham will
receive an amount currently estimated to be 72,948 Shares of
National Common Stock from Supply Corporation. Supply
Corporation will be issued the Shares by National in return for
the payment to National of an amount equal to the market value of
the Shares on the issue date. Supply Corporation then will
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deliver the Shares to Cunningham in exchange for the Subject
Assets. Thereafter, the Shareholders will receive the Shares in
exchange for their Cunningham Stock, as described below.
After the Closing, the Shareholders will receive
instructions concerning their certificates representing the
Cunningham Stock. ACCORDINGLY, SHAREHOLDERS SHOULD NOT SEND ANY
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD. DO NOT MAIL
YOUR CERTIFICATES REPRESENTING CUNNINGHAM STOCK TO CUNNINGHAM OR
NATIONAL. YOU WILL BE ADVISED BY CUNNINGHAM AS TO WHERE AND HOW
TO DELIVER YOUR CERTIFICATES EVIDENCING THE CUNNINGHAM STOCK IN
EXCHANGE FOR NATIONAL COMMON STOCK.
Pursuant to the proposed terms of the Post-Closing
Escrow Agreement, following the Closing, Cunningham will transfer
a number of Shares of National Common Stock having a fair market
value equal to $500,000 as of the Closing to an Escrow Agent for
the purpose of securing its obligation to indemnify Supply
Corporation for any material breach of the representations and
warranties made under the Agreement by Cunningham. See "The
Agreement--Representations and Warranties."
Following the Closing and subject to the transfer of
the Escrow Shares to an Escrow Agent, assuming that the
Reorganization is approved: (A) each holder of Cunningham
Preferred Stock will receive in exchange for each share of
Cunningham Preferred Stock held by such holder, that number of
Shares of National Common Stock with a value equal to the sum of
(i) a liquidation dividend to be paid to such holder in the
amount of six cents ($.06) per share/per year for the period from
1933 to the present, (ii) $1.00 per share and (iii) the pro rata
amount of National Common Stock remaining after the payment of
$1.00 per share to the holders of the Cunningham Common Stock, as
described below, such remainder to be divided equally among the
Shareholders on a per share basis; and (B) each holder of
Cunningham Common Stock will receive in exchange for each share
of Cunningham Common Stock held by such holder, that number of
shares of National Common Stock with a value equal to the sum of
(y) $1.00 per share and (z) the pro rata amount of National
Common Stock remaining after the payment of the liquidation
dividend to the holders of Cunningham Preferred Stock, as
described above, and the additional payment to the holders of the
Cunningham Preferred Stock of that number of shares of National
Common Stock with a value equal to $1.00 per share, such
remainder to be divided equally among the Shareholders on a per
share basis. The total amount of dividends to be paid to the
holders of the Cunningham Preferred Stock is currently estimated
to be $941,325. These dividends will be paid in shares of
National Common Stock as noted above. The number of Shares of
National Common Stock that each Shareholder will receive at
Liquidation will be reduced by the Shareholder's pro rata
interest in the Escrow Shares.
Any Escrow Shares remaining in the escrow account after a
minimum of twelve (12) months or a maximum of four years and
eleven months after the Closing, will be distributed to the
Shareholders on a pro rata basis. There can be no assurances
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that a claim will not be made or an award will not be granted
against the Escrow Shares or, if an award is granted, the dollar
amount of any such award. Accordingly, at this time it is not
possible to estimate the number of Escrow Shares, if any, that
may be remaining and available for distribution to the
Shareholders at the conclusion of this period. See "Exchange
Procedures."
If all of the Shareholders are not located at the time of
the Closing, the Shares (including Escrow Shares) that are
attributable to Unlocated Shareholders will be delivered to the
Escrow Agent. Cunningham has agreed to seek, within twenty (20)
days after the Closing, an order from the Court directing
Cunningham to give notice to the New York State Attorney General
to show cause why an order should not be entered allocating the
interest in the Shares of the Unlocated Shareholders to those
Shareholders who have been located. Such Shares will be
allocated pursuant to a final, non-appealable order ("Order") of
the Court and distributed as provided in such Order and
consistent with the terms of the Post-Closing Escrow Agreement.
The Shares of Unlocated Shareholders may be subject to
claims by the State of New York under Article V of the New York
Abandoned Property Law and certain sections of the New York
Business Corporation Law. It is possible that the abandoned
property laws of other states might apply where the last known
addresses of Unlocated Shareholders are in such states. However,
the large majority of last known addresses are in New York.
Accordingly, there can be no assurance that any Shares
attributable to Unlocated Shareholders will be distributed
pursuant to the Order to Shareholders who have been located.
Because the Shares of Unlocated Shareholders may be subject to
claims as noted above, Shareholders should consider and vote on
the Reorganization with the expectation that they will not be
entitled to receive any Shares of the Unlocated Shareholders.
COMPARISON OF SHAREHOLDER RIGHTS
Cunningham is incorporated under the laws of New York.
National is incorporated under the laws of New Jersey.
Accordingly, the rights of a holder of Cunningham Stock will
differ in some respects from those of a holder of National Common
Stock. If the Reorganization is completed, the Shareholders will
become holders of National Common Stock, and as such their rights
will be governed by New Jersey law and National's Restated
Certificate of Incorporation ("Restated Certificate of
Incorporation"), and By-laws, as amended ("By-Laws"), rather than
New York law and Cunningham's Certificate of Incorporation, as
amended, ("Certificate of Incorporation"), and By-laws. The
following summary describes certain material differences
affecting shareholders' rights between (i) New Jersey law,
National's Restated Certificate of Incorporation and By-laws and
(ii) New York law, Cunningham's Certificate of Incorporation and
By-laws. These summaries do not purport to be complete and are
qualified in their entirety by reference to the National Restated
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Certificate of Incorporation, National By-laws, Cunningham
Certificate of Incorporation and Cunningham By-laws.
Vote Required to Authorize Certain Organic Changes
In general, under New Jersey law, in the case of a
corporation organized prior to 1969, such as National, a
disposition of all or substantially all of the assets other than
in the regular course of business, a charter amendment or a
merger or consolidation must be authorized by the affirmative
vote of two-thirds of the votes cast, and by such vote of each
class entitled to vote as a class, with respect to any such
matter, except, however, that such a corporation may amend its
charter by the affirmative vote of two-thirds of the votes cast
to provide that the vote of a majority of the votes cast will
suffice. National's Restated Certificate of Incorporation
provides that the above listed changes must be authorized by the
affirmative vote of a majority of the votes cast by the holders
of shares entitled to vote, and, in addition, if any class or
series of shares is entitled to vote thereon as a class, a
majority of the votes cast in such class vote.
In general, for corporations in existence before
February 1998, the New York law provides that a sale, lease,
exchange or other disposition of all or substantially all of the
assets or a plan of merger or consolidation must be authorized by
the affirmative vote of two-thirds of all outstanding shares
entitled to vote thereon. However, such corporations may amend
their certificate of incorporation for approval by a majority of
the votes of all outstanding shares entitled to vote thereon.
Cunningham has not amended its certificate of incorporation and
therefore an affirmative vote of two-thirds of all outstanding
shares entitled to vote thereon is required for such
transactions.
Class Voting on Merger or Consolidation
Under New Jersey law, any class or series of shares
shall be entitled to vote as a class if the plan of merger or
consolidation contains any provision which, if contained in a
proposed charter amendment, would entitle the class or series to
vote as a class on the amendment, unless such provision is one
which could be adopted by the Board without shareholder approval
as set forth under New Jersey law.
The New York BCL is virtually identical to the
requirements of New Jersey law set forth above except, under New
York law class voting is only permitted when both (i) the shares
of the class or series entitled to vote will remain outstanding
after the merger or consolidation or will be converted into the
right to receive shares of the surviving corporation or another
corporation and (ii) the certificate of incorporation of such
other corporation immediately after effectiveness of the merger
or consolidation contains a provision which is not in the
certificate of the corporation and which, if contained in an
amendment to the certificate, would entitle the holders of such
shares to vote as a separate class or series.
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Source of Dividends
Under New Jersey law, dividends may not be paid if,
after giving effect to the dividend, either (1) the corporation
would be unable to pay its debts as they become due in the usual
course of its business or (2) the corporation's total assets
would be less than its total liabilities.
Under New York law, dividends may be paid out of
surplus only, except that a corporation engaged in the
exploitation of natural resources may pay dividends in excess of
surplus to the extent that the cost of the wasting or specific
assets has been recovered by depletion reserves, amortization or
sale. In any case, dividends may only be declared and paid under
New York law if net assets remaining after the payment would be
sufficient to cover the liquidation preference of shares having a
preference in liquidation.
Power to Adopt, Amend or Repeal By-laws
Under New Jersey law, the power to adopt, amend and
repeal by-laws of a corporation is vested in the Board of
Directors unless such power is reserved to the shareholders in
the certificate of incorporation, but by-laws made by the Board
of Directors may be amended and repealed and new by-laws adopted
by the shareholders and the shareholders may prescribe in such
by-laws that the Board may not amend or repeal by-laws approved
by shareholders. The By-laws of National may be amended by the
Board of Directors or by the shareholders.
Under New York law, the power to adopt, amend or repeal
by-laws of a corporation is vested in the corporation's
shareholders, although the corporation's certificate of
incorporation may also vest such power in the corporation's board
of directors. Cunningham's Certificate of Incorporation provides
that its By-Laws may be adopted, amended or repealed by its
Shareholders and by the Cunningham Board.
Action by Shareholders by Written Consent in Lieu of a
Meeting
______________________________________________________
Under New Jersey law, except as otherwise provided in a
certificate of incorporation, any action (other than the annual
election of directors) required or permitted to be taken at a
meeting of the corporation's shareholders, may be taken without a
meeting upon the written consent of shareholders who would have
been entitled to cast the minimum number of votes which would
have been necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voted. When a
corporation receives the requisite number of written consents to
effect a merger, consolidation or sale of substantially all of
the assets of the corporation, notice must be provided to all
non-consenting shareholders at least 20 days before the effective
date of such action. Notification to all non-consenting
shareholders must be provided within 10 days for any other type
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of action requiring a shareholder vote. The Restated Certificate
of Incorporation of National does not alter this statutory
provision.
Under New York law, except as otherwise provided in a
company's certificate of incorporation, any action required or
permitted to be taken at the meeting of a corporation's
shareholders may be taken without a meeting if written consents,
setting forth the action so taken, are signed by the holders of
all outstanding shares entitled to vote thereon having not less
than the minimum number of votes that would be necessary to
authorize or take such action at a meeting. The notice provision
under New York law differs from New Jersey law in that under the
New York BCL, prompt notice, rather than a given number of days,
of the taking of corporate action without a meeting by less than
unanimous written consent must be given to those shareholders who
have not consented in writing. The Restated Certificate of
Incorporation of Cunningham does not alter this statutory
provision.
Removal of Directors
Under New Jersey law, one or more or all directors of a
corporation may be removed for cause or, unless otherwise
provided in the certificate of incorporation, without cause by
shareholders by the affirmative vote of the majority of the votes
cast by the holders of shares entitled to vote thereon. Unless
otherwise provided in the certificate of incorporation,
shareholders of a corporation whose board of directors is
classified may not remove a director without cause. National's
Restated Certificate of Incorporation provides for a classified
board of directors and does not grant shareholders the authority
to remove a director without cause.
The provisions of the New York BCL allow for the
removal of a director for cause by vote of the shareholders. The
certificate of incorporation or a by-law provision adopted by the
shareholders may also provide for removal by action of the board.
New York law also provides that the certificate of incorporation
or the by-laws may provide for removal of directors without cause
by vote of the shareholders. The By-laws of Cunningham provide
for removal with or without cause by the affirmative vote of the
majority of the votes cast by holders of shares entitled to vote
thereon.
Special Meetings of Shareholders
Under New Jersey law, special meetings of the
shareholders may be called by the president, or the board, or by
such other officers, directors or shareholders as may be provided
in the by-laws. Notwithstanding such provision, holders of not
less than 10% of a corporation's voting stock may apply to the
New Jersey Superior Court for an order directing a special
meeting of shareholders to be held. The court may order such
special meeting upon a showing of good cause. The By-Laws of
National provide that, except as otherwise provided by statute,
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all special meetings shall be called upon written request of
three or more directors or of stockholders owning one-fourth of
the capital stock issued and outstanding.
Under New York law, special meetings of stockholders
may be called by the Board of Directors or by such person or
persons as may be authorized by a company's certificate of
incorporation or by-laws. The By-laws of Cunningham provide that
special meetings may be called by the Cunningham Board or by the
President or Secretary or an Assistant Secretary at the request
of three or more members of the Cunningham Board or at the
request of the holders of at least 40% of the outstanding shares
entitled to vote.
De Facto Merger
Under New Jersey law, shareholders have the same voting
and dissent and appraisal rights as if they were shareholders of
a surviving corporation in a merger, if (1) voting shares
outstanding plus those issuable after the transaction exceed by
more than 40% voting shares outstanding before the transaction,
or (2) shares entitled to participate without limitation in
distributions outstanding or issuable after the transaction
exceed by more than 40% such shares outstanding before the
transaction.
New York law does not contain a comparable provision.
Guaranty
Under New Jersey law, a corporation may give a guaranty
not in furtherance of its direct or indirect business interests
only when authorized at a meeting of shareholders by the
affirmative vote of all of the votes cast by the holders of each
class and series of shares entitled to vote thereon. If
authorized by such a vote, the guaranty may be secured by the
corporation's property.
The provisions of the New York law permit a New York
corporation to guarantee obligations of a third party in the same
manner as New Jersey law, except that a guarantee may be given
under New York law only when authorized at a meeting of
shareholders by two-thirds of the votes of all outstanding shares
entitled to vote thereon.
Shareholders' Derivative Actions
New Jersey law contains certain provisions which have
the effect of discouraging derivative actions. Specifically, New
Jersey law authorizes the court to award reasonable expenses and
attorney's fees to the successful defendants in a derivative
action upon a finding that the action was brought without
reasonable cause. In addition, the corporation may require the
plaintiff or plaintiffs to give security for the reasonable
expenses, including attorney's fees, that may be incurred by the
corporation or by other named defendants for which the
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corporation may become legally liable if plaintiff is a holder of
less than 5% of the outstanding shares of any class or series of
such corporation (or voting trust certificates therefor), unless
the shares or voting trust certificates so held have a market
value in excess of $25,000.
The New York BCL contains comparable provisions, except
that the shares, voting trust certificate and any beneficial
interest in the outstanding shares must be in excess of $50,000.
Inspection of Books and Records
Under New Jersey law, a shareholder of record for at
least 6 months immediately preceding his demand or any holder (or
a person authorized on behalf of such holder) of at least 5% of
the outstanding shares of any class or series has the right to
examine for any proper purpose the books and records of the
corporation.
Under New York law, any shareholder of record,
irrespective of the time period that such shares have been held
by such shareholder, has the right to examine, for any purpose
reasonably related to such person's interest as a shareholder,
the stock ledger, list of shareholders and other books and
records, including any minute books and to make copies or
extracts therefrom. Any shareholder may examine these records in
person or by agent or attorney.
Anti-takeover Statutes
New Jersey has adopted a type of anti-takeover law
known as a "business combination" statute. Subject to numerous
qualifications and exceptions, the statute prohibits an
interested stockholder of a corporation from effecting a business
combination with the corporation for a period of five years
unless the corporation's board approved the transaction prior to
the stockholder becoming an interested stockholder. An
"interested stockholder" is defined to include any beneficial
owner of 10% or more of the voting power of the outstanding
voting stock of the corporation and any affiliate of the
corporation who within the prior five year period has at any time
owned 10% or more of the voting power. The term "business
combination" is defined broadly to include, inter alia, merger of
the corporation with the interested stockholder or any
corporation which after such merger would be an affiliate of the
interested stockholder, and any transfer of 10% or more of the
corporation's assets to the interested stockholder or affiliate
thereof. The effect of the statute is to protect non-tendering
post-acquisition minority shareholders from mergers in which they
will be "frozen out" after the merger, by prohibiting
transactions in which an acquirer could favor itself at the
expense of minority stockholders. This statute applies to
corporations which are organized under the laws of New Jersey and
have their principal executive offices or significant business
operations located within New Jersey. Because National has
neither its principal executive offices nor significant business
operations located in New Jersey, the statute currently does not
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apply to it. However, National's Restated Certificate of
Incorporation provides that certain conditions must be met before
the consummation of any merger or other Business Combination, as
defined therein, by National or any of its subsidiaries with any
shareholder who is directly or indirectly the beneficial owner of
5% or more of National's outstanding Common Stock or with an
affiliate of such shareholder. The conditions, which are in
addition to those required by law, prescribe the minimum amount
per share that must be paid to holders of common stock and the
form of consideration, and require that the holders of common
stock be furnished certain information about the Business
Combination prior to voting on it.
New York has adopted a business combination type of
anti-takeover statute which operates in a manner similar to the
New Jersey statute. Although there are numerous differences
between the New York statute and the New Jersey statute, the most
significant include the following: (i) the New York statute
defines "interested stockholder" using a 20% ownership threshold
rather than the 10% threshold under the New Jersey statute; (ii)
the New York statute applies to New York corporations regardless
of the locations of their offices and business operations. The
New York business combination statute generally does not apply to
private companies such as Cunningham. Cunningham's Certificate
of Incorporation does not contain anti-takeover provisions.
Limitation of Liability of Directors and Officers
Under New Jersey law, a corporation may include in its
certificate of incorporation a provision which would, subject to
the limitations described below, eliminate or limit directors' or
officers' liability to the corporation or its shareholders for
monetary damage for breaches of the fiduciary duty of care. A
director or officer cannot be relieved from liability for any
breach of duty based upon an act or omission (i) in breach of
such person's duty of loyalty to the corporation or its
shareholders, (ii) not in good faith or involving a knowing
violation of law, or (iii) resulting in receipt by such person of
an improper personal benefit. National's Restated Certificate of
Incorporation contains such a provision.
A similar provision under New York law applies to
directors but not officers. Under New York law, a director
cannot be relieved of liability (i) for acts or omissions which
(a) were in bad faith, (b) involved intentional misconduct or (c)
involved a knowing violation of law; (ii) for the payment of
unlawful dividends or the expenditure of funds for unlawful stock
purchases or redemptions, or (iii) for transactions from which
such director derived an improper personal benefit. Cunningham's
Certificate of Incorporation contains a provision which limits a
director's liability to the full extent permitted by the New York
BCL or other applicable law.
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DIVIDENDS AND PRICE RANGE
National
National has paid cash dividends on its Common Stock in
each year since 1903 and has increased its annual dividend during
each year since 1971. The closing price for National's Common
Stock on the New York Stock Exchange on March 19, 1999, was
$42.25/share.
The following table shows dividends declared per share
of Common Stock, and the price range per share of Common Stock on
the New York Stock Exchange as published in The Wall Street
Journal, during the periods indicated:
Price Range
Dividends
Quarter Ended High Low Declared
1998:
December 31, 1997.................. $48-15/16 $42-11/16 $.435
March 31, 1998..................... $48-13/16 $45-3/8 $.435
June 30, 1998...................... $49-1/8 $39-5/8 $.450
September 30, 1998................. $47 $39-13/16 $.450
1997:
December 31, 1996.................. $44-1/8 $36-5/8 $.42
March 31, 1997..................... 44-7/8 39-3/8 .42
June 30, 1997...................... 44-1/8 40-5/8 .435
September 30, 1997................. 45-7/16 40-1/8 .435
1996:
December 31, 1995.................. $33-7/8 $28-1/2 $.405
March 31, 1996..................... 34-7/8 31-3/8 .405
June 30, 1996...................... 36-3/8 33-3/4 .42
September 30, 1996................. 38 33-3/8 .42
National has a Dividend Reinvestment and Stock Purchase
Plan (Plan) which provides shareholders of record of the Common
Stock with a convenient and economical method of reinvesting cash
dividends on the Common Stock and making limited cash investments
in additional shares of Common Stock at regular intervals without
payment of any brokerage commission or service charge.
Shareholders of record who elect to participate in the Plan may
(i) have cash dividends on all shares of Common Stock registered
in their names automatically reinvested in Common Stock;
(ii) continue to receive cash dividends on Common Stock
registered in their names and make limited cash investments in
Common Stock of not less than $25 nor more than $5,000 per
monthly investment period; or (iii) reinvest the cash dividends
on all shares registered in their names and also make limited
cash investments in Common Stock. The price of shares is the
market price as purchased by the bank administering the Plan. At
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<PAGE>
National's option, shares will either be purchased on the open
market or be original issuances. National reserves the right to
suspend, modify, amend or terminate the Plan at any time.
As of September 30, 1998 there were approximately
18,747 record holders of National Common Stock. The Shares of
National Common Stock issued pursuant to the Reorganization, if
it had been consummated on September 30, 1998, would have
consisted of less than 3/10 of 1% of National's issued and
outstanding common stock, and the value of the Shares would also
have amounted to a small fraction of 1% of the total assets of
National and its subsidiaries on that date. Accordingly, the
issuance of the Shares pursuant to the Reorganization will not
have any impact on the amount and percentage of present holdings
of National's common stock beneficially owned.
Cunningham
There is presently no established trading market for
Cunningham Stock. On the Record Date for determining
Shareholders entitled to vote at the Special Meeting, Cunningham
believes that there were approximately 1,115 holders of record.
No dividends have ever been declared on Cunningham Stock since
its inception in 1931 and it is expected that, if the
Reorganization is not consummated, Cunningham will not declare
dividends on either of its Preferred or Common Stock in the
foreseeable future.
DESCRIPTION OF NATIONAL COMMON STOCK
General
The following is a brief summary of certain of the
terms and provisions of National's Common Stock. This summary
does not purport to be complete and is qualified in its entirety
by reference to the terms and provisions of National's Restated
Certificate of Incorporation, By-Laws and the Rights Agreement,
dated as of June 12, 1996, between National and Marine Midland
Bank ("Rights Agreement"). Reference is also made to National's
Indenture, dated as of October 14, 1974 between the Company and
The Bank of New York (formerly Irving Trust Company), as
supplemented.
No shares of preferred stock ("Preferred Stock") of
National are currently outstanding. However, the Board of
Directors of National has the ability to issue one or more series
of Preferred Stock from time to time with such powers,
designations, preferences, rights and qualifications as the Board
of Directors may determine subject to such powers, designations,
preferences, rights and qualifications as are contained in
National's Restated Certificate of Incorporation. The actual
effect of the Preferred Stock upon the rights of the holders of
National Common Stock can not be stated until the National Board
of Directors determines the respective rights of the holders of
one or more series of Preferred Stock. Such effects, however,
might include (a) restrictions on dividends on National Common
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<PAGE>
Stock if dividends on the Preferred Stock are in arrears;
(b) dilution of the voting power of National Common Stock;
(c) restrictions on the rights of the holders of National Common
Stock to share in National's assets upon liquidation due to
satisfaction of any liquidation preference granted to the
Preferred Stock; and (d) dilution of rights of holders of
National Common Stock to share in National's assets upon
liquidation if the Preferred Stock is participating with respect
to distributions upon such liquidation.
Dividend Rights
The holders of Common Stock are entitled to receive
such dividends as are declared by the Board of Directors, out of
funds legally available for the payment of such dividends. The
Board of Directors' ability to declare dividends on Common Stock
may also be limited by the rights and preferences of certain
series of Preferred Stock which may be issued from time-to-time
and by the terms of instruments defining the rights of holders of
outstanding indebtedness of the Company.
Voting Rights and Classification of the Board of Directors
The holders of Common Stock are entitled to one vote
per share. The affirmative vote of the majority of the votes
cast by the holders of the Common Stock is required for the
merger or consolidation of National or for the sale of
substantially all of its assets. The Board of Directors is
divided into three classes, each with, as nearly as possible, an
equal number of directors.
Liquidation Rights
Upon any dissolution, liquidation or winding up of
National, the holders of Common Stock are entitled to receive pro
rata all of National's assets and funds remaining after payment
of or provision for creditors and subject to the rights and
preferences of each series of Preferred Stock.
Preemptive Rights
Holders of Common Stock and any series of Preferred
Stock that may be issued have no preemptive right to purchase or
subscribe for any shares of capital stock of National.
Common Stock Purchase Rights
The holders of the Common Stock have one right
("Right") for each of their shares. Each Right, which will
initially be evidenced by the Common Stock certificates
representing the outstanding shares of Common Stock, entitles the
holder to purchase one-half of one share of Common Stock at a
purchase price of $130 per share, being $65 per half share,
subject to adjustment ("Purchase Price").
Until the earliest to occur of (i) ten days following
the date ("Shares Acquisition Date") of the public announcement
- 46 -
<PAGE>
that a person or affiliated group ("Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership
of Common Stock or other voting securities ("Voting Stock") that
have 10% or more of the voting power of the outstanding shares of
Voting Stock or (ii) ten days following the commencement or
announcement of an intention to make a tender offer, or exchange
offer, the consummation of which would result in such person
acquiring, or obtaining the right to acquire, beneficial
ownership of Voting Stock having 10% or more of the voting power
of the outstanding shares of Voting Stock (the earlier of such
dates being called the "Distribution Date"), the Rights will be
evidenced, with respect to any shares of Common Stock
outstanding, by the Common Stock certificates representing those
outstanding shares.
Subject to redemption or exchange of the Rights, at any
time following the Distribution Date, each holder of a Right will
have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of
National) having a value equal to two times the Purchase Price of
the Right then in effect. However, all Rights that are, or under
certain circumstances were, beneficially owned by any Acquiring
Person will be null and void.
In the event that, at any time following the Shares
Acquisition Date, (i) National is acquired in a merger or other
business combination transaction, or (ii) 50% or more of
National's assets or earning power are sold or transferred, each
holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to
receive, upon exercise, common stock of the acquiring company
having a value equal to two times the Purchase Price of the Right
then in effect.
At any time prior to the end of the business day on the
tenth day following the Shares Acquisition Date, National may
redeem the Rights in whole, but not in part, at a price of $.01
per Right ("Redemption Price"), payable in cash or stock. This
decision to redeem the Rights shall require, in certain
circumstances, the concurrence of a majority of the independent
directors. At any time after a person becomes an Acquiring
Person, the Board may exchange the Rights (other than Rights
owned by an Acquiring Person, which shall become void), in whole
or in part, at an exchange ratio of one share of Common Stock
and/or other securities, cash or other assets deemed to have the
same value as one share of Common Stock, per Right, subject to
adjustments.
The Rights will expire on July 31, 2006 unless they are
exchanged or redeemed (as described above) earlier than that
date.
Upon exercise of the Rights National may be subject to
additional regulatory approval requirements.
- 47 -
<PAGE>
The Rights have anti-takeover effects because they will
cause substantial dilution of the Common Stock if a person
attempts to acquire National on terms not approved by the Board
of Directors.
Business Combinations
National's Restated Certificate of Incorporation
provides that certain conditions must be met before the
consummation of any merger or other "Business Combination" by
National or any of its subsidiaries with any stockholder who is
directly or indirectly the beneficial owner of 5% or more of
National's outstanding Common Stock ("Substantial Stockholder")
or with an affiliate of any such stockholder ("Affiliate"). The
term Substantial Stockholder does not include National, any of
its subsidiaries, or any Trustee holding Common Stock of National
for the benefit of the employees of National or any of its
subsidiaries pursuant to one or more employee benefit plans or
arrangements. The conditions, which are in addition to those
otherwise required by law, prescribe the minimum amount per share
that must be paid to holders of Common Stock and the form of
consideration paid, and require that the holders of Common Stock
be furnished certain information about the Business Combination
prior to voting on it. Business Combination, as defined in the
Restated Certificate of Incorporation, generally means any of the
following transactions: a merger, consolidation or share
exchange; a sale, lease, exchange or other disposition of any
assets in exchange for property having a fair market value of
more than $10 million, if determined to be a Business Combination
by certain directors of National in accordance with provisions of
the Restated Certificate of Incorporation; the issuance or
transfer of securities in exchange for property having a fair
market value of more than $10 million, if determined to be a
Business Combination by certain directors of National in
accordance with provisions of the Restated Certificate of
Incorporation; the adoption of a plan of liquidation or
dissolution of National; or any reclassification of securities,
recapitalization or reorganization that has the effect of
increasing the proportionate share of the outstanding shares of
any class of securities of National that is owned by any
Substantial Stockholder or by any affiliate of a Substantial
Stockholder.
The approval of at least three-fourths of the entire
Board of Directors or, in the event that the Board of Directors
consists of directors elected by the holders of Preferred Stock,
the approval of a majority of the entire Board, is required to
amend or repeal the classified board or business combination
provisions contained in the Restated Certificate of
Incorporation.
Listing
The National Common Stock is, and the additional Shares
of National Common Stock to be issued in connection with the
Exchange are expected to be, listed on the New York Stock
Exchange.
- 48 -
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock
is ChaseMellon Shareholder Services, L.L.C., South Hackensack,
New Jersey.
CUNNINGHAM STOCK
Cunningham is authorized to issue up to 2,000,000
shares of Stock, of which up to 1,100,000 shares are Cunningham
Preferred Stock, $1.00 par value, and up to 900,000 shares are
Cunningham Common Stock, $.10 par value per share.
The holders of the Cunningham Preferred Stock and the
Cunningham Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders
and are not entitled to cumulate their votes in the election of
directors of Cunningham. Holders of Cunningham Common Stock are
entitled to receive ratably such dividends, if any, as may be
declared by the Cunningham Board out of funds legally available
for dividend distribution. The holders of Cunningham Preferred
Stock are entitled to receive as and when declared payable by the
Cunningham Board, dividends at the rate of 6% per annum, payable
quarterly or semi-annually on January 1, April 1, July 1 and
October 1 or January 1 or July 1 in each year, before any
dividends may be paid to the holders of Cunningham Common Stock,
and any such dividends will be cumulative and will accrue at the
rate of 6% per year. In the event of the liquidation,
dissolution or winding up of Cunningham, holders of Cunningham
Stock are entitled to share equally and ratably in all assets, if
any, remaining after payment of all liabilities and required
distributions. Cunningham has never paid cash dividends on the
Cunningham Stock and does not anticipate paying any cash
dividends in the foreseeable future. Holders of Cunningham Stock
have no preemptive rights or rights to subscribe to additional
securities of Cunningham. As of March 1, 1999, there were
707,351 shares of Cunningham Stock issued and outstanding.
RIGHTS OF DISSENTING SHAREHOLDERS
Section 910 of the BCL sets forth the rights of
Shareholders who object to the Reorganization. Any Shareholder
who does not vote in favor of the Reorganization, or who duly
revokes his or her vote in favor of the Reorganization, may, if
the Share Exchange is consummated, obtain payment in cash for the
fair value of his or her shares by strictly complying with the
requirements of Section 623 of the BCL.
Such dissenting Shareholder must file with Cunningham,
before the taking of the vote on the Agreement and all the
transactions contemplated thereunder including the Exchange and
the Liquidation, a written objection, including a notice of his
or her intention to dissent, his or her name and residence
address, the number of shares of Cunningham Common Stock to which
he or she dissents (which number must not be less than all his or
- 49 -
<PAGE>
her shares of such stock) and a demand for payment of the fair
value of his or her shares if the Reorganization is consummated.
Any such written objections should be addressed to:
Mr. Martin M. Glesk, President, Cunningham Natural Gas
Corporation, 165 Kennedy Street, Bradford, Pennsylvania 16701.
Within 10 days after the vote of Shareholders
authorizing and approving the Agreement and all the transactions
contemplated thereunder including the Exchange and the vote of
Shareholders approving the Liquidation, Cunningham must give
written notice of such authorization to each such dissenting
Stockholder who did not vote in favor of the Reorganization.
At the time of filing the notice of election to
dissent, or within one month thereafter, such Shareholder must
submit his or her Cunningham Common Stock certificates to
Cunningham for notation thereon of the election to dissent, after
which such certificates will be returned to such Shareholder.
Any such Shareholder who fails to submit his or her shares of
Cunningham Stock for such notation shall, at the option of
Cunningham exercised by written notice to such Shareholder within
45 days from the date of filing of the notice of election to
dissent, lose his or her dissenter's appraisal rights unless a
court, for good cause shown, shall otherwise direct.
Within 15 days after the expiration of the period
within which Shareholders may file their notices of election to
dissent, or within 15 days after consummation of the
Reorganization, whichever is later (but not later than 90 days
after the Shareholders' vote authorizing the Reorganization),
Cunningham must make a written offer (which, if the
Reorganization has not been consummated, may be conditioned upon
such consummation), to each Shareholder who has filed such notice
of election, to pay for his or her shares at a specified price
which Cunningham considers to be the fair value of such shares.
If Cunningham and the dissenting Shareholder are unable to agree
as to such fair value, Section 623(h) of the BCL provides for
judicial determination of fair value. In the event of such a
disagreement, a court proceeding shall be commenced by Cunningham
in the Supreme Court of the State of New York, or by such
dissenting Shareholder if Cunningham fails to commence the
proceeding within the time required by Section 623 of the BCL.
Cunningham intends to commence such a proceeding in the event of
such disagreement.
A negative vote on the Reorganization reflected on the
proxy card does not constitute a "written objection" to be filed
by a dissenting Shareholder. An abstention from voting on the
Reorganization, or failure to specify any vote on the
accompanying proxy, will not constitute a waiver of rights under
Sections 910 and 623 of the BCL, provided that a written
objection has been properly filed. A vote in favor of the
Reorganization will constitute a waiver of a Shareholder's
appraisal rights, even if a written objection has been filed.
For United States federal income tax purposes, a
dissenting Shareholder who receives payment for his or her shares
- 50 -
<PAGE>
upon exercise of his or her right of appraisal may recognize
capital gain or loss thereon measured by the difference between
the basis for his or her shares and the amount of payment
received. This tax discussion is included for general
information only. Due to the individual nature of tax
consequences, each Shareholder is urged to consult his or her own
tax advisor as to the particular tax consequences to such
Shareholder of dissenting from the Reorganization, including the
effect and applicability of federal, state, local, foreign and
other tax laws.
The foregoing summary does not purport to be a complete
statement of the provisions of Sections 910 and 623 of the BCL,
and is qualified in its entirety by reference to those sections
of the BCL, the complete texts of which are set forth in
Appendix D to this Proxy Statement/Prospectus. Each Shareholder
intending to exercise dissenter's appraisal rights should review
such Appendix D and consult his or her own counsel for a more
complete and definitive statement of the rights of dissenting
Shareholders and the proper procedure to follow to exercise such
rights.
EXPERTS
The financial statements of National incorporated in
this Proxy Statement/Prospectus by reference to the Annual Report
on Form 10-K for the year ended September 30, 1998 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The financial statements of Cunningham included in this
Proxy Statement/Prospectus are included in reliance upon the
report of Dennis P. Wymer, CPA, accountant, given on the
authority of said firm as an expert in accounting. Mr. Wymer is
an officer of Cunningham and is not considered an independent
accountant for the purposes of this report.
Representatives of PricewaterhouseCoopers LLP,
National's independent accountants, will be present at the
Special Meeting and will have the opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
Mr. Dennis P. Wymer, CPA, Cunningham's certified public
accountant will be present at the Special Meeting and will have
the opportunity to make a statement if he desires to do so and to
respond to appropriate questions.
LEGAL OPINIONS
The legality of the National Common Stock to be issued
in the Exchange will be passed upon for National by Stryker,
Tams & Dill LLP, Two Penn Plaza East, Newark, New Jersey 07105.
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<PAGE>
OTHER BUSINESS
The Cunningham Board does not know of any business that
will be presented for consideration at the Special Meeting except
as set forth above. However, if any other business is properly
brought before the meeting, or any adjournment thereof, the
Proxies will vote in regard thereto according to their
discretion.
- 52 -
<PAGE>
CUNNINGHAM NATURAL GAS CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
INDEX TO FINANCIAL STATEMENTS
Page
Accountant's Report. . . . . . . . . . . . . . . . . . . 55
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . 56
Statements of Income . . . . . . . . . . . . . . . . . 57
Statements of Changes in Stockholders' Equity. . . . . 58
Statements of Cash Flows . . . . . . . . . . . . . . . 59
Notes to Financial Statements. . . . . . . . . . . . . 60
Supplemental Schedule I. . . . . . . . . . . . . . . . 68
- 53 -
<PAGE>
DENNIS P. WYMER, CPA
Certified Public Accountant
Certified Management Accountant
37 North Seventh St. Phone: (716) 373-2635
Allegany, NY 14706 Fax: (716) 373-2636
Email: [email protected]
To the Board of Directors and Stockholders
Cunningham Natural Gas Corporation
Olean, New York
I have compiled the accompanying balance sheets of Cunningham
Natural Gas Corporation as of December 31, 1998 and 1997 and the
related statements of cash flows, income, and changes in
stockholders' equity for the years ended December 31, 1998, 1997,
and 1996, and the accompanying supplementary information
contained in schedule I, which is presented only for
supplementary analysis purposes, in accordance with Statements on
Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management.
I have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
I am not independent with respect to Cunningham Natural Gas
Corporation.
Dennis P. Wymer, CPA
Allegany, New York
March 12, 1999
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<PAGE>
CUNNINGHAM NATURAL GAS CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
Current Assets
Cash $1,487,811 $1,759,649
Accounts receivable 26,105 20,736
Escrow payment 153,981 63,715
Due from former officer 56,000 56,000
Prepaid expense 4,180 13,441
__________ __________
Total Current Assets 1,728,077 1,913,541
__________ __________
Property and Equipment 45,482 64,246
__________ __________
Total Assets $1,773,559 $1,977,787
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,957 $ 19,936
Accrued expenses 7,809 8,772
Accrued environmental
liability 0 150,000
Accrued deferred
compensation 100,000 100,000
Escrow deposit payable 51,742 51,742
__________ __________
Total Current Liabilities 162,508 330,450
__________ __________
Stockholders' Equity
Preferred Class "A", par
value $1 per share,
253,832 shares issued,
232,426 shares
outstanding 253,832 253,832
Common Class "B", par
value $.10 per share,
574,300 shares issued,
474,925 shares
outstanding 57,430 57,430
Retained earnings 1,396,852 1,433,138
__________ __________
1,708,114 1,744,400
Treasury Stock at cost (97,063) ( 97,063)
__________ __________
Total Stockholders' Equity 1,611,051 1,647,337
__________ __________
Total Liabilities and
Stockholders' Equity $1,773,559 $1,977,787
========== ==========
See accompanying accountant's report and notes to the financial statements.
<PAGE> - 55 -
CUNNINGHAM NATURAL GAS CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
Sales
Gas sales $ 235,940 $ 242,034 $ 340,748
Oil sales 27,009 32,788 28,925
Royalties received 735 2,605 3,762
Royalties paid ( 34,799) ( 36,305) ( 49,198)
_________ _________ _________
Net Sales 228,885 241,122 324,237
_________ _________ _________
Development and
Production Expense 227,988 233,008 176,284
_________ __________ _________
General and
Administrative Expense 218,671 196,449 245,655
_________ __________ _________
Loss from Operations (217,774) (188,335) ( 97,702)
_________ __________ _________
Other Income
Gain on sale of stock 29,352 348,799 0
Gain on disposition of
assets 92,560 0 0
Miscellaneous income 0 14,624 0
Dividend income 717 3,631 46,155
Interest income 66,255 70,489 19,984
_________ __________ _________
Total Other Income 188,884 437,543 66,139
_________ __________ _________
Income (Loss) Before
Provision for Taxes ( 28,890) 249,208 ( 31,563)
_________ __________ _________
Provision for Taxes
Federal income tax 0 46,282 ( 46,282)
NYS corporate tax 125 151 ( 35,893)
PA corporate tax 7,271 9,809 26,765
_________ __________ _________
Total Provision
for Taxes 7,396 56,242 ( 55,410)
_________ __________ _________
Net Income (Loss) $( 36,286) $ 192,966 $ 23,847
========= ========== =========
Per Common Share Data
Earnings (Loss) Per
Common Share $( 0.08) $ 0.41 $ 0.05
========= ========= =========
Weighted Ave
Common Shares
Outstanding 474,925 474,925 474,925
========= ========= =========
See accompanying accountant's report and notes to the financial statements.
<PAGE> - 56 -
<TABLE> CUNNINGHAM NATURAL GAS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Stock Issued
Preferred Class "A", par value $1
per share 253,832 shares issued,
232,426 shares outstanding $ 253,832 $ 253,832 $ 253,832
__________ __________ __________
Balance at end of year - 253,832 shares $ 253,832 $ 253,832 $ 253,832
__________ __________ __________
Common Class "B", par value $.10 per
share 574,300 shares issued, 474,925
shares outstanding $ 57,430 $ 57,430 $ 57,430
__________ __________ __________
Balance at end of year - 574,300
shares $ 57,430 $ 57,430 $ 57,430
__________ __________ __________
Retained Earnings
Retained Earnings, Beginning $1,433,138 $1,240,172 $1,216,325
Net Income (Loss) (36,286) 192,966 23,847
__________ __________ __________
Retained Earnings, Ending $1,396,852 $1,433,138 $1,240,172
__________ __________ __________
Unrealized Appreciation of Marketable Securities
Balance at beginning of year $ 0 $ 330,181 $ 184,522
Increase in appreciation - 18,618 145,659
Decrease due to sale of marketable
securities - (348,799) -
__________ __________ __________
Balance at end of year $ 0 $ 0 $ 330,181
__________ __________ __________
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<PAGE>
Treasury Stock
Balance at beginning of year - at cost $ 97,063 $ 97,063 $ 97,063
Class "A" - 21,406 shares,
Class "B" - 99,375 shares __________ __________ _________
Balance at end of year - at cost $ 97,063 $ 97,063 $ 97,063
__________ __________ __________
Total Stockholders' Equity $1,611,051 $1,647,337 $1,784,552
========== ========== ==========
See accompanying accountant's report and notes to the financial statements.
</TABLE>
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<PAGE>
CUNNINGHAM NATURAL GAS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
Cash Flows from Operating Activities:
Net Income (Loss) $ (36,286) $ 192,966 $ 23,847
Adjustments to reconcile net income
to net cash provided by operations
Loss (gain) on sale of stock (29,352) (348,799) -
Loss (gain) on disposition of assets (92,560) - -
Depreciation 18,764 13,040 6,947
Decrease (Increase) Accounts
receivable (5,369) (2,905) 16,295
Decrease (Increase) Escrow Payment (90,266) (63,715) -
Decrease (Increase) Due from former
officer 0 115,514 (171,514)
Decrease (Increase) Prepaid expense 9,261 61,830 (7,552)
Decrease (Increase) Deferred tax asset
(net of allowance) 0 46,282 (46,282)
Increase (Decrease) Accounts payable (16,979) 4,079 (2,519)
Increase (Decrease) Accrued expenses (963) 3,918 33
Increase (Decrease) Accrued environmental
liability (150,000) - -
Increase (Decrease) Accrued deferred
compensation - - (175,000)
Increase (Decrease) Escrow deposit
payable - - 51,742
Net Cash Provided (Used) by Operating_________ ______ __________
Activities (393,750) 22,210 (304,003)
__________ ______ __________
Cash Flows from Investing Activities:
Proceeds from sale of equity securities 29,352 793,158 75,000
Purchase of equity securities - - (4,566)
Proceeds from sale of fixed assets 92,560 - -
Purchase of fixed assets - (64,262) -
__________ ______ __________
Net Cash Provided by Investing
Activities 121,912 728,896 70,434
__________ _______ __________
Net Increase (Decrease)
in Cash and Cash Equivalents (271,838) 751,106 (233,569)
Cash and Cash Equivalents
Beginning of Year 1,759,649 1,008,543 1,242,112
_________ _________ _________
Cash and Cash Equivalents
End of Year $1,487,811 $1,759,649 $1,008,543
========== ========== ==========
<PAGE> - 59 -
CUNNINGHAM NATURAL GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Cunningham
Natural Gas Corporation (the "Company" or "Cunningham") is
presented to assist in understanding the Company's financial
statements. The financial statements and notes are
representations of the Company's management who is responsible
for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles (GAAP) and
have been consistently applied in the preparation of the
financial statements.
Nature of Operations
The Company engages in gas production in Allegany County in
southwest New York. The primary purchaser of Cunningham's
natural gas production is North Penn Gas Company. Prior to the
sale of the oil properties during 1998, the Company engaged in
oil production in McKean County in northwest Pennsylvania.
American Refining Group was the primary purchaser of the
Company's oil production.
Reclassification
Certain prior year amounts have been reclassified to conform with
current year presentation.
Revenues and expenses
The Company uses the accrual basis for the preparation of
financial statements in accordance with GAAP. This method of
recording transactions recognizes revenues and expenses in the
accounts in the period in which they are considered to have been
earned and incurred, respectively, whether or not such
transactions have been finally settled by the receipt of payment
of cash or its equivalent.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all short-term debt securities purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment
Property, plant & equipment is stated at cost. Depreciation
expense is computed using the double-declining balance method and
amounted to $18,764, $13,040 and $6,947 for 1998, 1997 and 1996,
respectively. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due. Deferred taxes are also recognized for operating
losses that are available to offset future federal income taxes.
- 60 -
<PAGE>
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Earnings per Common Share
Earnings per common share are calculated using the weighted
average number of shares outstanding during each calendar year.
NOTE 2 - MARKETABLE SECURITIES
Equity securities sold: 1998 1997 1996
Sales proceeds $ 29,352 $ 793,158 $ 75,000
Cost 0 (444,359) (75,000)
____________________________________
Realized gain $ 29,352 $ 348,799 $ 0
====================================
The cost of equity securities sold has been calculated based upon
the average cost method included as a component of stockholders'
equity.
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
1998 1997
Land $ 1,495 $ 1,495
Machinery and Equipment 172,852 194,876
Vehicles 105,367 118,736
Oil & Gas leases 336,437 336,437
________________________
616,151 651,544
Accumulated depreciation
and amortization (570,669) (587,298)
________________________
Total $ 45,482 $ 64,246
========================
NOTE 4 - ESCROW DEPOSIT PAYABLE
The escrow deposit payable represents royalties held by the
Company which is due to an estate which has not yet been located.
The Company is pursuing all avenues to locate the estate, and
will forward the balance immediately upon proper verification.
NOTE 5 - INCOME TAXES
The provision for federal income taxes consists of the following:
1998 1997 1996
Current taxes $ 0 $ 0 $ 0
Deferred taxes $ 0 46,282 (46,282)
____________________________
Total federal tax $ 0 $46,282 $(46,282)
============================
<PAGE> - 61 -
The Company has net operating loss carryforwards amounting to
$224,290 available to offset taxable income in the future. If
not used, the carryforwards will expire as follows:
2011 $ 171,263
2013 53,027
___________
$ 224,290
===========
New York State Franchise Taxes
As the result of an audit completed by the New York State
Department of Taxation and Finance on March 11, 1997, the Company
was found to have overpaid New York State franchise tax for the
years 1993-1995. As a result of the overpayments, the Company
has recorded a negative ($35,893) New York State corporation tax
expense for 1996.
Pennsylvania Corporate Taxes
The Company has Pennsylvania net operating loss carryforwards
amounting to $201,421 available to offset taxable income in the
future. If not used, the carryforwards will expire as follows:
1999 $ 153,342
2001 45,631
___________
$ 198,973
===========
NOTE 6 - STATEMENT OF CASH FLOWS
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year
for: 1998 1997 1996
Income taxes $8,543 $125 $ 0
NOTE 7 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company sells virtually all of its natural gas production
under a contract with North Penn Gas Company. This concentration
makes the Company vulnerable to the risk of a near-term severe
impact. Prior to December 4, 1998, virtually all of the
Company's oil production was sold to American Refining Group at
the prevailing market price. The oil properties were sold on
December 4, 1998.
- 62 -
<PAGE>
NOTE 8 - SUPPLEMENTARY INFORMATION FOR OIL AND GAS PRODUCING
ACTIVITIES
1998 1997
Capitalized lease costs
subject to Amortization $ 336,437 $ 336,437
Less-Accumulated
Amortization (336,437) (336,437)
__________ _________
$ 0 $ 0
========== =========
The capitalized lease costs are included as a part of property
and equipment. The Company's oil and natural gas wells are
located in northwest Pennsylvania and southwest New York State.
The Company owns one major natural gas well, and numerous
stripper oil wells. Due to the small size of the Company,
geologists and engineers have not been engaged to do a study of
the estimated proved oil and natural gas reserves. Such
estimates are inherently imprecise and may be subject to
substantial revisions as a result of numerous factors including,
but not limited to, additional development activity, evolving
production history, and continual reassessment of the viability
of production under varying economic conditions.
NOTE 9 - PAYMENTS TO SUPPLY CORPORATION
As a condition of the sale as described in Note 13, the Company
is required to deliver 50% of its net operating revenue from its
gas wells to an escrow agent. When the transaction closes,
Supply Corporation will receive the escrowed funds. The escrow
agreement became effective May 1, 1997, and payments made to this
account amounted to $90,266 and $63,715 for 1998 and 1997,
respectively.
NOTE 10 - TREASURY STOCK
Treasury stock is recorded at cost when acquired. Between 1987
and 1993, the Company acquired 21,406 shares of Class "A"
preferred stock and 99,375 shares of Class "B" common stock for a
total cost in the amount of $97,063.
NOTE 11 - PREFERRED STOCK
The Company has cumulative preferred stock dividend arrearages at
the rate of $.06 per share since the incorporation date of
7/7/31. During the time period of 1987-1993, the Company
reacquired 21,406 shares of preferred stock as treasury stock.
Therefore, cumulative dividends in arrears have been calculated
as follows:
Number of preferred shares originally issued 253,832
Number of preferred shares purchased
as treasury shares (21,406)
_______
Preferred shares outstanding 232,426
=======
- 63 -
<PAGE>
Cumulative preferred dividends at:
# years Dividend rate
12/31/96 65.5 0.06 $ 913,434
==========
12/31/97 66.5 0.06 $ 927,380
==========
12/31/98 67.5 0.06 $ 941,325
==========
Pursuant to the Asset Purchase and Reorganization Agreement,
dated October 8, 1997 (the "Agreement") (see Note 13), Supply
Corporation and Cunningham will enter into a Post Closing Escrow
Agreement (the "Post Closing Escrow Agreement") and Cunningham
will transfer a number of Shares of National Fuel Gas Company
Common Stock, par value $1.00 per share, (the "Shares" or the
"National Common Stock") having a fair market value equal to
$500,000 as of the Closing (the "Escrow Shares") to an escrow
agent for the purpose of securing its obligation to indemnify
Supply Corporation for any material breach of the representations
and warranties made by Cunningham to Supply Corporation in the
Agreement. Subject to this transfer, (A) each holder of
Cunningham Preferred Stock will receive in exchange for each
share of Cunningham Preferred Stock held by such holder, that
number of shares of National Common Stock with a value equal to
the sum of (i) the liquidation dividend to be paid to such holder
in the amount of six cents ($.06) per share/per year for the
period from 1933 to the present, (ii) $1.00 per share and
(iii) the pro rata amount of National Common Stock remaining
after the payment of $1.00 per share to the holders of the
Cunningham Common Stock, as described below, such remainder to be
divided equally among the Shareholders on a per share basis; and
(B) each holder of Cunningham Common Stock will receive in
exchange for each share of Cunningham Common Stock held by such
holder, that number of shares of National Common Stock with a
value equal to the sum of (y) $1.00 per share and (z) the pro
rata amount of National Common Stock remaining after the payment
of the liquidation dividends to be paid to the holders of
Cunningham Preferred Stock, as described above, and the
additional payment to the holders of the Cunningham Preferred
Stock of that number of shares of National Common Stock with a
value equal to $1.00 per share, such remainder to be divided
equally among the Shareholders on a per share basis. The total
amount of dividends to be paid to the holders of the Cunningham
Preferred Stock is currently estimated to be $941,325. The
dividends will be paid in shares of National Common Stock as
noted above. The number of shares of National Common Stock that
each shareholder will receive at liquidation (the "Liquidation")
will be reduced by the Shareholder's pro rata interest in the
Escrow Shares.
Any Escrow Shares remaining in the escrow account after
a minimum of twelve (12) months or a maximum of four years and
eleven months after the Closing, will be distributed to the
Shareholders on a pro rata basis. There can be no assurances
that a claim will not be made or an award will not be granted
- 64 -
<PAGE>
against the Escrow Shares or, if an award is granted, the dollar
amount of any such award. Accordingly, at this time it is not
possible to estimate the number of Escrow Shares, if any, that
may be remaining and available for distribution to the
Shareholders at the conclusion of this period.
If all of the Shareholders are not located ("Unlocated
Shareholders") at the time of the Closing, the Shares (including
Escrow Shares) that are attributable to Unlocated Shareholders
will be delivered to the Escrow Agent. Cunningham has agreed to
seek, within twenty (20) days after the Closing, an order from
the Supreme Court of the State of New York, County of Erie
("Court"), directing Cunningham to give notice to the New York
State Attorney General to show cause why an order should not be
entered allocating the interest in the Shares of the Unlocated
Shareholders to those Shareholders who have been located. Such
Shares will be allocated pursuant to a final, non-appealable
order ("Order") of the Court and distributed as provided in such
Order and consistent with the terms of the Post-Closing Escrow
Agreement.
The Shares of Unlocated Shareholders may be subject to
claims by the State of New York under Article V of the New York
Abandoned Property Law and certain sections of the New York
Business Corporation Laws. It is possible that the abandoned
property laws of other states might apply where the last known
addresses of Unlocated Shareholders are in such states. However,
the large majority of last known addresses are in New York.
Accordingly, there can be no assurance that any Shares
attributable to Unlocated Shareholders will be distributed
pursuant to the Order to Shareholders who have been located.
NOTE 12 - ENVIRONMENTAL REMEDIATION
The Company is subject to various federal and state local laws
and regulations relating to the protection of the environment.
The Company has established procedures for the on-going
evaluation of its operations to identify potential environmental
exposures and assure compliance with regulatory policies and
procedures.
Approximately ninety-five oil wells are located on the McKean
County properties. At December 31, 1997 and 1996, the Company
had accrued $150,000 to defray the cost of plugging wells to
comply with regulations of Pennsylvania's Department of
Environmental Resources. As of December 31, 1998, the Company
has completed the plugging of all abandoned and non-producing oil
wells on its McKean County properties to remove the environmental
liability. The properties were sold on December 4, 1998.
NOTE 13 - SALE OF ASSETS TO SUPPLY CORPORATION
Supply Corporation and Cunningham entered into the
Agreement in settlement of the Action, entitled "National Fuel
Gas Supply Corporation v. Cunningham Natural Gas Corporation," in
which Supply Corporation and Cunningham are litigants. The
Action is currently pending in the Supreme Court of the State of
- 65 -
<PAGE>
New York, County of Erie (the "Court"). In the Action, Supply
Corporation seeks to recover damages in connection with a certain
gas well operated by Cunningham.
The Action was commenced on January 6, 1995, by Supply
Corporation to recover damages from Cunningham for Cunningham's
alleged conversion of natural gas from Supply Corporation's
underground natural gas storage facility (known as the "Beech
Hill Facility") located in Allegany County, New York. Supply
Corporation alleged that in 1980, following the creation of the
Beech Hill Facility by Supply Corporation's predecessor,
production increased at two Cunningham wells, one in Willing
Township, Allegany County, New York (the "Maxwell Well") and the
second in Genesee Township, Potter County, Pennsylvania (the
"Roach Well", together the "Cunningham Wells"), and that the
source of the increased production was natural gas which had
migrated from the Beech Hill Facility. Supply Corporation
alleged that Cunningham had been illegally converting and selling
such gas from the Cunningham Wells and sought to enjoin
Cunningham from continuing to convert this gas and to recover
damages in excess of $5,000,000 together with interest thereon
and the costs and disbursements related to the Action, among
other things.
A motion for preliminary injunction was filed by Supply
Corporation in November 1995 and denied by the Court on April 29,
1996. The Court supervised extensive discovery and discussions
between the parties from April 29, 1996 to the present to
facilitate a settlement without further court proceedings. A
settlement agreement was reached pursuant to which Supply
Corporation is to acquire substantially all of the assets of
Cunningham, including its lease and right to operate the
Cunningham Wells. The settlement agreement was incorporated into
the Agreement, which was executed by both parties on October 8,
1997 following considerable negotiations, supervised by the
Court. Satisfaction of all conditions of the Agreement will
continue to be monitored by the Court until the closing of the
reorganization under the terms of the Agreement. Pursuant to the
Agreement, Supply Corporation will purchase substantially all of
the assets of Cunningham in exchange for Shares of National
Common Stock. Pursuant to a plan of liquidation, Cunningham will
be liquidated following the distribution of the National Common
Stock to the Shareholders of Cunningham in exchange for all
outstanding shares of Cunningham Stock held by a Shareholder and
following the sale of Cunningham's remaining assets.
Pursuant to the Agreement, National intends to acquire
substantially all of the assets of Cunningham in exchange for
Shares of National Common Stock in a manner intended to qualify
as a tax-free reorganization.
The number of Shares to be issued by National and
exchanged by Supply Corporation for the assets to be exchanged
pursuant to the Agreement is currently estimated to be 72,948
Shares. The aggregate number of Shares ultimately issued will
have a value, as of the end of the last business day immediately
preceding the closing date, (the "Valuation Date") equal to the
- 66 -
<PAGE>
sum of: (i) Cunningham's cash and cash equivalents except an
amount not to exceed $300,000 retained by Cunningham to pay
deferred compensation obligations predating the Agreement,
(ii) the value as of the Valuation Date of any securities owned
by Cunningham, (iii) the unpaid balance of all receivables due
from North Penn Gas Company as of the Valuation Date,
(iv) $465,019, the fair market value of certain real property
consisting of approximately 640 acres of timber property owned by
Cunningham the value of which was determined by appraisals
conducted by independent appraisers and (v) $950,000.
CUNNINGHAM NATURAL GAS CORPORATION
SUPPLEMENTAL SCHEDULE I
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
Development and Production
Expense
Wages $ 82,370 $ 88,704 $ 72,408
Lease and supplies
expense 48,074 44,037 47,083
Insurance expense 27,961 16,921 31,992
Truck & tractor
expense 13,083 10,745 13,794
Property taxes 25,623 32,982 15,759
Payroll taxes 8,419 7,926 8,000
Depreciation 18,764 13,040 6,947
Brine treatment 2,819 2,090 0
Oil well plugging (4,339) 0 0
Vehicle 5,214 16,563 7,578
Reimbursement of
production expenses 0 0 (27,277)
________ ________ ________
Total Development and
Production Expense $227,988 $233,008 $176,284
======== ======== ========
General and Administrative Expense
Officer salaries $ 0 $ 0 $ 86,703
Director fees and
expenses 11,878 23,469 28,172
Consulting 26,647 52,589 21,636
Legal and accounting 161,537 106,454 65,074
Payroll taxes 0 0 18,915
Office expenses 10,069 12,908 25,155
Miscellaneous 8,540 1,029 0
________ ________ ________
Total General and
Administrative Expense $218,671 $196,449 $245,655
======== ======== ========
- 67 -
<PAGE>
Exhibit D-1
Internal Revenue Service Department of the Treasury
Index Number: 368.03-00 Washington, DC 20224
Mark Glesk, President Person to Contact:
Cunningham Natural Gas Reginald Mombrun
Corporation Telephone Number:
165 Kennedy Street (202) 622-7750
Bradford, PA 16701 Refer Reply To:
CC:DOM:CORP:1 PLR-103118-98
Date:
John R. Pustulka JAN 12 1999
Vice President
National Fuel Gas Supply
Corporation
10 Lafayette Square
Buffalo, NY 14203
Acquiring = National Fuel Gas Company
EIN: 13-1086010
Acquiring Subsidiary = National Fuel Gas Supply
Corporation
EIN: 25-0850705
Target = Cunningham Natural Gas
Corporation
EIN: 25-2428790
State A = New York
State B = Pennsylvania
State C = New Jersey
Business = Operation of natural gas wells
X = 69
Gentlemen:
This letter is in response to the request, dated February 3,
1998, for rulings pursuant to section 368(a)(1)(C) of the
Internal Revenue Code on behalf of the above-captioned taxpayers.
Additional information with respect to the proposed transaction
was submitted in letters dated November 3 and 10, 1998, and
January 7 and 8, 1999. The information submitted for our
consideration is summarized as follows.
<PAGE>
Target is a State A corporation that is engaged in Business.
Target is also authorized to operate under the laws of State B.
Target uses the accrual method of accounting and files its tax
returns on a calendar basis. Target has two classes of voting
stock, Class A and Class B, that are issued and outstanding. The
Target stock is widely held but it is not publicly traded.
Acquiring is a State B corporation which is authorized to
operate in State A. The stock of Acquiring is widely held and
publicly traded. Acquiring is an accrual method taxpayer and it
files its returns on a fiscal year ending September 30.
Acquiring Subsidiary, a wholly-owned subsidiary of Acquiring, is
also engaged in Business and operates under the laws of State C.
Acquiring Subsidiary uses the accrual method of accounting.
Target and Acquiring are opposing litigants in a civil
action in which Acquiring is attempting to recover damages from
Target in connection with an operation conducted by Target. In
settlement of this cause of action, both parties have entered
into a Purchase and Reorganization Agreement, pursuant to which
substantially all of the assets of Target will be transferred to
Acquiring Subsidiary solely in exchange for shares of Acquiring
voting stock. Certain nominal assets will be retained by Target
to be sold, the proceeds of which will be used solely to pay any
outstanding Target liabilities at the date of the transaction.
Any cash remaining after the payment of these liabilities will be
transferred to Acquiring Subsidiary as part of the transaction.
The parties have entered into a Pre-Closing Escrow Agreement
whereby, prior to the proposed transaction and as part of the
settlement, Target has put and will continue to put 50 percent of
its Business operating revenues into an escrow for distribution
to Acquiring upon consummation of the proposed transaction.
Following the transfer of the Acquiring stock to Target,
Target presently anticipates that it will be able to transfer
only approximately X percent of the stock received to its
shareholders because the shareholders owning the balance of the
outstanding Target stock may not have been located. Pursuant to
a State A Court Order, the shares of the voting stock of
Acquiring attributable to unlocated Target shareholders will be
held by a Guardian Ad Litem who will conduct searches and publish
notices of the transaction. After 12 months from the date of the
transaction, the Acquiring shares attributable to the then
unlocated shareholders will be allocated among the known Target
shareholders pursuant to a final State A Court Order.
Target and Acquiring have also entered into a Post-Closing
Escrow Agreement to secure Target's indemnification obligation in
the proposed transaction. Under the Escrow Agreement, Acquiring
stock with a value of $500,000 will be delivered to the Escrow
Agent to be held for a 12-month period following the transaction.
During this period dividends and voting rights on the escrowed
shares will be in the known Target shareholders. To the extent
unlocated shareholders are located the shares held in escrow will
be reissued in their names and they also will be entitled to the
dividends and voting rights on the escrowed stock.
<PAGE>
The following representations have been made by Target and
Acquiring with respect to the proposed transaction:
(a) The fair market value of Acquiring stock received by each
Target shareholder will be approximately equal to the fair
market value of the Target stock surrendered in the
exchange.
(b) There is no plan or intention by Acquiring or Acquiring
Subsidiary or any person (as defined in Section 1.368-
1(e)(3)) related to either Acquiring or Acquiring Subsidiary
to acquire or redeem any of the Acquiring stock issued in
the proposed transaction either directly or through any
transaction, agreement or arrangement with any other person.
(c) During the five-year period ending on the date of the
proposed transaction neither Target nor any person related
to Target (as defined in Section 1.368-1(c)(3) without any
regard to Section 1.368-1(e)(3)(A)) will have directly or
through any transaction, agreement or arrangement with any
other person, (a) acquired stock of Target with
consideration other than shares of Acquiring or Target stock
(except for shares of Target stock acquired by Target from
dissenters in the transaction); or (b) redeemed or made
distribution with respect to Target stock.
(d) Prior to the transaction neither Acquiring, Acquiring
Subsidiary nor any person (as defined in Section 1.368-
1(e)(3)(A)) related to Acquiring or Acquiring Subsidiary
will have acquired directly or through any transaction,
agreement or arrangement with any other person, stock of
Target with consideration other that shares of Acquiring
stock.
(e) Acquiring Subsidiary will acquire at least 90 percent of the
fair market value of the net assets and at least seventy
percent of the fair market value of the gross assets held by
Target immediately prior to the transaction. For purposes
of this representation, amounts paid by Target shareholders
who receive cash or other property, and all redemptions and
distributions (except for regular, normal dividends) made by
Target immediately preceding the transfer will be included
as assets of Target held immediately prior to the
transaction.
(f) Acquiring has no plan or intention to reacquire any of the
Acquiring stock issued in the transaction.
(g) Acquiring Subsidiary has no plan or intention to sell or
otherwise dispose of the assets of Target acquired in the
transaction, except for dispositions made in the ordinary
course of business or transfers described in Section
368(a)(2)(C).
(h) Target will distribute the stock, securities and other
property it receives in the transaction, in pursuance of the
plan of reorganization.
<PAGE>
(i) Acquiring Subsidiary is not assuming any liabilities of
Target and none of the assets being acquired by Acquiring
Subsidiary are subject to any liability.
(j) Following the transaction, Acquiring Subsidiary will
continue the historic business of Target or use a
significant portion of Target's historic business assets in
a business.
(k) Acquiring Subsidiary, Target and the shareholders of Target
will pay their respective expenses, if any, incurred in
connection with the transaction.
(l) There is no inter-corporate indebtedness existing between
Acquiring Subsidiary and Target that was issued, acquired or
will be settled at a discount.
(m) No two parties to the transaction are investment companies
as defined in Section 368(a)(2)(F)(iii) and (iv).
(n) Target is not under the jurisdiction of a court in a title
11 or similar case within the meaning of Section
368(a)(3)(A).
With respect to the Post-Closing Escrow Agreement, the
following representations have been made:
(o) All of the stock to be issued in the reorganization will be
issued within five years from the date of the transfer of
Target's assets to Acquiring Subsidiary for Acquiring stock.
(p) There is a valid business reason for not issuing all of the
stock at the time of the reorganization, that is, to secure
Target's indemnification obligation to Acquiring Subsidiary.
(q) The maximum number of shares to be issued to Target
shareholders is established by the purchase price formula.
(r) At least fifty percent of the maximum number of shares of
each class of stock that may eventually be issued will be
issued at the time of the transfer of Target's assets to
Acquiring Subsidiary.
(s) The triggering event for the release of shares from escrow
or the issuance of additional shares is not an event the
occurrence or nonoccurrence of which is within the control
of Target's shareholders and is not based on the
determination of a federal income tax liability related to
the reorganization.
(t) The formula for calculating the number of Acquiring shares
to be released from the escrow is objective and readily
ascertainable.
<PAGE>
(u) With respect to the escrow arrangements, any escrowed
Acquiring stock will be legally outstanding and shown as
such on Acquiring's shareholder records and financial
statements. To the extent that the former Target
shareholders are identified and known at the date of the
closing of the transaction in issue, the dividends and
voting rights on their respective shares will rest with the
former Target shareholders. The escrowed shares will not be
subject to restrictions that require their return to
Acquiring Subsidiary and/or Acquiring because of death,
retirement or similar events with respect to former Target
shareholders.
Based solely on the information and representations
submitted, we rule as follows:
(1) The acquisition by Acquiring Subsidiary of substantially all
of the assets of Target in exchange solely for Acquiring
voting common stock, as described above, will qualify as a
tax-free reorganization under Section 368(a)(1)(C).
(2) Acquiring, Acquiring Subsidiary and Target will each be "a
party to a reorganization" within the meaning of Section
368(b).
(3) No gain or loss will be recognized by the shareholders of
Target upon the receipt of Acquiring common stock in
exchange for their Target stock under Section 354(a)(1).
(4) The basis of the shares of Acquiring voting common stock
received by the Target shareholders in exchange for their
Target voting stock will be the same as the basis of the
Target voting stock surrendered in exchange therefor under
Section 358(a)(1).
(5) No gain or loss will be recognized by Target by reason of
its transfer of substantially all of its assets to Acquiring
Subsidiary in exchange for Acquiring voting common stock
pursuant to Section 361(a).
(6) No gain or loss will be recognized by Acquiring or Acquiring
Subsidiary upon Acquiring Subsidiary's receipt of
substantially all of the assets of Target in exchange for
shares of Acquiring voting common stock under Section 1032.
(7) The basis of the assets of Target in the hands of Acquiring
Subsidiary will be, in each instance, the same as the basis
of those assets in the hands of Target immediately prior to
the proposed transaction in accord with Section 362(b).
(8) The holding period of Target's assets in the hands of
Acquiring Subsidiary will include the period during which
the assets were held by Target as provided in Section
1223(2).
<PAGE>
(9) The holding period of the Acquiring voting stock received by
the Target shareholders will include the holding period
during which the Target common stock surrendered in exchange
therefor was held, provided that such stock is held as a
capital asset in the hands of the Target shareholders on the
date of the exchange under Section 1223(1).
(10) The issuance of Acquiring stock by Acquiring Subsidiary in
exchange for substantially all the assets of Target will not
result in gain or loss recognition to Acquiring or Acquiring
Subsidiary under Section 361(c).
No opinion is expressed about the federal income tax
treatment of the proposed transaction under other provisions of
the Code and regulations or about the tax treatment of any
conditions existing at the time of, or effects, resulting from,
the proposed transaction that are not specifically covered by the
above rulings. In particular, opinion is reserved as to the
federal income tax treatment to the located shareholders of
Target of the distribution of any additional shares of Acquiring
stock, attributable to unlocated Target shareholders by reason of
a State A Court Order or otherwise. A determination of the
appropriate tax treatment to these Target shareholders will be
made by the appropriate District Directors' office upon audit of
the federal income tax returns in which the proposed transaction
is reported.
This ruling is directed only to the taxpayer who requested
it. Section 6110(j)(3) provides that it may not be used or cited
as precedent.
Each affected taxpayer should attach a copy of this letter
to the federal income tax return for the taxable year in which
the proposed transaction covered by this ruling letter is
consummated.
In accordance with the powers of attorney on file in this
office, we have sent copies of this letter to the authorized
representatives.
Sincerely Yours,
Assistant Chief Counsel
(Corporate)
By: /s/ Howard W. Staiman
__________________________
Howard W. Staiman
Assistant to the Chief,
Branch 1
<PAGE>
Exhibit F-1
STRYKER,
TAMS & DILL LLP Two Penn Plaza East
Newark, New Jersey 07105
(973) 491-9500
FAX (973) 491-9692
One World Trade Center
Suite 7967
New York, New York 10048
(212) 432-9180
Please Reply to: Newark
April 1, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549
Re: National Fuel Gas Company
National Fuel Gas Supply Corporation
Application-Declaration on Form U-1
File No. 70-9175
Ladies and Gentlemen:
This opinion relates to the joint application-declaration,
filed on or about February 11, 1998, as amended (as amended, the
"Application-Declaration"), by National Fuel Gas Company
("National") and its wholly-owned subsidiary, National Fuel Gas
Supply Corporation ("Supply"), under the Public Utility Holding
Company Act of 1935, as amended.
The Application-Declaration seeks authorization for the
acquisition by Supply of substantially all of the assets (the
"Acquired Assets") of Cunningham Natural Gas Corporation, a New
York corporation ("Cunningham"), in exchange for shares of
National common stock, $1.00 par value per share (the "Shares"),
and the common stock purchase rights (the "Rights") appurtenant
thereto. The Shares (and related Rights) will be issued and sold
by National to Supply for an aggregate consideration equal to
aggregate value of the Acquired Assets (the "Asset Value"); and
the number of shares (and related Rights) to be so issued and
sold will be equal to the quotient of (i) the Asset Value divided
by (ii) the per share, market value of the Shares as of the end
of the last business day immediately preceding the closing.
Supply will then assign and deliver the Shares to Cunningham in
exchange for the Acquired Assets.
Based upon the foregoing and subject to the assumptions and
qualifications hereinafter set forth, we are of the opinion that:
1. National is a corporation duly incorporated and validly
existing under the laws of the State of New Jersey.
<PAGE>
Securities and Exchange Commission
April 1, 1999
Page 2
2. If (i) the proposed transactions are approved by the
Board of Directors of Supply and consummated in accordance with
the Application-Declaration and the orders or orders of the
Securities and Exchange Commission (the "Commission") thereon,
the terms and conditions of that certain Asset Purchase and
Reorganization Agreement, dated as of October 8, 1997 (the
"Purchase Agreement"), between Cunningham and Supply, and, in the
case of the contemplated borrowings by Supply from the National
money pool arrangement in order to fund its acquisition of the
Shares, the order of the Commission dated March 20, 1998 (HCAR
No. 26847; File No. 9153) and the Money Pool Agreement, dated as
of March 23, 1998, entered into pursuant thereto, (ii) the
instruments of transfer referenced in the Purchase Agreement are
duly executed and delivered by Cunningham, and (iii) the
certificates representing the Shares are duly executed,
countersigned, registered and delivered, and the consideration
therefor is received, by National:
A. All laws of the State of New Jersey applicable to
the proposed transactions will have been complied with;
B. The Shares issued and sold by National to Supply,
and assigned and delivered by Supply to Cunningham in exchange
for the Acquired Assets, will be legally and validly issued,
fully paid and non-assessable, and the holder or holders of the
Shares so issued, sold, assigned and delivered will be entitled
to the rights and privileges pertaining thereto, as set forth in
the Restated Certificate of Incorporation of National, as
amended;
C. The Rights appurtenant to the Shares will be
legally issued and will be entitled to the rights and privileges,
and subject to the limitations, pertaining thereto, as set forth
in that certain Rights Agreement, dated as of June 12, 1996 (the
"Rights Agreement"), between National and Marine Midland Bank;
and
D. The legal rights of the holders of any securities
heretofore issued by National will not have been violated.
The opinion expressed in paragraph 2(C) hereof is
limited to the valid issuance of the Rights under the corporation
laws of the State of New Jersey. In this connection, we have not
been asked to express and, therefore, do not express any opinion
herein concerning (a) any other aspect of the Rights, (b) the
effect of equitable principles or fiduciary considerations
relating to the adoption of the Rights Agreement or to the
issuance of the Rights, or (c) the enforceability of any
particular provision of the Rights Agreement.
In rendering the opinions expressed in paragraphs 2(B) and
2(D) hereof, we have assumed that the issuance and sale of the
<PAGE>
Securities and Exchange Commission
April 1, 1999
Page 3
Shares to Supply will be in compliance with the restrictions set
forth in Section 6.07 of the Indenture, dated October 15, 1974,
between National and The Bank of New York (formerly Irving Trust
Company), as supplemented, relating to the purchase of National
capital stock by National subsidiaries. In so assuming, we have
relied upon the representations set forth in the letter of Ronald
J. Tanski, Esq., Vice President and Controller of National Fuel
Gas Distribution Corporation, dated the date hereof, a copy of
which is attached hereto as Annex 1.
We express no opinion concerning the applicability of state
securities or "blue sky" laws to the issuance and sale of the
Shares by National or to the distribution thereof by Supply, as
contemplated in the Purchase Agreement.
We consent to the use of this opinion as an exhibit to the
Application-Declaration.
Very truly yours,
/s/ Stryker, Tams & Dill LLP
STRYKER, TAMS & DILL LLP
CHF:lr
Attachment
<PAGE>
Annex 1
NATIONAL FUEL
____________________________________________________________
Ronald J. Tanski
Vice President and Controller
April 1, 1999
Stryker, Tams & Dill LLP
Two Penn Plaza East
Newark, New Jersey 07105
Attention: Charles H. Friedrich III, Esq.
Re: Form U-1 Application-Declaration (File No. 70-9175)
National Fuel Gas Company ("National")
National Fuel Gas Supply Corporation ("Supply")
Dear Mr. Friedrich:
In connection with the above-referenced Application-
Declaration on Form U-1, filed with the Securities and Exchange
Commission, we confirm the following:
1) The capital stock of National issued and outstanding on
the date of this letter consists solely of common stock.
2) Stryker, Tams & Dill LLP has participated in obtaining
the authorization for the issuance of all outstanding debentures
of National.
3) Stryker, Tams & Dill LLP has participated in obtaining
the authorizations for the issuance by National of all commercial
paper, short-term notes, and/or long-term notes outstanding at
the date of this letter.
4) National will not issue and sell its common stock,
$1.00 par value per share, to Supply in connection with the
transactions contemplated by the above-referenced Application-
Declaration, except in compliance with Section 6.07 of the
Indenture, dated as of October 15, 1974, from National to The
Bank of New York (formerly Irving Trust Company), as Trustee, as
amended and supplemented to date.
Very truly yours,
/s/ Ronald J. Tanski
<PAGE>
Exhibit F-2
March 22, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: National Fuel Gas Company
National Fuel Gas Supply Corporation
Form U-1 Application-Declaration
File No. 70-9175
Ladies and Gentlemen:
This opinion relates to the joint application-declaration,
filed on February 10, 1998, as amended (the "Application-
Declaration"), by National Fuel Gas Company ("National") and its
wholly-owned subsidiary, National Fuel Gas Supply Corporation
("Supply"), under the Public Utility Holding Company Act of 1935,
as amended. The Application-Declaration seeks authorization for
the acquisition by Supply of substantially all of the assets (the
"Acquired Assets") of Cunningham Natural Gas Corporation, a New
York corporation ("Cunningham"), in exchange for shares of
National common stock, $1.00 par value per share (the "Shares"),
and the common stock purchase rights (the "Rights") appurtenant
thereto. The Shares (and related Rights) will be issued and sold
by National to Supply for an aggregate consideration equal to the
aggregate value of the Acquired Assets (the "Asset Value"); and
the number of Shares (and related Rights) to be so issued and
sold will be equal to the quotient of (i) the Asset Value,
divided by (ii) the per share, market value of the Shares as of
the end of the last business day immediately preceding the
closing. Supply will then assign and deliver the Shares to
Cunningham in exchange for the Acquired Assets.
Based upon the foregoing and subject to the qualifications
and assumptions hereinafter specified, I am of the opinion that:
1. Supply is a corporation duly organized and validly
existing under the laws of the Commonwealth of Pennsylvania.
2. If (i) the proposed transaction is consummated in
accordance with the Application-Declaration, the order or orders
of the Securities and Exchange Commission thereon, and the
registration statement referred to in the Application-
Declaration, as the same shall become effective, (ii) the
instruments of transfer referenced in that certain Asset Purchase
and Reorganization Agreement, dated as of October 8, 1997, as
amended, between Cunningham and Supply are duly executed and
<PAGE>
Securities and Exchange Commission
Page 2
March 19, 1999
delivered by Cunningham, and (iii) the certificates representing
the Shares shall have been duly executed, countersigned,
registered and delivered, and the consideration therefor received
by National, then:
A. All laws of the Commonwealth of Pennsylvania applicable
to the proposed transaction will have been complied with;
B. Supply will legally acquire the Shares from National;
C. Supply will legally acquire the Acquired Assets through
the exchange of the Shares for those assets; and
D. The legal rights of the holders of any securities
heretofore issued by Supply (which is a wholly-owned subsidiary
of National) will not have been violated.
I consent to the use of this opinion as an exhibit to the
Application-Declaration.
Very truly yours,
/s/ Carl M. Carlotti
Carl M. Carlotti
CMC/cjc
<PAGE>
Exhibit G-1
[ARTICLE] OPUR1
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM NATIONAL FUEL GAS COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] SEP-30-1999 SEP-30-1999
[PERIOD-START] FEB-01-1998 FEB-01-1998
[PERIOD-END] JAN-31-1999 JAN-31-1999
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 2,274,324 2,275,571
[OTHER-PROPERTY-AND-INVEST] 0 0
[TOTAL-CURRENT-ASSETS] 352,911 354,751
[TOTAL-DEFERRED-CHARGES] 9,572 9,572
[OTHER-ASSETS] 222,671 223,123
[TOTAL-ASSETS] 2,859,478 2,863,017
[COMMON] 38,604 38,677
[CAPITAL-SURPLUS-PAID-IN] 423,055 426,069
[RETAINED-EARNINGS] 468,059 468,059
[TOTAL-COMMON-STOCKHOLDERS-EQ] 928,533 931,620
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[LONG-TERM-DEBT-NET] 689,348 689,348
[SHORT-TERM-NOTES] 242,600 242,600
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 150,000 150,000
[LONG-TERM-DEBT-CURRENT-PORT] 214,231 214,231
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 0 0
[LEASES-CURRENT] 0 0
[OTHER-ITEMS-CAPITAL-AND-LIAB] 634,766 635,218
[TOT-CAPITALIZATION-AND-LIAB] 2,859,478 2,863,017
[GROSS-OPERATING-REVENUE] 1,235,252 1,235,252
[INCOME-TAX-EXPENSE] 19,469 19,469
[OTHER-OPERATING-EXPENSES] 1,121,640 1,121,640
[TOTAL-OPERATING-EXPENSES] 1,141,109 1,141,109
[OPERATING-INCOME-LOSS] 94,143 94,143
[OTHER-INCOME-NET] 39,036 39,036
[INCOME-BEFORE-INTEREST-EXPEN] 133,179 133,179
[TOTAL-INTEREST-EXPENSE] 94,408 94,408
[NET-INCOME] 35,206 35,206
[PREFERRED-STOCK-DIVIDENDS] 0 0
[EARNINGS-AVAILABLE-FOR-COMM] 35,206 35,206
[COMMON-STOCK-DIVIDENDS] 68,388 68,388
[TOTAL-INTEREST-ON-BONDS] 50,658 50,658
[CASH-FLOW-OPERATIONS] 0 0
[EPS-PRIMARY] 0.92 0.92
[EPS-DILUTED] 0.92 0.92
</TABLE>
<PAGE>
[ARTICLE] OPUR1
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM NATIONAL FUEL GAS SUPPLY CORPORATION'S FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] SEP-30-1999 SEP-30-1999
[PERIOD-START] FEB-01-1998 FEB-01-1998
[PERIOD-END] JAN-31-1999 JAN-31-1999
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 461,467 462,714
[OTHER-PROPERTY-AND-INVEST] 0 0
[TOTAL-CURRENT-ASSETS] 34,688 36,528
[TOTAL-DEFERRED-CHARGES] 4,189 4,189
[OTHER-ASSETS] 26,447 26,899
[TOTAL-ASSETS] 526,791 530,330
[COMMON] 25,345 25,345
[CAPITAL-SURPLUS-PAID-IN] 35,894 35,894
[RETAINED-EARNINGS] 199,330 199,330
[TOTAL-COMMON-STOCKHOLDERS-EQ] 260,569 260,569
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[LONG-TERM-DEBT-NET] 65,000 65,000
[SHORT-TERM-NOTES] 111,284 114,371
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 0 0
[LONG-TERM-DEBT-CURRENT-PORT] 0 0
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 0 0
[LEASES-CURRENT] 0 0
[OTHER-ITEMS-CAPITAL-AND-LIAB] 89,938 90,390
[TOT-CAPITALIZATION-AND-LIAB] 526,791 530,330
[GROSS-OPERATING-REVENUE] 168,776 168,776
[INCOME-TAX-EXPENSE] 28,178 28,178
[OTHER-OPERATING-EXPENSES] 99,238 99,238
[TOTAL-OPERATING-EXPENSES] 127,416 127,416
[OPERATING-INCOME-LOSS] 41,360 41,360
[OTHER-INCOME-NET] 14,833 14,833
[INCOME-BEFORE-INTEREST-EXPEN] 56,193 56,193
[TOTAL-INTEREST-EXPENSE] 14,458 14,458
[NET-INCOME] 41,735 41,735
[PREFERRED-STOCK-DIVIDENDS] 0 0
[EARNINGS-AVAILABLE-FOR-COMM] 41,735 41,735
[COMMON-STOCK-DIVIDENDS] 24,614 24,614
[TOTAL-INTEREST-ON-BONDS] 0 0
[CASH-FLOW-OPERATIONS] 0 0
[EPS-PRIMARY] 0 0
[EPS-DILUTED] 0 0
</TABLE>
<PAGE>
[ARTICLE] OPUR1
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM NATIONAL FUEL GAS COMPANY'S (PARENT COMPANY) FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] SEP-30-1999 SEP-30-1999
[PERIOD-START] FEB-01-1998 FEB-01-1998
[PERIOD-END] JAN-31-1999 JAN-31-1999
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 8 8
[OTHER-PROPERTY-AND-INVEST] 0 0
[TOTAL-CURRENT-ASSETS] 636,500 639,587
[TOTAL-DEFERRED-CHARGES] 3,050 3,050
[OTHER-ASSETS] 1,511,698 1,511,698
[TOTAL-ASSETS] 2,151,256 2,154,343
[COMMON] 38,604 38,677
[CAPITAL-SURPLUS-PAID-IN] 423,055 426,069
[RETAINED-EARNINGS] 468,059 468,059
[TOTAL-COMMON-STOCKHOLDERS-EQ] 928,533 931,620
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[LONG-TERM-DEBT-NET] 624,000 624,000
[SHORT-TERM-NOTES] 259,200 259,200
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 150,000 150,000
[LONG-TERM-DEBT-CURRENT-PORT] 150,000 150,000
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 0 0
[LEASES-CURRENT] 0 0
[OTHER-ITEMS-CAPITAL-AND-LIAB] 39,523 39,523
[TOT-CAPITALIZATION-AND-LIAB] 2,151,256 2,154,343
[GROSS-OPERATING-REVENUE] 0 0
[INCOME-TAX-EXPENSE] 1 1
[OTHER-OPERATING-EXPENSES] 3,657 3,657
[TOTAL-OPERATING-EXPENSES] 3,658 3,658
[OPERATING-INCOME-LOSS] (3,658) (3,658)
[OTHER-INCOME-NET] 107,335 107,335
[INCOME-BEFORE-INTEREST-EXPEN] 103,677 103,677
[TOTAL-INTEREST-EXPENSE] 68,471 68,471
[NET-INCOME] 35,206 35,206
[PREFERRED-STOCK-DIVIDENDS] 0 0
[EARNINGS-AVAILABLE-FOR-COMM] 35,206 35,206
[COMMON-STOCK-DIVIDENDS] 68,388 68,388
[TOTAL-INTEREST-ON-BONDS] 50,658 50,658
[CASH-FLOW-OPERATIONS] 0 0
[EPS-PRIMARY] 0.92 0.92
[EPS-DILUTED] 0.92 0.92
</TABLE>
<PAGE>
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
S-1 Pro Forma Consolidated Financial Statements and Adjusting
Journal Entries at January 31, 1999
S-2 Pro Forma National Fuel Gas Company Financial Statements and
Adjusting Journal Entries at January 31, 1999
S-3 Pro Forma National Fuel Gas Supply Corporation Financial
Statements and Adjusting Journal Entries at January 31, 1999
S-4 Notes to Consolidated Financial Statements
<PAGE>
NATIONAL FUEL GAS COMPANY
PRO FORMA FINANCIAL STATEMENTS
JANUARY 31, 1999
National Fuel Gas Supply Corporation (Supply Corporation) is
a wholly-owned subsidiary of National Fuel Gas Company
(National). Supply Corporation proposes to acquire substantially
all the assets of Cunningham Natural Gas Corporation in exchange
for approximately 72,948 registered shares of common, $1 par
value, voting stock of National, in a manner intended to qualify
for non-recognition of gain or loss pursuant to Section 368 of
the Internal Revenue Code. The following financial statements
assume the proposed transaction occurred as of January 31, 1999.
The ultimate number of shares issued in this proposed transaction
will depend on the market price of National's common stock when
the transaction occurs.
<PAGE>
Financial Statement S-1
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
AT JANUARY 31, 1999
(UNAUDITED)
(Thousands of Dollars)
Adjustments
ASSETS Per Books Dr. (Cr.) Pro Forma
____________ ____________ ___________
PROPERTY, PLANT AND
EQUIPMENT 3,241,204 1,247(a,c) 3,242,451
LESS - ACCUMULATED
DEPRECIATION, DEPLETION
AND AMORTIZATION 966,880 966,880
_________ _____ _________
2,274,324 1,247 2,275,571
_________ _____ _________
CURRENT ASSETS
CASH & TEMP. CASH INVESTMENTS 29,624 1,811(a,c) 31,435
RECEIVABLES - NET 203,414 29(a) 203,443
UNBILLED UTILITY REVENUE 47,115 47,115
GAS STORED UNDERGROUND 17,958 17,958
MATERIALS AND SUPPLIES 25,508 25,508
UNRECOVERED PURCHASED GAS COSTS 5,524 5,524
PREPAYMENTS 23,768 23,768
_________ __________ _________
352,911 1,840 354,751
OTHER ASSETS
RECOVERABLE FUTURE TAXES 88,302 88,302
UNAMORTIZED DEBT EXPENSE 21,445 21,445
OTHER REGULATORY ASSETS 39,425 39,425
DEFERRED CHARGES 9,572 9,572
OTHER 73,499 452(b) 73,951
_________ __________ _________
232,243 452 232,695
_________ __________ _________
TOTAL ASSETS 2,859,478 3,539 2,863,017
========= ========== =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
COMMON STOCK 38,604 (73)(a) 38,677
PAID IN CAPITAL 423,055 (3,014)(a) 426,069
EARNINGS REINVESTED IN THE
BUSINESS 468,059 468,059
CUMULATIVE TRANSLATION ADJUST (1,185) (1,185)
_________ __________ _________
928,633 (3,087) 931,620
_________ __________ _________
LONG TERM DEBT, NET OF
CURRENT PORTION 689,348 689,348
_________ __________ _________
TOTAL CAPITALIZATION 1,617,881 (3,087) 1,620,968
_________ __________ _________
MINORITY INTEREST IN FOREIGN
SUBSIDIARIES 24,250 24,250
_________ __________ _________
<PAGE>
CURRENT AND ACCRUED LIABILITIES
NOTES PAYABLE TO BANKS AND
COMMERCIAL PAPER 392,600 392,600
CURRENT PORTION OF LONG-TERM
DEBT 214,231 214,231
ACCOUNTS PAYABLE 90,416 90,416
AMOUNTS PAYABLE TO CUSTOMERS 6,114 6,114
OTHER ACCRUALS AND CURRENT
LIABILITIES 109,957 109,957
_________ __________ _________
813,318 813,318
_________ __________ _________
DEFERRED CREDITS
ACCUMULATED DEFERRED INCOME
TAXES 270,287 (452)(b) 270,739
TAXES REFUNDABLE TO CUSTOMERS 18,404 18,404
UNAMORTIZED INVESTMENT
TAX CREDIT 12,059 12,059
OTHER DEFERRED CREDITS 103,279 103,279
_________ __________ _________
404,029 (452) 404,481
_________ __________ _________
TOTAL CAPITALIZED AND LIABILITIES 2,859,478 (3,539) 2,863,017
========= ========== =========
SEE NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF INCOME AND EARNINGS REINVESTED IN THE BUSINESS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
(Thousands of Dollars)
Adjustments
Per Books Dr. (Cr.) Pro Forma
____________ ____________ ___________
OPERATING REVENUES 1,235,252 0 1,235,252
_________ __________ _________
OPERATING EXPENSES:
PURCHASED GAS 394,439 394,439
OPERATION 305,492 305,492
MAINTENANCE 24,862 24,862
FUEL USED FOR HEAT AND
ELECTRIC GENERATION 56,205 56,205
PROPERTY, FRANCHISE &
OTHER TAXES 90,592 90,592
DEPRECIATION, DEPLETION &
AMORTIZATION 121,054 121,054
IMPAIRMENT OF OIL & GAS
PROPERTIES 128,996 128,996
INCOME TAXES - NET 19,469 19,469
_________ __________ _________
1,141,109 0 1,141,109
_________ __________ _________
OPERATING INCOME 94,143 94,143
OTHER INCOME 39,036 39,036
_________ __________ _________
INCOME BEFORE INTEREST CHARGES 133,179 0 133,179
_________ __________ _________
INTEREST CHARGES:
INTEREST ON LONG-TERM DEBT 60,262 60,262
OTHER INTEREST 34,146 34,146
_________ __________ _________
94,408 0 94,408
_________ __________ _________
MINORITY INTEREST IN FOREIGN
SUBSIDIARIES (3,565) 0 (3,565)
_________ __________ _________
NET INCOME AVAILABLE FOR
COMMON STOCK 35,206 35,206
EARNINGS REINVESTED IN THE BUSINESS
BALANCE AT FEBRUARY 1, 1998 501,241 501,241
_________ __________ _________
536,447 0 536,447
DIVIDENDS ON COMMON STOCK 68,388 68,388
_________ __________ _________
BALANCE AT JANUARY 31, 1999 468,059 0 468,059
========= ========== =========
EARNINGS PER COMMON SHARE 0.92 0.00 0.92
========= ========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 38,427,589 38,427,589
========= =========
SEE NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES
PROFORMA CONSOLIDATED ADJUSTING JOURNAL ENTRIES
(UNAUDITED)
(Thousands of Dollars)
Debit Credit
________ ________
(a)
Property, Plant & Equipment 1,415
Cash & Temporary Cash Investments 1,643
Accounts Receivable 29
Common Stock 73
Paid-in-Capital 3,014
(To record issuance of 72,948 shares
of NFG common stock at $42-5/16 per share
to be used for the acquisition of various
assets from Cunningham Natural Gas
Corporation)
(b)
Goodwill (Other Assets) 452
Deferred Tax Liability 452
(To record related deferred taxes as a
result of a nontaxable business
combination in accordance with
Statement of Financial Accounting
Standard No. 109, "Accounting for
Income Taxes")
(c)
Cash 168
Property, Plan and Equipment 168
(To record cash received from escrow
account, which represents a portion of
the revenues by Cunningham Natural Gas
Corporation. Amount is treated as a
purchase price adjustment.)
<PAGE>
Financial Statement S-2
NATIONAL FUEL GAS COMPANY - PARENT
PROFORMA BALANCE SHEET
AT JANUARY 31, 1999
(UNAUDITED)
(Thousands of Dollars
Adjustments
ASSETS Per Books Dr. (Cr.) Pro Forma
____________ ____________ ___________
PROPERTY, PLANT AND
EQUIPMENT 132 132
LESS - ACCUMULATED
DEPRECIATION, DEPLETION
AND AMORTIZATION 124 124
_________ _____ _________
8 0 8
_________ _____ _________
CURRENT ASSETS
CASH & TEMP. CASH INVESTMENTS 7,084 0(a,b) 7,084
NOTES RECEIVABLE - INTERCOMPANY 604,600 3,087(a) 607,687
ACCOUNTS RECEIVABLE - INTERCOMPANY 23,167 23,167
ACCOUNTS RECEIVABLE 381 381
PREPAYMENTS 1,288 1,288
_________ __________ _________
636,500 3,087 639,587
OTHER ASSETS
STOCK OF SUBSIDIARIES 870,791 870,791
NOTES OF SUBSIDIARIES 624,000 624,000
UNAMORTIZED DEBT EXPENSE 5,131 5,131
OTHER REGULATORY ASSETS 4,769 4,769
DEFERRED CHARGES 3,050 3,050
OTHER 7,007 7,007
_________ __________ _________
1,514,748 0 1,514,748
_________ __________ _________
TOTAL ASSETS 2,151,256 3,087 2,154,343
========= ========== =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
COMMON STOCK 38,604 (73)(b) 38,677
PAID IN CAPITAL 423,055 (3,014)(b) 426,069
EARNINGS REINVESTED IN THE
BUSINESS 468,059 468,059
CUMULATIVE TRANSLATION ADJUST (1,185) (1,185)
_________ __________ _________
928,533 (3,087) 931,620
LONG TERM DEBT, NET OF
CURRENT PORTION 624,000 624,000
_________ __________ _________
TOTAL CAPITALIZATION 1,552,533 (3,087) 1,555,620
_________ __________ _________
CURRENT AND ACCRUED LIABILITIES
NOTES PAYABLE TO BANKS AND
COMMERCIAL PAPER 392,600 392,600
NOTES PAYABLE - INTERCOMPANY 16,600 16,600
<PAGE>
CURRENT PORTION OF LONG-TERM
DEBT 150,000 150,000
ACCOUNTS PAYABLE - OTHER 16 16
ACCOUNTS PAYABLE - INTERCOMPANY 8,048 8,048
OTHER ACCRUALS AND CURRENT
LIABILITIES 27,539 27,539
_________ __________ _________
594,803 0 594,803
_________ __________ _________
DEFERRED CREDITS
ACCUMULATED DEFERRED INCOME
TAXES (1,605) (1,605)
OTHER DEFERRED CREDITS 5,525 5,525
_________ __________ _________
3,920 0 3,910
_________ __________ _________
TOTAL CAPITALIZED AND LIABILITIES 2,151,256 (3,087) 2,154,343
========= ========== =========
SEE NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NATIONAL FUEL GAS COMPANY - PARENT
PROFORMA STATEMENTS OF INCOME AND
EARNINGS REINVESTED IN THE BUSINESS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
(Thousands of Dollars)
Adjustments
Per Books Dr. (Cr.) Pro Forma
____________ ____________ ___________
OPERATING REVENUES 0 0 0
_________ __________ _________
OPERATING EXPENSES:
OPERATION EXPENSE 3,141 3,141
PROPERTY, FRANCHISE &
OTHER TAXES 514 514
DEPRECIATION, DEPLETION &
AMORTIZATION 2 2
INCOME TAXES - NET 1 1
_________ __________ _________
3,658 0 3,658
_________ __________ _________
OPERATING INCOME (3,658) 0 (3,658)
_________ __________ _________
OTHER INCOME:
UNREMITTED EARNINGS OF
SUBSIDIARIES (29,186) (29,186)
DIVIDENDS OF SUBSIDIARIES 64,356 64,356
INTEREST-INTERCOMPANY 71,690 71,690
OTHER INTEREST 475 475
_________ __________ _________
107,335 0 107,335
_________ __________ _________
INCOME BEFORE INTEREST CHARGES 103,677 0 103,677
_________ __________ _________
INTEREST CHARGES:
INTEREST ON LONG-TERM DEBT 50,658 50,658
INTEREST - INTERCOMPANY 1,085 1,085
OTHER INTEREST 16,728 16,728
_________ __________ _________
68,471 0 68,471
_________ __________ _________
NET INCOME 35,206 0 35,206
_________ __________ _________
MINORITY INTEREST IN FOREIGN
SUBSIDIARIES (3,565) 0 (3,565)
_________ __________ _________
EARNINGS REINVESTED IN THE BUSINESS
BALANCE AT FEBRUARY 1, 1998 501,241 501,241
_________ __________ _________
536,447 0 536,447
<PAGE>
DIVIDENDS ON COMMON STOCK 68,388 68,388
_________ __________ _________
BALANCE AT JANUARY 31, 1999 468,059 0 468,059
========= ========== =========
EARNINGS PER COMMON SHARE 0.92 0.00 0.92
========= ========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 38,427,589 38,427,589
========= =========
SEE NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
NATIONAL FUEL GAS COMPANY - PARENT
PROFORMA ADJUSTING JOURNAL ENTRIES
(UNAUDITED)
(Thousands of Dollars)
Debit Credit
_______ _______
(a)
Notes Receivable - Intercompany 3,087
Cash 3,087
(To record borrowings made to Supply
Corporation for the Cunningham acquisition)
(b)
Cash 3,087
Common Stock 73
Paid-in-Capital 3,014
(To record issuance of 72,948 shares of NFG
common stock at $42-5/16 per share to be used
for the acquisition of various assets from
Cunningham Natural Gas Corporation. Supply
Corporation paid for the common stock from the
proceeds it received in entry(a).)
<PAGE>
Financial Statement S-3
NATIONAL FUEL GAS SUPPLY CORPORATION
PROFORMA BALANCE SHEET
AT JANUARY 31, 1999
(UNAUDITED)
(Thousands of Dollars)
Adjustments
ASSETS Per Books Dr.(Cr.) ProForma
____________ ___________ ____________
PROPERTY, PLANT AND EQUIPMENT 734,755 1,247(c,e) 736,002
LESS- ACCUMULATED DEPRECIATION,
DEPLETION AND AMORTIZATION 273,288 273,288
________ ______ ________
461,467 1,247 462,714
CURRENT ASSETS
CASH & TEMP. CASH INVESTMENTS 194 1,811(a,b,c,e) 462,714
ACCOUNTS RECEIVABLE -
INTERCOMPANY 11,194 11,194
ACCOUNTS RECEIVABLE - CUSTOMER 3,525 3,525
OTHER ACCOUNTS RECEIVABLE 4,296 29(c) 4,325
MATERIALS AND SUPPLIES 11,588 11,588
PREPAYMENTS 3,891 3,891
_______ _______ _______
34,688 1,840 36,528
_______ _______ _______
OTHER ASSETS
INVESTMENT IN ASSOCIATED
COMPANIES 61 0(b,c) 61
RECOVERABLE FUTURE TAXES 4,958 4,958
UNAMORTIZED DEBT EXPENSE 6,816 6,816
OTHER REGULATORY ASSETS 7,141 7,141
DEFERRED CHARGES 4,189 4,189
OTHER 7,471 452(d) 7,923
_______ ______ _______
30,636 452 31,088
_______ ______ _______
TOTAL ASSETS 526,791 3,539 530,330
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
COMMON STOCK 25,345 25,345
PAID IN CAPITAL 35,894 35,894
EARNINGS REINVESTED IN THE
BUSINESS 199,330 199,330
_______ ______ _______
260,569 0 260,569
NOTES PAYABLE - INTERCOMPANY 65,000 65,000
_______ ______ _______
TOTAL CAPITALIZATION 325,569 0 325,569
_______ ______ _______
CURRENT AND ACCRUED LIABILITIES
NOTES PAYABLE - INTERCOMPANY 111,284 (3,087)(a) 114,371
ACCOUNTS PAYABLE 6,086 6,086
ACCOUNTS PAYABLE - INTERCOMPANY 5,062 5,062
<PAGE>
OTHER ACCRUALS AND CURRENT
LIABILITIES 8,343 8,343
_______ ______ _______
130,775 (3,087) 133,862
_______ ______ _______
DEFERRED CREDITS
ACCUMULATED DEFERRED INCOME
TAXES 56,503 (452)(d) 56,955
TAXES REFUNDABLE TO CUSTOMERS (1,443) (1,443)
UNAMORTIZED INVESTMENT TAX
CREDIT 345 345
OTHER DEFERRED CREDITS 15,042 15,042
_______ _______ _______
70,447 (452) 70,899
TOTAL CAPITALIZATION AND
LIABILITIES 526,791 (3,539) 530,330
======= ======= =======
SEE NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NATIONAL FUEL GAS SUPPLY CORPORATION
PROFORMA STATEMENTS OF INCOME AND
EARNINGS REINVESTED IN THE BUSINESS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
(Thousands of Dollars)
Adjustments
Per Books Dr. (Cr.) Pro Forma
____________ ____________ ___________
OPERATING REVENUES 168,776 0 168,776
_________ __________ _________
OPERATING EXPENSES:
PURCHASED GAS SOLD 405 405
OPERATION 55,592 55,592
MAINTENANCE 9,869 9,869
PROPERTY, FRANCHISE &
OTHER TAXES 11,403 11,403
DEPRECIATION, DEPLETION &
AMORTIZATION 21,969 21,969
INCOME TAXES - NET 28,178 28,178
_________ __________ _________
127,416 0 127,416
_________ __________ _________
OPERATING INCOME 41,360 0 41,360
_________ __________ _________
OTHER INCOME:
MISCELLANEOUS INCOME 2,512 2,512
INVESTMENT TAX CREDIT 24 24
ALLOW FUNDS USED IN CONST 376 376
OTHER INTEREST 11,921 11,921
_________ __________ _________
14,833 0 14,833
_________ __________ _________
INCOME BEFORE INTEREST CHARGES 56,193 0 56,193
_________ __________ _________
INTEREST CHARGES:
INTEREST - INTERCOMPANY 13,831 13,831
OTHER INTEREST 627 627
_________ __________ _________
14,458 0 14,458
_________ __________ _________
NET INCOME 41,735 0 41,735
EARNINGS REINVESTED IN THE BUSINESS
BALANCE AT FEBRUARY 1, 1998 182,209 182,209
_________ __________ _________
223,944 0 223,944
DIVIDENDS ON COMMON STOCK 24,614 24,614
_________ __________ _________
BALANCE AT JANUARY 31, 1999 199,330 0 199,330
========= ========== =========
SEE NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNREMITTED EARNINGS OF
SUBSIDIARIES (29,186) (29,186)
DIVIDENDS OF SUBSIDIARIES 64,356 64,356
INTEREST-INTERCOMPANY 71,690 71,690
OTHER INTEREST 475 475
_________ __________ _________
107,335 0 107,335
_________ __________ _________
INCOME BEFORE INTEREST CHARGES 103,677 0 103,677
_________ __________ _________
INTEREST CHARGES:
INTEREST ON LONG-TERM DEBT 50,658 50,658
INTEREST - INTERCOMPANY 1,058 1,058
OTHER INTEREST 16,728 16,728
_________ __________ _________
68,471 0 68,471
_________ __________ _________
NET INCOME 35,206 0 35,206
_________ __________ _________
MINORITY INTEREST IN FOREIGN
SUBSIDIARIES (3,565) 0 (3,565)
_________ __________ _________
EARNINGS REINVESTED IN THE BUSINESS
BALANCE AT FEBRUARY 1, 1998 501,241 501,241
_________ __________ _________
536,447 0 536,447
<PAGE>
NATIONAL FUEL GAS SUPPLY CORPORATION
PROFORMA ADJUSTING JOURNAL ENTRIES
(UNAUDITED)
(Thousands of Dollars)
Debit Credit
________ ________
(a)
Cash 3,087
Notes Payable - Intercompany 3,087
(To record Supply Corporation's
borrowings from the money pool)
(b)
Investment in Common stock 3,087
Cash 3,087
(To record Supply Corporation's
acquisition of NFG common stock,
$1 par value, and related payment
to NFG)
(c)
Property, Plant & Equipment 1,415
Cash & Temporary Cash Investments 1,643
Accounts Receivable 29
Investment in Common Stock 3,087
(To record Supply Corporation's exchange
of 72,948 shares of NFG common stock,
$1 par value, for various assets of
Cunningham Natural Gas Corporation)
(d)
Goodwill (Other Assets) 452
Deferred Tax Liability 452
(To record related deferred taxes as a
result of a nontaxable business
combination in accordance with
Statement of Financial Accounting
Standard No. 109, "Accounting for
Income Taxes")
(e)
Cash 168
Property, Plant and Equipment 168
(To record cash received from escrow
account, which represents a portion of
the revenues earned by Cunningham
Natural Gas Corporation. Amount is
treated as a purchase price adjustment.)
<PAGE>
<TABLE> Financial Statement S-4
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The Notes to Consolidated Financial Statements appearing under Item 8 of National Fuel Gas Company's September 30, 1998 Form
10-K (File No. 1-3880) are incorporated herein by reference.
2) The Notes to Consolidated Financial Statements appearing under Item 1 of National Fuel Gas Company's December 31, 1998 Form
10-Q (File No. 1-3880) are incorporated herein by reference.
3) Analysis of Investments in Associated Companies at January 31, 1999 (per Books - Thousands of Dollars):
<CAPTION>
Earnings
Reinvested Total
Par or in the Unremitted Investment
Stated Value Business Earnings Cumulative in Associated
of Subsidiary Paid in at Since Translation Companies at
Stock Capital Acquisition Acquisition Adjustment Equity
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
National Fuel Gas Company:
National Fuel Gas Distribution
Corporation $ 59,171 $ 121,668 $ 4,636 $ 279,737 $ - $ 465,212
National Fuel Gas Supply
Corporation 25,345 35,833 2,453 196,877 - 260,508
Seneca Resources Corporation 500 104,035 6 (21,927) - 82,614
Loidy Hub, Inc. 4 1,365 - (655) - 714
Highland Land & Minerals, Inc. 4 445 - 4,522 - 4,971
Utility Constructors, Inc. 1 2,959 - (888) - 2,072
Data-Track Account Services, Inc. 1 499 - 197 - 697
National Fuel Resources, Inc. 10 3,490 - 8,063 - 11,563
Horizon Energy Development, Inc. 5 38,286 - (4,814) (1,185) 32,292
Upstate Energy Inc. 1 - - (217) - (216)
Seneca Independence Pipeline Co. 1 - - 24 - 25
Niagara Independence Marketing Company 1 - - - - 1
Consolidating Adjustment - 10,338 - 10,338
___________________________________________________________________________________________
85,044 308,580 7,095 471,257 (1,185) 870,791
National Fuel Gas Supply Corporation:
Seneca Resources Corporation 61 61
___________________________________________________________________________________________
$ 85,044 $ 308,641 $ 7,095 $ 471,257 $ (1,185) $ 870,852
==========================================================================================
</TABLE>
<PAGE>
