Filed Puruant to Rule 424(b)(3)
Registration No. 33-50651
January 12, 1994
Dear Stockholder:
A Special Meeting of Stockholders (the "PSGS Special Meeting") of
Pennsylvania & Southern Gas Company ("PSGS") will be held on February 10, 1994
at 9:30 a.m., local time, at the Doubletree Hotel, Broad Street at Locust,
Philadelphia, Pennsylvania.
At the PSGS Special Meeting, you will be asked to consider and vote
upon the Agreement and Plan of Merger, dated July 27, 1993 (the "Merger
Agreement"), between PSGS and NUI Corporation ("NUI") providing for the merger
of PSGS with and into NUI (the "PSGS Merger").
NUI is a natural gas distribution company headquartered in Bedminster,
New Jersey. The attached Proxy Statement/Prospectus includes pro forma
financial information showing the effects on NUI of the PSGS Merger.
If the PSGS Merger is approved and consummated, each share of PSGS
Common Stock issued and outstanding (other than shares owned by NUI, PSGS or
any of their respective subsidiaries (which will be canceled) and shares held
by PSGS Stockholders who perfect appraisal rights under Delaware law) will be
converted, at the time the PSGS Merger becomes effective (the "Effective Time
of the PSGS Merger"), into the right to receive the number of shares of NUI
common stock, no par value ("NUI Common Stock"), or fraction thereof rounded
to the nearest thousandth of a share of NUI Common Stock, equal to the number
determined by dividing $71.50 by the arithmetic average of the daily closing
price per share of NUI Common Stock (the "Average Market Price") as reported
on the Composite Tape of the New York Stock Exchange (the "NYSE") for the
period of twenty days ending on the trading day immediately prior to the
Effective Time of the PSGS Merger; provided, however, that the number of
shares of NUI Common Stock that will be issued upon the conversion of each
share of PSGS Common Stock shall in no event exceed 3.0 shares or be fewer
than 2.4 shares of NUI Common Stock. On January 7, 1994, the last sale price
for NUI Common Stock, as reported on the NYSE Composite Tape, was $26.00 per
share. If the Average Market Price of NUI Common Stock, determined in
accordance with the Merger Agreement, were $28.375, each PSGS Stockholder
would receive in the PSGS Merger 2.520 shares of NUI Common Stock for each
share of PSGS Common Stock held by such stockholder.
The attached Proxy Statement/Prospectus contains important information
concerning the PSGS Merger. We urge you to give it your careful attention.
The Board of Directors of PSGS has carefully considered the Merger
Agreement and believes that the PSGS Merger is fair to and in the best
interests of PSGS and its stockholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Your participation in the PSGS Special Meeting, in person or by proxy,
is important. Please mark, sign, date and return as soon as possible the
enclosed proxy card in the accompanying postage paid return envelope, whether
or not you plan to attend the PSGS Special Meeting. Returning the proxy card
does not prejudice your right to vote your shares in person at the PSGS
Special Meeting if you choose to do so.
Sincerely yours,
<PAGE>
George Failey,
Chairman of the Board
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY
102 Desmond Street
Sayre, Pennsylvania 18840
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on February 10, 1994
A Special Meeting of Stockholders (the "PSGS Special Meeting") of
Pennsylvania & Southern Gas Company ("PSGS") will be held on February 10, 1994
at 9:30 a.m., local time, at the Doubletree Hotel, Broad Street at Locust,
Philadelphia, Pennsylvania, to consider the following matters:
1. The approval and adoption of the Agreement and Plan of Merger,
dated July 27, 1993 (the "Merger Agreement"), between PSGS and
NUI Corporation ("NUI"), attached as Annex A to the accompanying
Proxy Statement/Prospectus, providing for the merger of PSGS with
and into NUI (the "PSGS Merger"), pursuant to which each share of
PSGS common stock, $1.25 par value per share ("the PSGS Common
Stock") outstanding will be converted into the right to receive
that number of shares of NUI common stock, no par value ("NUI
Common Stock"), having a value, as determined in accordance with
the Merger Agreement, of $71.50 per share; provided, however,
that the number of shares of NUI Common Stock to be exchanged for
each share of PSGS Common Stock in the Merger shall be not less
than 2.4 or more than 3.0.
2. Such other matters as may properly be brought before the PSGS
Special Meeting or any adjournments thereof.
The Board of Directors of PSGS has fixed the close of business on
January 11, 1994, as the record date for determining stockholders entitled to
notice of, and to vote at, the PSGS Special Meeting and any adjournments
thereof.
A Proxy Statement/Prospectus is set forth on the following pages and a
form of proxy is enclosed herewith. To ensure that your vote is counted,
please complete, sign, date and return the proxy in the enclosed return
envelope, whether or not you plan to attend the PSGS Special Meeting in
person. If you attend the PSGS Special Meeting, you may revoke your proxy and
vote your shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
Donna K. Scrivens,
Corporate Secretary
Sayre, Pennsylvania
January 12, 1994
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID RETURN ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING. PLEASE DO NOT SEND IN ANY CERTIFICATES FOR
YOUR SHARES AT THIS TIME.
<PAGE>
NUI Corporation
Pennsylvania & Southern Gas Company
Shares of NUI Corporation Common Stock
Special Meeting of PSGS Stockholders to be Held February 10, 1994.
NUI Corporation, a New Jersey corporation ("NUI"), has filed a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities Act
of 1933 (the "Securities Act") covering shares of NUI common stock, no par
value (the "NUI Common Stock"), issuable in connection with the merger of
Pennsylvania & Southern Gas Company, a Delaware corporation ("PSGS"), with and
into NUI (the "PSGS Merger"), pursuant to the Agreement and Plan of Merger,
dated July 27, 1993, by and between NUI and PSGS (the "Merger Agreement") upon
the conversion of shares of PSGS common stock, par value of $1.25 per share
(the "PSGS Common Stock"). At the time the PSGS Merger becomes effective (the
"Effective Time of the PSGS Merger"), each share of PSGS Common Stock issued
and outstanding (other than shares owned by NUI, PSGS or any of their
respective subsidiaries which will be cancelled ("PSGS Cancelled Shares") and
shares held by holders of shares of PSGS Common Stock ("PSGS Stockholders")
who perfect appraisal rights under Delaware law ("PSGS Dissenting Shares"))
will be converted into the right to receive the number of shares of NUI Common
Stock, or fraction thereof rounded to the nearest thousandth of a share of NUI
Common Stock, equal to the number determined by dividing $71.50 by the
arithmetic average of the daily closing price per share of NUI Common Stock
(the "Average Market Price") as reported on the Composite Tape of the New York
Stock Exchange (the "NYSE"), for the period of twenty trading days ending on
the trading day immediately prior to the Effective Time of the PSGS Merger;
provided, however, that the number of shares of NUI Common Stock that will be
issued upon the conversion of each share of PSGS Common Stock shall in no
event exceed 3.0 shares or be fewer than 2.4 shares of NUI Common Stock (the
"Merger Consideration"). On January 7, 1994, the last sale price for NUI
Common Stock, as reported on the NYSE Composite Tape, was $26.00 per share. If
the Average Market Price of NUI Common Stock, determined in accordance with
the Merger Agreement, were $28.375, each PSGS Stockholder would receive in the
PSGS Merger 2.520 shares of NUI Common Stock for each share of PSGS Common
Stock held by such stockholder.
This Proxy Statement/Prospectus also constitutes the prospectus of NUI
filed as part of such Registration Statement. See "Available Information."
In connection with the transactions described in this Proxy
Statement/Prospectus, PSGS Stockholders, who otherwise comply with the
applicable provisions of the Delaware General Corporation Law ("DGCL"), may
seek payment of the fair value of their shares of PSGS Common Stock. See
"Appraisal Rights" in this Proxy Statement/Prospectus and Annex C hereto, for
a description of the procedures to be followed in order to perfect such
appraisal rights.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE REGULATORY AUTHORITY NOR HAS THE COMMISSION
OR ANY STATE REGULATORY AUTHORITY PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The date of this Proxy Statement/Prospectus is January 10, 1994. This
Proxy Statement/Prospectus and the enclosed forms of proxy are first being
mailed to PSGS Stockholders on or about January 12, 1994.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus,
and if given or made, such information or representation should not be relied
upon as having been authorized. This Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy any
securities other than the securities to which it relates, or any offer to
sell, or the solicitation of any offer to buy such securities, or the
solicitation of a proxy, in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities offered pursuant
to this Proxy Statement/Prospectus shall, under any circumstances, create any
implication that there has been no change in the information set forth herein
since the date of this Proxy Statement/Prospectus or that the information
contained herein is correct as of any time subsequent to the date of this
Proxy Statement/Prospectus.
AVAILABLE INFORMATION
NUI is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the SEC. All such reports and other
information can be inspected and copied at the public reference facilities of
the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Room 3190, Washington,
D.C. 20549 at prescribed rates. Such material also may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005, on which
exchange the shares of NUI Common Stock are listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by NUI with the SEC pursuant
to the Exchange Act are hereby incorporated by reference in this Proxy
Statement/Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 (File No. 1-8353), and
(2) Registration Statement on Form 8-A, filed on May 28, 1982, and
Amendment No. 1 thereto on Form 8-A/A, filed on September 16,
1993 (File No. 1-8353).
All documents filed by NUI with the SEC pursuant to Sections 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 on which the Annual Meeting of PSGS
Stockholders is held shall be deemed to be incorporated by reference in this
Proxy Statement/Prospectus.
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 in the Registration Statement, this Proxy Statement/Prospectus or
any other subsequently filed document that is also incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
NUI hereby undertakes to provide without charge to each person to whom <PAGE>
this Proxy Statement/Prospectus is delivered, on the written or oral 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. Requests for such documents
should be addressed to: NUI Corporation, 550 Route 202-206, Box 760,
Bedminster, New Jersey 07921-0760, Attention: Secretary; telephone number
(908) 781-0500.
ADDITIONAL INFORMATION
NUI has filed a Registration Statement on Form S-4 with the SEC with
respect to the shares of NUI Common Stock to be issued in connection with the
PSGS Merger. This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. The
Registration Statement and any amendments thereto, including exhibits filed as
a part thereof, are available for inspection and copying as set forth under
"Available Information."
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . 2
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
NUI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PSGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PSGS Stockholder Meeting . . . . . . . . . . . . . . . . . . . . 8
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Proposed Mergers . . . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Conversion of PSGS Common Stock . . . . . . . . . . . . . . 9
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . 9
Reasons for the Mergers . . . . . . . . . . . . . . . . . . 9
Recommendations of the PSGS Board of Directors . . . . . . . 9
Conditions to Consummation of the PSGS Merger; Regulatory
Approvals . . . . . . . . . . . . . . . . . . . . . . . 10
Termination and Amendment of the Merger Agreement . . . . . 10
Operations After the Mergers . . . . . . . . . . . . . . . . 10
Opinion of PSGS Financial Advisor . . . . . . . . . . . . . 10
Certain Federal Income Tax Considerations . . . . . . . . . 11
Interests of PSGS Management and Directors . . . . . . . . . 11
Accounting Treatment . . . . . . . . . . . . . . . . . . . . 11
Listing on New York Stock Exchange . . . . . . . . . . . . . 11
Termination Payments and Expense Reimbursement . . . . . . . 12
Comparison of Shareholder Rights . . . . . . . . . . . . . . 12
Comparative Per Share Financial Information . . . . . . . . . . . 12
NUI Summary Consolidated Financial Data . . . . . . . . . . . . . 15
PSGS Summary Consolidated Financial Data . . . . . . . . . . . . 17
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
NUI Corporation . . . . . . . . . . . . . . . . . . . . . . 19
Pennsylvania & Southern Gas Company. . . . . . . . . . . . . 19
PSGS Stockholders Meeting . . . . . . . . . . . . . . . . . . . . 19
Purpose of the Meeting . . . . . . . . . . . . . . . . . . . 19
Date, Time and Place of Meeting . . . . . . . . . . . . . . 19
Record Date; Shareholders Entitled to Vote and Required
Vote . . . . . . . . . . . . . . . . . . . . . . . . . 19
Solicitation, Revocation and Use of Proxies . . . . . . . . 19
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . 20
Other Business . . . . . . . . . . . . . . . . . . . . . . . 20
PSGS Management Holdings and Principal Holders of PSGS Common
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE PROPOSED MERGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Background of and Reasons for the PSGS Merger . . . . . . . . . . 22
PSGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
NUI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Recommendations of the PSGS Board of Directors . . . . . . . . . 26
Opinion of PSGS Financial Advisor . . . . . . . . . . . . . . . . 27
4
<PAGE>
Background . . . . . . . . . . . . . . . . . . . . . . . . . 27
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 27
Pro Forma Contribution Analysis . . . . . . . . . . . . 28
Comparable Companies and Comparable Acquisition
Analyses . . . . . . . . . . . . . . . . . . . . . 28
Discounted Dividend Analysis . . . . . . . . . . . . . 30
Federal Income Tax Considerations . . . . . . . . . . . . . . . . 31
Tax Consequences to PSGS Stockholders. . . . . . . . . . . . 31
Tax Consequences to NUI . . . . . . . . . . . . . . . . . . 31
PSGS Merger . . . . . . . . . . . . . . . . . . . . . . 31
EGC Merger . . . . . . . . . . . . . . . . . . . . . . 32
PSGS MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Basic Terms of Merger Agreement . . . . . . . . . . . . . . . . . 32
Conversion of PSGS Common Stock . . . . . . . . . . . . . . 32
Exchange Procedure . . . . . . . . . . . . . . . . . . . . . 33
Effective Time of the PSGS Merger . . . . . . . . . . . . . 33
Certain Covenants . . . . . . . . . . . . . . . . . . . . . 34
Representations and Warranties . . . . . . . . . . . . . . . 35
Conditions to Consummation of the PSGS Merger . . . . . . . 35
Regulatory Filings and Approvals . . . . . . . . . . . . . . 37
Other Consents and Approvals . . . . . . . . . . . . . . . . 38
Amendment and Termination . . . . . . . . . . . . . . . . . 38
Listing on New York Stock Exchange . . . . . . . . . . . . . 39
Certain Fees, Expenses and Related Matters . . . . . . . . . 39
Operation of PSGS After the PSGS Merger . . . . . . . . . . 39
Interests of PSGS Management and Directors . . . . . . . . . . . 40
Management and Employment Agreements . . . . . . . . . . . . 40
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 41
Stock Ownership . . . . . . . . . . . . . . . . . . . . . . 41
Federal Income Tax Considerations . . . . . . . . . . . . . . . . 41
Resale of NUI Common Stock . . . . . . . . . . . . . . . . . . . 42
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . 43
Comparison of PSGS Stockholder Rights with NUI Shareholder
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Voting Power . . . . . . . . . . . . . . . . . . . . . . . . 43
Preferred Stock Capitalization . . . . . . . . . . . . . . . 44
Amendments of Governing Documents . . . . . . . . . . . . . 44
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . 44
Special Meetings . . . . . . . . . . . . . . . . . . . . . . 45
Shareholder Action by Written Consent . . . . . . . . . . . 45
Removal of Directors . . . . . . . . . . . . . . . . . . . . 45
Vacancies on the Board of Directors . . . . . . . . . . . . 46
Classified Board of Directors . . . . . . . . . . . . . . . 46
Limitations on Director Liability . . . . . . . . . . . . . 47
Indemnification of Directors, Officers and Agents . . . . . 47
Inspection of Books and Records . . . . . . . . . . . . . . 48
Certain Business Combinations . . . . . . . . . . . . . . . 48
Combinations Involving an Interested Shareholder . . . 48
Other Business Combinations . . . . . . . . . . . . . . 49
Certain Anti-Takeover Matters . . . . . . . . . . . . . . . 49
Effect of Classification of the Board of Directors
of NUI . . . . . . . . . . . . . . . . . . . . . . 49
Removal of Directors . . . . . . . . . . . . . . . . . 49
Issuance of Preferred Stock . . . . . . . . . . . . . . 50
EGC MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5
<PAGE>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Notice of Appraisal Rights . . . . . . . . . . . . . . . . . . . 51
Stockholder's Written Demand for Appraisal . . . . . . . . . . . 51
NUI's Response . . . . . . . . . . . . . . . . . . . . . . . . . 52
Stockholders' Rights After Demanding Appraisal . . . . . . . . . 52
Petition for Appraisal . . . . . . . . . . . . . . . . . . . . . 52
Notice of Hearing . . . . . . . . . . . . . . . . . . . . . . . . 52
Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Allocation of Costs . . . . . . . . . . . . . . . . . . . . . . . 53
Payment of Fair Value . . . . . . . . . . . . . . . . . . . . . . 53
Dismissal of Appraisal Rights . . . . . . . . . . . . . . . . . . 53
COMPARATIVE PER SHARE FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 54
NUI COMMON STOCK DIVIDENDS AND PRICE RANGE . . . . . . . . . . . . . . . . 55
PSGS COMMON STOCK DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 57
PRO FORMA NUI FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . 58
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
NUI SUMMARY CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . 60
PSGS SUMMARY CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . 63
PSGS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 66
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 66
Capital Resources and Liquidity . . . . . . . . . . . . . . . . . 68
Accounting Standards . . . . . . . . . . . . . . . . . . . . . . 69
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 69
Certain Environmental Matters . . . . . . . . . . . . . . . . . . 71
NUI BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
PSGS BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Territory and Customers Served . . . . . . . . . . . . . . . . . 72
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Waverly Gas Service . . . . . . . . . . . . . . . . . . . . . . . 73
North Carolina Gas Service Division . . . . . . . . . . . . . . . 74
Valley Cities Gas Service Division . . . . . . . . . . . . . . . 75
Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . 77
Seasonal Aspects . . . . . . . . . . . . . . . . . . . . . . . . 77
Persons Employed . . . . . . . . . . . . . . . . . . . . . . . . 77
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Legal Proceeding . . . . . . . . . . . . . . . . . . . . . . . . 78
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
6
<PAGE>
PSGS CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . F-1
ANNEXES
A. Merger Agreement . . . . . . . . . . . . . . . . . . . A-1
B. Opinion of Berwind Financial Group, Inc. . . . . . . . B-1
C. Section 262 of the Delaware General Corporation Law
relating to appraisal rights . . . . . . . . . . . . . C-1
7
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information and financial
statements contained elsewhere or incorporated by reference in this Proxy
Statement/Prospectus and the attached Annexes, all of which are important and
should be reviewed carefully. Capitalized terms used herein without definition
shall have the meaning ascribed to them elsewhere in this Proxy
Statement/Prospectus.
The Parties
NUI. NUI, through its principal subsidiary, Elizabethtown Gas Company
("EGC"), is engaged in the distribution of natural gas to approximately
320,000 customers in two states. The New Jersey Division, which serves Union
and Middlesex Counties in central New Jersey and portions of northwestern New
Jersey, does business as Elizabethtown Gas Company and the Florida Division,
which serves Dade and Broward Counties in southern Florida and Brevard and St.
Lucie Counties in eastern Florida, does business as City Gas Company of
Florida.
PSGS. PSGS is engaged in the sale and distribution of natural gas to
residential, commercial and industrial customers within prescribed areas of
Maryland, New York, North Carolina and Pennsylvania.
PSGS Stockholder Meeting
The Special Meeting of the PSGS Stockholders (the "PSGS Special
Meeting") will be held on February 10, 1994 at 9:30 a.m., local time, at the
Doubletree Hotel, Broad Street at Locust, Philadelphia, Pennsylvania. Only
holders of record of PSGS Common Stock at the close of business on January 11,
1994 (the "PSGS Record Date"), will be entitled to notice of and to vote at,
the PSGS Special Meeting. At such date there were 235,857 shares of PSGS
Common Stock outstanding and entitled to vote. The purposes of the PSGS
Special Meeting are (a) to consider and act upon a proposal to approve and
adopt the Merger Agreement and (b) to transact such other business as may
properly be brought before the PSGS Special Meeting or any adjournments
thereof.
Voting
The affirmative vote of a majority of the outstanding shares of PSGS
Common Stock is required to approve the adoption of the Merger Agreement. The
executive officers and directors of PSGS, in the aggregate, beneficially own
32% of the PSGS Common Stock outstanding as of the PSGS Record Date. Such
persons have informed PSGS that all such shares over which they hold voting
power will be voted for approval of the Merger Agreement. A majority of the
issued and outstanding shares of PSGS Common Stock, represented in person or
by proxy, shall constitute a quorum at the PSGS Special Meeting.
The Proposed Mergers
General. NUI and PSGS contemplate that the merger of EGC with and into
NUI (the "EGC Merger" and, collectively with the PSGS Merger, the "Mergers")
will take place immediately after the PSGS Merger. The result of these
transactions will be a single surviving company, NUI, conducting its business,
8
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the business of EGC and the business of PSGS.
Following the effectiveness of the Mergers, NUI will succeed by
operation of law to the assets, liabilities and operations of each of PSGS and
EGC. As a result of the Mergers, the separate corporate existences of PSGS and
EGC will cease, and NUI will continue the combined operations of PSGS and EGC.
See "PSGS Merger-Basic Terms of Merger Agreement-Operation of PSGS After the
PSGS Merger."
Conversion of PSGS Common Stock. At the Effective Time of the PSGS
Merger, each share of PSGS Common Stock issued and outstanding (other than
PSGS Cancelled Shares and PSGS Dissenting Shares) will be converted into the
right to receive the number of shares of NUI Common Stock, or fraction thereof
rounded to the nearest thousandth of a share of NUI Common Stock, equal to the
number determined by dividing $71.50 by the arithmetic average of the daily
closing price per share of NUI Common Stock as reported on the Composite Tape
of the NYSE for the period of twenty trading days ending on the trading day
immediately prior to the Effective Time of the PSGS Merger; provided, however,
that the number of shares of NUI Common Stock that will be issued upon the
conversion of each share of PSGS Common Stock shall in no event exceed 3.0
shares or be fewer than 2.4 shares of NUI Common Stock. Market fluctuations in
the price of NUI Common Stock will affect the conversion ratio applicable to
the PSGS Common Stock. For additional information concerning the treatment of
PSGS Common Stock in the PSGS Merger, see "PSGS Merger-Basic Terms of Merger
Agreement-Conversion of PSGS Common Stock."
On June 23, 1993, the last trading day before the announcement of the
preliminary agreement between NUI and PSGS with respect to the PSGS Merger,
the closing price per share for NUI Common Stock on the NYSE was $26.375; on
July 26, 1993, the last trading day before the announcement of the signing of
the Merger Agreement, the closing price per share for NUI Common Stock on the
NYSE was $29.00; and on January 7, 1994, the closing price per share for NUI
Common Stock on the NYSE was $26.00.
Appraisal Rights. Holders of PSGS Common Stock will be entitled to
appraisal rights under Delaware law, if such rights are properly perfected,
because such persons hold stock of a constituent corporation a merger which is
neither listed on a national securities exchange nor held of record by more
than 2,000 holders. See "Appraisal Rights" for a discussion of the procedures
that must be followed by holders of PSGS Common Stock in order to perfect and
exercise such appraisal rights.
Reasons for the Mergers. The Board of Directors of PSGS believes that
the PSGS Merger will result in a stronger and more effective company, better
able to compete effectively going forward and to take advantage of
opportunities that would not be available to PSGS on its own. The PSGS Board
of Directors also believes that the PSGS Merger will result in a broader range
of products and services being available to PSGS' customers, while providing
PSGS Stockholders the opportunity to continue as equity participants with a
more liquid investment in a larger company. For information on the matters
considered by the Board of Directors of PSGS in approving and recommending the
PSGS Merger, see "The Proposed Mergers-Background and Reasons for the Mergers"
and "Recommendations of the PSGS Board of Directors."
Recommendations of the PSGS Board of Directors. The Board of Directors
of PSGS believes that the terms of the PSGS Merger are fair to and in the best
interests of PSGS and the PSGS Stockholders, has approved the Merger Agreement
and unanimously recommends that the PSGS Stockholders vote FOR approval of the
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proposal to adopt the Merger Agreement. In making this determination, the
Board of Directors of PSGS has considered the factors described under "The
Proposed Mergers-Background of and Reasons for the Mergers."
Conditions to Consummation of the PSGS Merger; Regulatory Approvals.
The obligation of each of NUI and PSGS to consummate the PSGS Merger is
subject to the receipt of certain regulatory approvals, other consents and
approval by the PSGS Stockholders. See "PSGS Merger-Basic Terms of Merger
Agreement-Conditions to Consummation of the PSGS Merger" and "-Regulatory
Filings and Approvals."
Termination and Amendment of the Merger Agreement. The Merger
Agreement may be terminated at any time prior to the Effective Time of the
PSGS Merger, before or after approval by the PSGS Stockholders of matters
presented to them in connection with the PSGS Merger: (a) by mutual consent of
NUI and PSGS; (b) by either NUI or PSGS if: (i) a permanent injunction is
entered, enforced or deemed applicable to the PSGS Merger which prohibits the
consummation of the PSGS Merger and all appeals of such injunction shall have
been taken and shall have been unsuccessful; (ii) the required approval of the
PSGS Stockholders has not been obtained; (iii) any United States federal,
state or local government (including the District of Columbia), governmental
or regulatory authority, governmental or regulatory body, governmental or
regulatory agency or court or other judicial authority ("Governmental
Entity"), the consent of which is a condition to the obligations of NUI and
PSGS to consummate the PSGS Merger pursuant to the Merger Agreement, shall
have determined not to grant its consent and all appeals of such determination
have been taken and have been unsuccessful or (iv) without the fault of the
terminating party, the PSGS Merger has not been consummated by May 2, 1994 or
(c) by NUI if: (i) a permanent injunction is entered, enforced or deemed
applicable to the EGC Merger which prohibits the consummation of the EGC
Merger and all appeals of such injunction shall have been taken and shall have
been unsuccessful or (ii) any Governmental Entity, the consent of which is a
condition to the obligations of NUI or EGC to consummate the EGC Merger, shall
have determined not to grant its consent and all appeals of such determination
have been taken and have been unsuccessful.
The Merger Agreement may be amended by NUI and PSGS by mutual action
taken by their respective Boards of Directors, except that, after the approval
by the PSGS Stockholders, no amendment may be made that would change (a) the
amount or type of consideration to be received for or on conversion of all or
any of the shares of the PSGS Common Stock upon consummation of the PSGS
Merger, (b) any term of the certificate of incorporation of NUI or (c) any of
the terms or conditions of the Merger Agreement if such change would adversely
affect the PSGS Stockholders.
See "PSGS Merger-Basic Terms of Merger Agreement-Amendment and
Termination."
Operations After the Mergers. Following the Mergers, EGC's New Jersey
Division will be operated as a separate division of NUI under the name
"Elizabethtown Gas Company," EGC's Florida Division will be operated as a
separate division of NUI under the name "City Gas Company of Florida," PSGS
will be operated as a separate division of NUI under the name "Pennsylvania &
Southern Gas Company" and PSGS and EGC will cease their separate corporate
existence. See "PSGS Merger-Basic Terms of Merger Agreement-Operation of PSGS
After the PSGS Merger," and "EGC Merger."
Opinion of PSGS Financial Advisor. Berwind Financial Group, Inc.
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("Berwind") has delivered to the Board of Directors of PSGS its opinion that,
as of January 10, 1994, the consideration to be received by PSGS Stockholders
in the PSGS Merger is fair from a financial point of view to such
stockholders. For information on the assumptions made, matters considered and
limitations on the review by Berwind, see "The Proposed Mergers-Opinion of
PSGS Financial Advisor." Stockholders are urged to read in its entirety the
opinion of Berwind dated January 10, 1994 and attached as Annex B to this
Proxy Statement/Prospectus.
Certain Federal Income Tax Considerations. In the opinion of
Montgomery, McCracken, Walker & Rhoads, counsel for PSGS, the PSGS Merger will
qualify for federal income tax purposes as a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended; and,
accordingly, no gain or loss will be recognized by the PSGS Stockholders upon
their receipt of the NUI Common Stock in exchange for their PSGS Common Stock,
except to the extent that cash is received in lieu of a fractional share of
NUI Common Stock. For a more complete description of the federal income tax
consequences of the PSGS Merger, see "PSGS Merger-Federal Income Tax
Considerations." Because the tax consequences of the PSGS Merger under
federal, state, local and foreign tax laws may vary, depending upon an
individual taxpayer's particular situation, it is recommended that each PSGS
Stockholder consult with his or her tax advisor regarding the applicable tax
consequences of the PSGS Merger.
Interests of PSGS Management and Directors. In considering the
respective recommendations of the Board of Directors of PSGS with respect to
approval of the Merger Agreement, PSGS Stockholders should be aware that
certain members of PSGS' management and PSGS' Board of Directors have certain
interests in the PSGS Merger that are in addition to the interests of PSGS
Stockholders generally. NUI has agreed to enter into, at or prior to the
Effective Time of the PSGS Merger, an employment agreement with Lyle C.
Motley, Jr., President and Chief Executive officer of PSGS and a member of the
PSGS Board of Directors. Such employment agreement provides for a term of
three years with certain benefits upon early termination, demotion or
relocation. In addition, NUI has agreed to enter into employment agreements
with James W. Carl (Vice President of PSGS), James K. Turpin (Vice President
of PSGS), Bernard L. Smith (Treasurer and Assistant Secretary of PSGS), and
Donna K. Scrivens (Secretary of PSGS) pursuant to which each officer shall be
employed for two years with certain benefits upon early termination, demotion
or relocation. After consummation of the PSGS Merger, the directors and
officers of PSGS at the Effective Time of the PSGS Merger will be insured
under an extension of their current directors and officers liability policy.
As of December 21, 1993, executive officers and directors of PSGS owned an
aggregate of 81,151 shares of PSGS Stock. See "PSGS Merger-Interests of PSGS
Management and Directors."
Accounting Treatment. The PSGS Merger will be accounted for as a
purchase of PSGS by NUI in accordance with generally accepted accounting
principles. The regulatory process establishes rates on the basis of
historical net book value; therefore, the underlying net assets of PSGS will,
generally, be recorded as net assets of NUI at their historical net book value
and the excess of the purchase price over the recorded net assets of PSGS,
which amounts to approximately $6.8 million, will be added to utility plant as
a "utility plant acquisition adjustment," which will be amortized over a
thirty-year period that approximates the remaining useful life of the utility
plant acquired. See "PSGS Merger-Accounting Treatment."
Listing on New York Stock Exchange. The NYSE has authorized the
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<PAGE>
listing of the shares of NUI Common Stock issuable in connection with the PSGS
Merger upon official notice of issuance. It is a condition to each party's
obligations to consummate the PSGS Merger that such shares of NUI Common Stock
be approved for listing on the NYSE, subject to official notice of issuance.
See "PSGS Merger-Basic Terms of Merger Agreement-Listing on New York Stock
Exchange."
Termination Payments and Expense Reimbursement. In the event that PSGS
enters into an agreement or understanding to effect certain business
combinations or asset sales to persons other than NUI or PSGS' Board of
Directors recommends the acceptance of certain tender offers from persons
other than NUI, PSGS has agreed to pay to NUI a fee and to reimburse NUI for
certain expenses. PSGS does not intend to enter into any agreement or
understanding which would obligate PSGS to pay such fee to NUI. See "PSGS
Merger-Basic Terms of Merger Agreement-Certain Fees, Expenses and Related
Matters."
Comparison of Shareholder Rights. A discussion of significant
differences in the rights of PSGS Stockholders under Delaware and New Jersey
laws and under the certificate of incorporation and by-laws of PSGS and the
certificate of incorporation and the by-laws of NUI is set forth under "PSGS
Merger-Comparison of PSGS Stockholder Rights with NUI Shareholder Rights."
Comparative Per Share Financial Information
The following unaudited table sets forth certain per share information
for NUI and PSGS, certain pro forma per share information for NUI after giving
effect to the Mergers, and equivalent pro forma per share information for
PSGS. Because the PSGS Merger will be accounted for as a purchase transaction,
pro forma and equivalent per share income and dividend information is
presented for only the most recent fiscal year for which financial information
is available, which ended September 30, 1993. The data is based upon and
should be read in conjunction with the NUI consolidated financial statements
and the related notes thereto incorporated herein by reference; and the PSGS
consolidated financial statements and the related notes thereto and the pro
forma NUI financial data, each of which are included elsewhere in this Proxy
Statement/Prospectus.
Pro Forma
NUI Data
NUI Data Per NUI Share Actual Per
PSGS Data Equivalent
Pro Per PSGS PSGS
Actual Forma(a) Share Share(b)
For the Fiscal Year Ended
September 30, 1993:
Net Income $1.70 $1.63 $1.74 $4.11
Dividends $1.59 $1.59 $1.54 $4.01
Net Book Value (as of fiscal
year end) $14.93 $15.83 $38.48 $39.89
(a) The pro forma NUI data per NUI share gives effect to the PSGS Merger,
pursuant to which the PSGS Stockholders will receive shares of NUI Common
Stock equal in value to $71.50 for each share of PSGS Common Stock as set
forth under "PSGS Merger-Basic Terms of the Merger Agreement-Conversion of
PSGS Common Stock"; followed by the EGC Merger. The pro forma NUI data are
prepared on the basis of accounting for the PSGS Merger as a purchase
transaction. The regulatory process establishes rates on the basis of
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<PAGE>
historical net book value; therefore, (i) the underlying net assets of PSGS
will be recorded as assets of NUI at their historical net book value as of the
date of the PSGS Merger, (ii) the funded status of the PSGS pension plan will
be recognized by recording an asset equal to the excess of plan assets at fair
value as compared with the projected benefit obligation as of the date of
acquisition ($1.4 million), (iii) the excess of the Merger Consideration over
the recorded net assets will be recorded as a "plant acquisition adjustment"
(amounting to approximately $6.8 million) and (iv) the plant acquisition
adjustment will be amortized over a thirty-year period (amounting to
approximately $225,000 per year) that approximates the remaining useful life
of the utility plant acquired; all in accordance with generally accepted
accounting principles. Furthermore, the pro forma NUI net income per share for
the fiscal year ended September 30, 1993 excludes merger expenses incurred by
PSGS ($226,000, net of $117,000 of income tax), which would have equated to
$0.03 per NUI share.
(b) Represents the pro forma equivalent of one share of PSGS Common Stock
calculated by multiplying the pro forma per share NUI data by the conversion
ratio of 2.520 ($71.50 divided by $28.375, the assumed Average Market Price
per share of NUI Common Stock). Furthermore, the pro forma NUI net income per
equivalent PSGS share for the fiscal year ended September 30, 1993 excludes
merger expenses incurred by PSGS ($226,000, net of $117,000 of income tax),
which would have equated to $0.07 per equivalent PSGS share. The actual
conversion ratio may be greater (but not greater than 3.0) or less (but not
less than 2.4) depending upon the actual Average Market Price. See "PSGS
Merger-Basic Terms of Merger Agreement-Conversion of PSGS Common Stock." In
the event that the actual conversion ratio is 3.0, the pro forma net income
and dividends per equivalent PSGS share would be $4.83 and $4.77,
respectively, for the fiscal year ended September 30, 1993 and the net book
value per PSGS equivalent share would be $46.89 at September 30, 1993. In the
event that the actual conversion ratio is 2.4, the pro forma net income and
dividends per equivalent PSGS share would be $3.93 and $3.82, respectively,
for the fiscal year ended September 30, 1993 and the net book value per PSGS
equivalent share would be $38.12 at September 30, 1993.
The NUI Common Stock is listed on the NYSE and is traded under the
symbol NUI.
The following sets forth the closing market price per share for NUI
Common Stock and the NUI closing market price per equivalent PSGS share on
June 23, 1993, the last trading day before the announcement of the preliminary
agreement between NUI and PSGS with respect to the PSGS Merger; on July 26,
1993, the last trading day before the announcement of the signing of the
Merger Agreement; and on January 7, 1994. There is no established public
trading market for the PSGS Common Stock, therefore no PSGS Common Stock
market price information is included herein.
NUI Market
Closing Price Per
Market Equivalent
Price Per PSGS
NUI Share Share (a)
June 23, 1993 $26.375 $66.465
July 26, 1993 $29.00 $73.08
January 7, 1994 $26.00 $65.52
(a) Represents the pro forma equivalent of one share of PSGS Common Stock
calculated by multiplying the closing market price per share of NUI Common
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Stock by the conversion ratio of 2.520 ($71.50 divided by $28.375, the assumed
Average Market Price per share of NUI Common Stock). The actual conversion
ratio may be greater (but not greater than 3.0) or less (but not less than
2.4) depending upon the actual Average Market Price. See "PSGS Merger-Basic
Terms of Merger Agreement-Conversion of PSGS Common Stock." In the event that
the actual conversion ratio is 3.0, the NUI market price per equivalent PSGS
share would be $79.126 as of June 23, 1993, $87.001 as of July 26, 1993, and
$78.00 as of January 7, 1994. In the event that the actual conversion ratio is
2.4, the NUI market price per equivalent PSGS share would be $63.299 as of
June 23, 1993, $69.599 as of July 26, 1993, and $62.40 as of January 7, 1994.
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NUI Summary Consolidated Financial Data
(in thousands, except per share amounts)
Fiscal Years Ended September 30,
1993 1992 1991 1990 1989
Income Statement Data:
Operating Revenues $354,889 $291,032 $291,320 $295,950 $265,450
Operating Income 26,702 25,170 19,457 22,396 21,190
Interest Expense 13,768 14,980 15,634 15,058 14,822
------ ------ ------ ------ ------
Income Before
Cumulative Effect of a
Change in Accounting to
Accrue Unbilled
Revenues $13,810 $11,808 $ 3,447 $ 8,719 $ 7,214
Cumulative Effect of a
Change in Accounting to
Accrue Unbilled
Revenues - - - - 1,193
------ ------ ------ ------ ------
Net Income $13,810 $11,808 $ 3,447 $ 8,719 $ 8,407
----- ----- ----- ----- ------
Per Share of Common
Stock:
Income Before
Cumulative Effect of
a Change in
Accounting to Accrue
Unbilled Revenues $ 1.70 $ 1.68 $ 0.55 $ 1.42 $ 1.39
Cumulative Effect of
a Change in
Accounting to Accrue
Unbilled Revenues - - - - 0.24
---- ---- ----- ----- -----
Net Income $ 1.70 $ 1.68 $ 0.55 $ 1.42 $ 1.63
===== ===== ===== ===== =====
Dividends Paid Per
Share $ 1.59 $ 1.58 $ 1.57 $ 1.56 $ 1.56
===== ===== ===== ===== =====
Total Assets at
September 30 $486,536 $467,321 $406,491 $384,344 $364,927
Funds for Construction
Held by Trustee at
September 30 $24,184 $34,123 - - -
Capitalization at
September 30:
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Current Portion of
Long-Term Debt and
Capital Lease
Obligations $3,882 $7,550 $4,147 $2,942 $3,094
Notes Payable to Banks 69,325 46,375 46,875 51,300 55,425
Capital Lease
Obligations 12,290 13,422 14,871 16,369 17,116
Long-Term Debt 142,090 131,546 106,189 97,048 78,628
Common Shareholders'
Equity 122,384 116,933 85,182 89,291 87,246
Book Value Per Share $14.93 $14.55 $13.43 $14.39 $14.44
Common Shares
Outstanding 8,201 8,036 6,342 6,204 6,044
Note: Net income for fiscal 1991 includes provisions to write off certain
merger-related fees and expenses and to write down certain properties and
investments amounting to $3.3 million (after tax), or $0.53 per share.
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PSGS Summary Consolidated Financial Data
(In thousands, except per share amounts)
Years Ended September 30,
1993 1992 1991 1990 1989
Income Statement
Data:
Operating
revenues $ 30,681 $ 27,619 $ 27,064 $ 25,998 $ 25,622
Operating income 1,865 1,426 732 885 1,238
Merger expenses 343 - - - -
Interest expense 1,114 973 967 589 425
Gain on sale of
certain propane
operations 596
Net income
(loss) 411 1,053 (228) 311 970
Net income
(loss) per share
of common stock 1.74 4.47 (0.97) 1.32 4.11
Cash dividends
declared per
common share
(235,857 shares
outstanding for
all periods
presented) 1.54 0.80 1.30 2.60 2.55
Other data:
Capital
expenditures 2,172 2,127 3,707 3,523 2,241
Book value per
share 38.48 38.28 34.62 36.89 38.17
Operating
Statistics:
Gas sales (Mcf):
Residential
and
commercial 2,574,963 2,399,840 2,026,357 2,157,150 2,181,052
Industrial 2,556,703 2,284,735 2,545,233 2,671,267 2,513,170
Transported2,602,917 2,686,241 1,938,857 1,705,775 1,555,347
Degree days (total
system):
Actual 14,637 14,228 12,682 14,251 15,317
Normal 15,130 15,130 15,130 15,130 15,130
Balance sheet data:
Total assets 28,721 27,822 25,340 21,757 18,545
Notes payable to
banks 2,475 1,825 3,416 855 1,255
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Long-term debt
(including
current portion) 10,179 9,224 7,896 6,909 3,290
Common
shareholders'
equity 9,076 9,029 8,165 8,700 9,002
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INTRODUCTION
The Parties
NUI Corporation. NUI and its subsidiaries are engaged primarily in the
distribution of natural gas in New Jersey and Florida. The principal executive
offices of NUI are located at 550 Route 202-206, Box 760, Bedminster, NJ
07921-0760; telephone: (908) 781-0500.
NUI is an exempt public utility holding company under the Public
Utility Holding Company Act of 1935 (the "PUHCA"). NUI was incorporated in New
Jersey in 1969. NUI's principal operating subsidiary, Elizabethtown Gas
Company, a New Jersey corporation ("EGC"), was organized in 1855. NUI
currently serves approximately 320,000 customers in two states. The New Jersey
Division does business as Elizabethtown Gas Company and the Florida Division
does business as City Gas Company of Florida.
Pennsylvania & Southern Gas Company. PSGS is engaged in the sale and
distribution of natural gas to residential, commercial and industrial
customers within prescribed areas of Maryland, New York, North Carolina and
Pennsylvania. The principal executive offices of PSGS are located at 102
Desmond Street, Sayre, PA 18840; telephone (717) 888-6600.
PSGS was incorporated in Delaware on April 20, 1928. PSGS currently
serves approximately 20,221 customers in four states.
PSGS Stockholders Meeting
Purpose of the Meeting. The purposes of the special meeting of PSGS
Stockholders (the "PSGS Special Meeting") are (a) to consider and act upon a
proposal to approve and adopt the Merger Agreement and (b) to transact such
other business as may properly be brought before the PSGS Special Meeting or
any adjournments thereof.
Date, Time and Place of Meeting. The PSGS Special Meeting will be held
on February 10, 1994 at 9:30 a.m., local time, at the Doubletree Hotel, Broad
Street at Locust, Philadelphia, Pennsylvania.
Record Date; Shareholders Entitled to Vote and Required Vote. Only
holders of record of PSGS Common Stock at the close of business on January 11,
1994 (the "PSGS Record Date") will be entitled to notice of, and to vote at,
the PSGS Special Meeting. At such date there were 235,857 shares of PSGS
Common Stock outstanding and entitled to vote. The affirmative vote of a
majority of the outstanding shares of PSGS Common Stock is required to approve
and adopt the Merger Agreement. The executive officers and directors of PSGS,
in the aggregate, beneficially own 32% of the PSGS Common Stock outstanding as
of the PSGS Record Date. Such persons have informed PSGS that all such shares
over which they hold voting power will be voted for approval of the Merger
Agreement. A majority of the issued and outstanding shares of PSGS Common
Stock, represented in person or by proxy, shall constitute a quorum at the
PSGS Special Meeting.
Solicitation, Revocation and Use of Proxies. Shares of PSGS Common
Stock represented by all properly executed proxies received in time for the
PSGS Special Meeting will be voted at such meeting in the manner specified by
the holders thereof. Shares represented by proxies which do not contain voting
instructions will be voted in favor of approval and adoption of the Merger
Agreement. It is not expected that any matter other than the Merger Agreement
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will be brought before the PSGS Special Meeting. If, however, other matters
are properly presented, the persons named as proxies will vote in accordance
with their judgment with respect to such matters.
PSGS Stockholders are requested to complete, sign, date and return
promptly the enclosed proxy in the postage paid envelope provided for this
purpose in order to assure that their shares are voted. A proxy may be revoked
at any time prior to the exercise of the authority granted thereunder.
Revocation may be accomplished by granting of a later proxy with respect to
the same shares or by written notice to the Secretary of PSGS at any time
prior to the vote on the PSGS Merger. Mere attendance at the PSGS Special
Meeting will not in itself revoke a proxy.
PSGS will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, officers and regular
employees of PSGS, who will receive no compensation in excess of their regular
salaries for their services in connection therewith, may solicit proxies by
telephone, telegram or otherwise.
Appraisal Rights. Holders of PSGS Common Stock will be entitled to
appraisal rights under Delaware law, if such rights are properly perfected,
because such persons hold stock of a constituent corporation in a merger which
is neither listed on a national securities exchange nor held of record by more
than 2,000 holders. See "Appraisal Rights" for a discussion of the procedures
that must be followed by holders of PSGS Common Stock in order to exercise
appraisal rights.
Other Business. The PSGS Board of Directors knows of no matters to be
presented at the PSGS Special Meeting other than those described in this Proxy
Statement/Prospectus. If other matters are properly brought before the PSGS
Special Meeting, it is the intention of the persons named in the proxies to
vote the shares to which such proxies relate in accordance with their best
judgment.
PSGS Management Holdings and Principal Holders of PSGS Common Stock
The following table sets forth as of December 21, 1993, information
concerning each person known by PSGS to beneficially own more than 5% of the
outstanding shares of PSGS Common Stock, and the beneficial ownership of PSGS
Common Stock for each director of PSGS, for each executive officer of PSGS and
for all directors and officers of PSGS as a group. Except as otherwise
specified, the named beneficial owner has sole voting and investment power
with respect to the shares listed.
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Shares Beneficially
Owned Prior to
Offering
Percent
Name of Beneficial Owner Number (a)
Executive Officers and Directors:
Lyle C. Motley, Jr., President and Director 200 *
James W. Carl, Vice President 50 *
James K. Turpin, Vice President 130 *
Bernard L. Smith, Treasurer 125 *
Leroy S. Ellman, Director (b) 54,842 23.3%
George Failey, Director 200 *
Reginald F. McCoy, Director (c) 4,300 1.8%
Richard E. McDevitt, Director (d) 7,200 3.1%
Charles O. Rivers, Director 100 *
Irvin Saltzman, Director (e) 54,642 23.2%
John H. Ware, IV, Director (f) 2,816 1.2%
Paul W. Ware, Director (g) 11,188 4.7%
All Executive Officers and Directors as a Group: 81,151 32.0%
Five Percent Stockholders (h):
Penn America, Inc.
c/o James Heerin, Esq.
420 South York Road
Hatboro, Pennsylvania 19040 54,642 23.2%
John H. Ware III
550-A Bunker Hill Road
Strasburg, Pennsylvania 17579 42,582 18.1%
Pennco Savings Plan
c/o Janice Barry
CoreStates Bank, N.A.
530 Walnut Street
Post Office Box 41535
FG 1-9-4-4
Philadelphia, Pennsylvania 19106 16,800 7.2%
(a) The asterisk indicates that the percentage the shareholder
beneficially owns is less than one percent.
(b) Includes 54,642 shares held by Penn America Insurance Company
("Penn America"). Mr. Ellman is an officer of Penn America and a director of
its corporate parent. He does not claim beneficial ownership of the shares
held by Penn America.
(c) Does not include 740 shares held by Ina Ann McCoy, Mr. McCoy's
daughter, and 192 shares held by R. Frederick McCoy, Jr., Mr. McCoy's son. Mr.
McCoy disclaims beneficial ownership of such shares.
(d) Does not include 100 shares held by E. Todd McDevitt, Mr.
McDevitt's daughter, 100 shares held by S. Bayne McDevitt, Mr. McDevitt's
daughter, or 100 shares held by Wade L. McDevitt, Mr. McDevitt's son. Mr.
McDevitt disclaims beneficial ownership in such shares.
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(e) Includes 54,642 shares held by Penn America. Mr. Saltzman is
Chairman of the Board of Directors of Penn America and of its corporate
parent. He also owns approximately 60% of Penn America's corporate parent.
Does not include 500 shares held by Saltzman Partners in which Mr. Saltzman is
a limited partner.
(f) Includes 1,260 shares held by T/D John Ware, III fbo John Ware,
IV dated 1976 of which John H. Ware, IV is a co-trustee, 1,306 shares held by
T/D John Ware, III fbo the issue of John Ware, IV dated 1976 of which John H.
Ware, IV is a co-trustee, and 125 shares held by Lois L. Ware, spouse of John
H. Ware, IV. Mr. Ware disclaims beneficial ownership of such shares.
(g) Includes 1,260 shares held by T/D John Ware, III fbo Paul Ware
dated 1976 of which Paul W. Ware is a co-trustee, 1,306 shares held by T/D
John Ware, III fbo the issue of Paul Ware dated 1976 of which Paul W. Ware is
a co-trustee, 100 shares held by Paul W. Ware, custodian for Julia A. Ware
under the PA Uniform Gifts to Minors Act, 100 shares held by Paul W. Ware,
custodian for Layla A. Ware under the PA Uniform Gifts to Minors Act, 4,917
shares held by Oxford Foundation in which Mr. Ware is a director, and 770
shares held by Jay Haynes, Inc. in which Mr. Ware is a shareholder, director
and officer. Mr Ware disclaims beneficial ownership of the 1,306 shares held
by T/D John Ware, III fbo the issue of Paul Ware, the 100 shares held as
custodian for Julia A. Ware, the 100 shares held as custodian for Layla A.
Ware and the 4,917 shares held by Oxford Foundation.
(h) This table of "Five Percent Stockholders" is in addition to the
five percent stockholders set forth in the table for "Executive Officers and
Directors."
THE PROPOSED MERGERS
Background of and Reasons for the PSGS Merger
PSGS. On November 1, 1992, Mr. Paul W. Ware, a member of the PSGS
Board of Directors, notified each other member of the PSGS Board by telephone
of his parents' decision to seek a buyer for their holdings in PSGS. At
approximately the same time, PSGS received a letter from New York State
Electric & Gas Corporation ("NYSEG") suggesting a potential alliance between
PSGS and NYSEG. On November 4, 1992, a teleconference meeting of the PSGS
Executive Committee of the Board of Directors was held in which the Committee
recommended that the NYSEG inquiry be placed on the agenda for the full
meeting of the Board of Directors of PSGS scheduled for November 18, 1992. At
this Committee meeting Mr. Irvin Saltzman reported that he had been contacted
by Mr. G. Clay von Seldeneck who had identified himself as a financial advisor
for holders of PSGS Common Stock held of record and beneficially by (i) John
Ware, III, and (ii) Penco Savings and Profit Sharing Plan (for purposes of
this Proxy Statement being called herein collectively, the "Ware Shares")
which represented approximately 25% of the total outstanding PSGS Common
Stock. Mr. von Seldeneck had informed Mr. Saltzman that he was seeking
purchasers for the Ware Shares and that he was interested in marketing Mr.
Saltzman's holdings. Mr. Saltzman informed the Committee that he had refused
Mr. von Seldeneck's request.
Each member of the PSGS Board of Directors then received a letter
dated November 13, 1992 from Mrs. Marian S. Ware and Mr. Terry Hunt (Trustee
of the Penco Savings and Profit Sharing Plan) in which the Ware's previously
announced intention of selling their PSGS Common Stock was formally announced.
This letter also included a request that the holders of the Ware Shares be
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permitted to discuss with the full PSGS Board of Directors the possibility of
seeking buyers for the entire company.
On November 18, 1992 the PSGS Board of Directors held its regularly
scheduled quarterly meeting. At this meeting, the PSGS Board of Directors
directed PSGS management to inform both NYSEG and Mrs. Ware and Mr. Hunt that
the PSGS Board of Directors was not seeking a buyer for the entire company and
they had not retained any agent to do so.
In December of 1992 Mr. Paul W. Ware informed Mr. Lyle C. Motley, Jr.,
CEO of PSGS, that the holders of the Ware Shares had hired Mr. G. Clay von
Seldeneck of Snyder & Company of Philadelphia, Pennsylvania to be their agent
in connection with the proposed sale of their shares.
On February 11, 1993 the PSGS Board of Directors held its regularly
scheduled quarterly meeting. At this meeting Mr. Craig L. Godshall, attorney
for certain of the holders of the Ware Shares, was given an opportunity in
accordance with a request from certain of the holders of the Ware Shares, to
address the PSGS Board of Directors. Mr. Godshall informed the PSGS Board of
Directors that the Ware Shares were being offered for sale to assist certain
family members in their financial planning and diversification of investments.
The agent for the Ware Shares, Mr. von Seldeneck, had solicited in excess of
twenty potential buyers, four of which stated their interest in holding
discussions with PSGS. Mr. Godshall conveyed the request of the holders of the
Ware Shares that PSGS management meet with these prospective buyers of the
Ware Shares which included South Jersey Industries, Incorporated ("SJII"),
NYSEG, NUI, and United Cities Gas Company ("UCGC"). The PSGS Board of
Directors determined that whereas the holders of the Ware Shares were
shareholders of long standing with PSGS, management should meet with the
prospective buyers to discuss the sale of the Ware Shares. The PSGS Board of
Directors maintained its position that the entire company was not for sale and
that participation in these meetings should not be interpreted to the
contrary. The issue of a sale of a portion of the PSGS business was not raised
since the PSGS Board of Directors authorized participation in these meetings
solely to facilitate the sale of the Ware Shares. Mr. George Failey, Chairman
of the Board for PSGS, and Mr. Motley were designated as the representatives
for PSGS at these meetings.
On February 17, 1993 Mr. Failey and Mr. Motley met in Philadelphia,
Pennsylvania with representatives of NUI regarding the sale of the Ware
Shares. On February 18, 1993 Mr. Failey and Mr. Motley met in Philadelphia,
Pennsylvania with representatives of SJII regarding the sale of the Ware
Shares. Discussions during this meeting were limited due to the refusal of
SJII to execute PSGS's standard confidentiality letter. On February 23, 1993
Mr. Failey and Mr. Motley met in Pittsburgh, Pennsylvania with representatives
of UCGC regarding the sale of the Ware Shares. On March 9, 1993 Mr. Failey and
Mr. Motley met in Elmira, New York with representatives of NYSEG regarding the
sale of the Ware Shares. On March 11, 1993, at the request of Mr. von
Seldeneck on behalf of the holders of the Ware Shares, a fifth meeting was
held by Mr. Failey and Mr. Motley in Pittsburgh, Pennsylvania with
representatives of Public Service of North Carolina ("PSNC") regarding the
sale of the Ware Shares. At each of these meetings the representatives of the
companies other than PSGS inquired as to the possible purchase of all of the
outstanding PSGS Common Stock. Messrs. Failey and Motley responded to each
that PSGS was not for sale and that they were attending these meetings solely
to facilitate the sale of the Ware Shares.
Following the March 11, 1993 meeting with PSNC, PSGS did not contact
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or make any effort to contact any of these entities because the PSGS Board of
Directors had taken the position that PSGS was not for sale and that these
meetings had been held to facilitate the sale of the Ware Shares. PSGS heard
nothing from any of the five companies until Mr. Failey received an
unsolicited letter dated April 6, 1993 from William F. Ryan, President and CEO
of SJII (the "SJII Letter"). The SJII Letter proposed that SJII acquire all of
the outstanding PSGS Common Stock in exchange for SJII common stock in the
exchange ratio of approximately 1.36 shares of SJII common stock for each
share of PSGS Common Stock. The SJII Letter stated that based on PSGS' book
value at September 30, 1992, this proposal would have a value of $38.28 per
share. The SJII Letter also indicated that it would be the intent of SJII to
maintain PSGS as a distinct wholly-owned subsidiary retaining both management
and non-management employees. The SJII Letter stated that the proposal
contained therein would terminate on April 30, 1993 if not previously accepted
by PSGS. Mr. Motley requested, and Mr. Ryan agreed to, an extension of the
April 30, 1993 deadline to May 12, 1993, the date of the next regularly
scheduled meeting of the PSGS Board of Directors.
PSGS received an unsolicited letter dated April 8, 1993 (the "NUI
Letter"), from Mr. John Kean, President of NUI, in which he informed Mr.
Motley of NUI's interest in acquiring all of the outstanding PSGS Common
Stock. The NUI Letter indicated, however, that the indication of proposed
value was based on a preliminary review of PSGS and that NUI needed to visit
relevant operations of PSGS and to review certain additional information. The
NUI Letter indicated a proposed value of $80.00 per share for all of the
outstanding PSGS Common Stock. The NUI Letter proposed an exchange of PSGS
Common Stock for NUI Common Stock and indicated that NUI's business plan
included the acquisition of gas distribution companies with the primary goal
of coordinating gas supply requirements. The NUI Letter also indicated that
each utility acquired by NUI would maintain its own identity, management and
employees and that NUI would provide all capital raising functions.
On April 13, 1993 the Executive Committee of the PSGS Board of
Directors met by teleconference to discuss and review proposals which had been
received from NUI and SJII regarding the acquisition of all of the outstanding
PSGS Common Stock. The Committee instructed Mr. Failey and Mr. Motley to
conduct further discussions with NUI and SJII with respect to these proposals.
During this period PSGS received no communications from UCGC, NYSEG or PSNC.
On April 21, 1993 the Executive Committee of the PSGS Board of
Directors met by teleconference. It was reported that an individual poll of
each member of the Board of Directors had resulted in unanimous support in
proceeding with the discussions with NUI based upon the attractiveness of the
offer contained in the NUI Letter. The Executive Committee instructed
management to retain an investment banker. On May 3, 1993 PSGS retained
Berwind Financial Group, Incorporated ("Berwind") as the PSGS investment
banker.
On May 12, 1993 the PSGS Board of Directors held its regularly
scheduled quarterly meeting. Representatives of Berwind attended this session
to discuss procedures for pursuing the inquiries from NUI and SJII. Following
this meeting, Berwind advised SJII that the value per share contained in the
SJII Letter was less than other indications of interest to date. Throughout
the next several weeks Berwind held discussions with SJII but no agreement was
reached on the issue of execution of a confidentiality agreement to cover
material disclosed in due diligence. Counsel for PSGS was therefore instructed
to terminate discussions with SJII by letter dated June 9, 1993 due to the
lack of a confidentiality agreement.
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Throughout the month of June 1993, Berwind negotiated, at the
direction of Messrs. Failey and Motley, the terms of a Letter of Intent (the
"Letter of Intent") with representatives of NUI. During this same period, NUI
conducted the review of PSGS and its operations that NUI had indicated in the
NUI Letter was necessary in order for NUI to determine the actual price per
share of PSGS common stock that NUI would offer to the PSGS Board of
Directors. As a result of these investigations and due diligence, the
consideration for the PSGS Common Stock was revised to $71.50 per share
payable in NUI Common Stock. Pursuant to the terms of the Letter of Intent,
each PSGS Stockholder would receive no less than 2.4 and no more than 3.0
shares of NUI Common Stock in exchange for each share of PSGS Common Stock
held. On June 23, 1993 all members but one of the PSGS Board of Directors
participated in a special meeting by teleconference at which those
participating unanimously approved the execution of the Letter of Intent with
NUI for the reasons described under "-Recommendations of the PSGS Board of
Directors." On June 24, 1993 the Letter of Intent for the PSGS Merger was
executed by Mr. John Kean of NUI and Mr. Lyle C. Motley, Jr. of PSGS.
On July 27, 1993 a special meeting of the PSGS Board of Directors was
held at which all members of the Board were present. Berwind made a
presentation to the Board during which it summarized and reviewed the results
of its due diligence study of NUI. Berwind reported that it believed the stock
exchange ratio offered by NUI to be fair as of July 27, 1993 from a financial
point of view. The PSGS Board of Directors made no recommendations to Berwind.
(see "The Proposed Mergers-Opinion of PSGS Financial Advisor"). PSGS counsel
reviewed with the Board the Agreement and Plan of Merger and, in particular,
the tax aspects of the structure of the transaction. Following discussion, the
PSGS Board of Directors unanimously approved the merger of PSGS with and into
NUI pursuant to the terms and conditions of the Agreement and Plan of Merger.
The Agreement and Plan of Merger was executed on July 28, 1993 by Mr. John
Kean of NUI and Mr. Lyle C. Motley, Jr. of PSGS.
In entering into the negotiations leading up to the PSGS Merger, the
management and the Board of Directors of PSGS concluded that the PSGS Merger
would be advantageous to PSGS Stockholders and customers as well as the states
and communities served by PSGS. The management and Board of Directors of PSGS
believed that by creating a larger combined company, the PSGS Merger would
help increase gas purchasing power and improve access for PSGS to capital
markets. The management and Board of Directors of PSGS noted important changes
and trends in the industry, including changes in gas supply and pricing. With
the changes taking place in the gas industry, management and the Board of
Directors of PSGS believed that the larger and more geographically diversified
a gas company is, the better it will be able to compete for gas supplies,
capital and managerial talent.
NUI. In entering into the negotiations leading up to the PSGS Merger,
the management and Board of Directors of NUI concluded that the PSGS Merger
would be advantageous to shareholders and customers of NUI and EGC, as well as
the communities they serve. NUI, in accordance with its business plan, is
concentrating on customer growth and the profitability of its gas distribution
business. Growth opportunities could include the acquisition of additional gas
distribution companies, the development of new franchises and the management
of certain service requirements of other utilities on a contract basis. NUI's
strategy involves assembling, as opportunities become available, a natural gas
distribution system in several states, while maintaining a balanced capital
structure. From time to time, NUI reviews acquisition opportunities and, when
requested, submits acquisition proposals.
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NUI's plan takes advantage of opportunities presented by the
restructuring of interstate natural gas pipeline operations and the increase
in supply alternatives. Traditionally, interstate pipelines were wholesalers
of natural gas to local distribution companies and generally did not provide
separate transportation or other services for specific customers. In 1985, the
Federal Energy Regulatory Commission (the "FERC") adopted Order No. 436 that
encouraged interstate pipelines to make transportation of gas available to
customers on a non-discriminatory basis. Such voluntary "open access" by
certain interstate pipelines enhanced the opportunity for NUI, other local gas
distribution companies and industrial customers to purchase natural gas
directly from gas producers and others. In 1992, the FERC issued Order No. 636
that, among other things, mandated the separation or "unbundling" of
interstate pipeline sales, transportation and storage services and established
guidelines for capacity management effective in 1993. Order No. 636 increased
the opportunity for local gas distribution companies and industrial customers
to purchase natural gas from alternative sources, while increasing the
potential business and regulatory risk borne by a local gas distribution
company with respect to the acquisition and management of natural gas
services.
The business plan envisions a natural gas distribution system in
which, among other matters, local managements conduct the marketing, customer
service and distribution operations in each state served, with management of
gas supply and access to capital markets coordinated centrally.
The PSGS Merger fits within the NUI business plan. By managing the
business risks, including coordinating the management of PSGS's gas supply and
access to capital markets centrally, NUI expects to add value to the business
within the acquired franchise areas through accelerating the rate of growth
and enhancing long term profitability.
Recommendations of the PSGS Board of Directors
THE BOARD OF DIRECTORS OF PSGS BELIEVES THAT THE TERMS OF THE PSGS
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, PSGS AND THE PSGS
STOCKHOLDERS. ACCORDINGLY, THE PSGS BOARD OF DIRECTORS HAS APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PSGS COMMON STOCK VOTE
FOR THE APPROVAL OF THE MERGER AGREEMENT.
At a special meeting of the Board of Directors of PSGS held on July
27, 1993, the Board of Directors of PSGS approved the Merger Agreement. This
approval followed, and was based upon discussions at, meetings of the
Executive Committee of the Board of Directors of PSGS to consider matters
relating to the PSGS Merger held on April 13, 1993, April 21, 1993, April 26,
1993, May 11, 1993, June 15, 1993 and June 18, 1993 and meetings of the Board
of Directors held on February 11, 1993, May 12, 1993, June 23, 1993, and July
27, 1993. In arriving at its conclusion, the PSGS Board of Directors received
presentations from, and reviewed carefully, the terms and conditions of the
Merger Agreement with PSGS's management, counsel and investment banker.
Thereafter, the Board of Directors of PSGS unanimously approved the Merger
Agreement. Such determination by the Board of Directors of PSGS was based on
the following factors: (i) the significant increase in pro forma earnings and
dividends per equivalent PSGS share following the PSGS Merger which, in the
opinion of the PSGS Board of Directors, would enhance the value of the
investment of the PSGS stockholders and would be in their best interests, and
the increased asset base of NUI following the PSGS Merger as compared with the
PSGS asset base which, in the opinion of the PSGS Board of Directors, can
provide a competitive advantage relative to other competing gas distribution
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businesses (see the NUI Pro Forma Financial Information including the related
notes thereto, which are included elsewhere in this Proxy
Statement/Prospectus); (ii) the relative market value of NUI Common Stock as
compared with the last known bid price of PSGS Common Stock which, when
considered in conjunction with all other factors indicated herein (see "-
Opinion of PSGS Financial Advisor"), support the opinion that the
consideration to be paid by NUI is fair as of January 10, 1994 to the PSGS
shareholders from a financial point of view because the exchange ratio
provides a premium to PSGS Stockholders which is not believed to be
excessively dilutive to NUI Stockholders and (iii) the opinion of PSGS's
investment banker, Berwind, that the consideration to be paid by NUI is fair
as of January 10, 1994 to the PSGS Stockholders from a financial point of
view. In assessing the fairness of the PSGS Merger from a financial point of
view, Berwind reviewed with the Board of Directors during their July 27, 1993
meeting various data and analyses, including: (i) the changes in the amount of
earnings, book value and dividends represented by 1.0 shares of PSGS Common
Stock prior to the PSGS Merger and 2.4 to 3.0 shares of NUI Common Stock after
the PSGS Merger; (ii) comparable companies and comparable transaction analyses
relative to PSGS and NUI, including multiples of book value, earnings and
revenues as well as market price premiums implied by the Merger Consideration;
and (iii) the PSGS discounted dividend analysis whereby Berwind estimated the
present value of future dividends that PSGS could produce over a five-year
period under different assumptions as to dividend payout levels, if PSGS
performed in accordance with management's forecasts and certain variants
thereof. See "The Proposed Mergers-Opinion of PSGS Financial Advisor." Berwind
reconfirmed this opinion as of the date of this Proxy Statement/Prospectus. A
copy of this opinion, dated the date of this Proxy Statement/Prospectus, is
attached hereto as Annex B.
The Directors of PSGS evaluated the factors listed above in light of
their knowledge of the business and operations of PSGS and NUI and their
business judgment. The PSGS Board of Directors considered these factors in
their totality and did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determinations.
Opinion of PSGS Financial Advisor
Background. PSGS retained Berwind on May 3, 1993 to advise it as to
the fairness from a financial point of view to the PSGS Stockholders of the
Merger Consideration. The selection of Berwind to act as advisor to PSGS was
based upon the experience, qualifications and reputation of Berwind. Prior to
rendering the fairness opinion, summarized below, Berwind assisted PSGS in the
negotiation of the terms of the PSGS Merger and related transactions.
Fairness Opinion. On July 27, 1993, at the meeting at which the PSGS
Board of Directors approved and adopted the Merger Agreement, Berwind
delivered an oral opinion to the PSGS Board of Directors that as of such date
the PSGS Merger was fair to the PSGS Stockholders from a financial point of
view. This opinion was confirmed in writing on January 10, 1994. Berwind's
opinion is directed to the PSGS Board of Directors only and is directed only
to the Merger Consideration, and does not constitute a recommendation to any
PSGS Stockholder as to how such stockholder should vote at the PSGS Special
Meeting. PSGS Stockholders are urged to read carefully the full text of
Berwind's opinion, a copy of which is attached as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference.
In arriving at its opinion, Berwind among other things: (i) reviewed
certain publicly available business and financial information relating to PSGS
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and NUI, including (A) each of PSGS's and NUI's Annual Reports to Shareholders
for the fiscal years ended September 30, 1988 through 1993, NUI's Annual
Reports on Form 10-K for the fiscal years ended September 30, 1988 through
1993 and Quarterly Reports to shareholders for the quarters ended December 31,
1992, March 31, 1993, and June 30, 1993; (B) the reported prices, trading
activity and dividends paid for PSGS Common Stock and NUI Common Stock over
the previous three-year period; (ii) held discussions with PSGS's senior
management and Board of Directors; (iii) considered the terms and conditions
of the proposed transaction between PSGS and NUI as compared with the terms
and conditions of comparable mergers and acquisitions; (iv) read the
information with respect to the proposed transaction between PSGS and NUI as
set forth in the Merger Agreement; (v) held discussions with NUI's senior
management relating to NUI's financial condition, results of operations and
prospects and (vi) conducted such other financial analyses, studies and
investigations as it deemed appropriate.
Berwind noted that its opinion is given in reliance on information and
representations made or given by PSGS and NUI and their respective officers,
directors, auditors, counsel and other agents, and on filings, releases and
other information issued by PSGS and NUI including financial statements,
financial projections, and stock price data as well as certain information
from recognized independent sources. Berwind has not independently verified
the information concerning PSGS and NUI or other data which it considered in
its review, and, for purposes of its opinion, Berwind has assumed and relied
upon the accuracy and completeness of all such information and data.
Assumptions made by Berwind in arriving at its opinion are listed in the full
text of its opinion, a copy of which is attached to this Proxy
Statement/Prospectus as Annex B.
A summary of Berwind's financial analysis is set forth below.
Pro Forma Contribution Analysis. Berwind analyzed the changes in the
amount of earnings, book value, and dividends represented by 1.0 shares of
PSGS Common Stock prior to the PSGS Merger and 2.4 to 3.0 shares of NUI Common
Stock after the PSGS Merger. The analysis indicated, among other things, the
PSGS Merger would result as of September 30, 1993 in an increase to earnings
per share of 123.2% to 174.5%, a change to book value per share ranging from a
reduction of 1.0% to an increase of 21.8% and an increase in indicated
dividends of 128.6% to 185.7% to PSGS. On a pro forma combined basis, the
analysis indicated PSGS would contribute approximately 2.9%, 6.5%, and 5.9% to
the combined companies' earnings, equity and assets, respectively for fiscal
year 1993. Based on an exchange ratio of 2.4 to 3.0 shares of NUI for each
share of PSGS, existing PSGS shareholders would own 6.45% to 7.94% of the
combined companies.
Comparable Companies and Comparable Acquisition Analyses. Berwind
compared the financial performance of PSGS based on various measures of
earnings performance, capitalization, revenues and dividend growth to that of
a peer group of natural gas distribution companies that Berwind deemed
comparable, including Allegheny & Western Energy Corp.; Berkshire Gas Company;
Cascade Natural Gas Corp.; Chesapeake Utilities Corporation; Colonial Gas
Company; Connecticut Energy Corporation; Connecticut Natural Gas Company;
Corning Natural Gas Corp.; EnergyNorth Inc.; Great Falls Gas Corp.;
Pennsylvania Enterprises; Providence Energy Corporation; Public Service Co. of
North Carolina; Roanoke Gas Company; United Cities Gas Company; and Valley
Resources. This analysis showed, among other things, that as of January 10,
1994 PSGS' latest twelve-month return on assets and equity were 1.43% and
4.53%, respectively, compared to the median of 3.41% and 11.10%, respectively,
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for the peer group; its asset-to-equity ratio was 316.45% compared to the
median of 314.99% for the peer group; its price-to-earnings ratio was 22.7
compared to the median of 15.7 for the peer group; its price-to-book ratio was
1.03 compared to the median of 1.64 for the peer group; and its dividend yield
was 4.25% compared to the median of 5.15% for the peer group prior to
announcement of the Merger.
Berwind also compared the financial performance of NUI based on
various financial measures of earnings performance, capitalization revenues
and dividend growth to that of a peer group of natural gas distribution
companies that Berwind deemed comparable, including Atmos Energy Corp.;
Connecticut Energy Corp.; Connecticut Natural Gas Corp.; Energen Corp.;
Indiana Energy Inc.; Laclede Gas Co.; New Jersey Resources Corp.; Northwest
Natural Gas Co.; Piedmont Natural Gas Co.; Public Service Co of NC Inc.; South
Jersey Industries Inc.; United Cities Gas Co.; Washington Energy Company; and
Yankee Energy Systems Inc. This analysis showed, among other things, that as
of January 10, 1994, NUI's latest twelve-month return on assets and equity
were 2.84% and 11.28%, respectively, compared to the median of 4.09% and
11.77%, respectively, for the peer group; its asset-to-equity ratio was
397.55% compared to the median of 283.35% for the peer group; its
price-to-earnings ratio was 15.3 compared to the median of 14.4 for the peer
group; its price-to-book ratio was 1.74 compared to the median of 1.80 for the
peer group and its dividend yield was 6.15% compared to the median of 4.95%
for the peer group prior to announcement of the Merger.
The above indicated pro forma contribution and comparable companies
analyses provide support that, when considered in conjunction with all other
factors indicated herein, the consideration to be paid by NUI is fair as of
January 10, 1994 to the PSGS Stockholders from a financial point of view
because (i) the combined companies' earnings, equity and assets will increase;
and (ii) receipt of NUI shares in exchange for PSGS shares will enhance the
value of the investment of the PSGS Stockholders as indicated through the
above comparable analyses.
Berwind also compared the multiples of book value, earnings and
revenues as well as market price premiums, implied by the Merger
Consideration, with the multiples paid in recent acquisitions of natural gas
distribution and natural gas transmission and distribution companies that
Berwind deemed comparable. The transactions deemed comparable by Berwind
included acquisitions announced during 1987 through the present. Recently
announced selected transactions included (acquiror/acquiree): Wisconsin Energy
Corp./Wisconsin Southern Gas Co.; and Torch Energy/Panda Resources Inc. This
analysis showed, among other things, a range of percentage premiums at the
date the announcement of the transaction of (i) price offered as a multiple of
latest twelve-month earnings of 33.9 for the proposed transaction compared to
a range of 9.6 to 36.5 for the selected transactions reviewed; (ii) price
offered as a multiple of book value of 1.7 for the proposed transaction
compared to a range of 1.6 to 4.1 for the selected transactions reviewed and
(iii) price offered as a premium over the market price of the acquiree's share
price (four weeks prior to announcement) of 81.0% compared to a range of -7.8%
to 81.2% for the selected transactions reviewed.
For purposes of the above analyses, Berwind used a $39.50 price per
share of PSGS Common Stock, which was the last known bid price of PSGS Common
Stock.
With respect to the price offered as a multiple of book value,
relative to comparable companies' acquisition values as a percentage of book
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value, the PSGS multiple was at the low end of the range. Berwind ascribed
this result to PSGS' profitability relative to that of comparable acquisition
targets. For example, Berwind found that the PSGS net income to revenue was
1.6% for the latest twelve month period as of July 27, 1993, while the PSGS
comparable acquisition targets' median and averages were 2.9% and 4.3%,
respectively. These data suggest that the PSGS asset base and resultant book
value was underutilized in generating earnings and that a lower multiple to
book value could therefore reasonably be ascribed to PSGS in a fair valuation.
Berwind also noted that the offering price relative to earnings indicated a
multiple of 33.9x for the latest twelve month period as of July 27, 1993,
while the PSGS comparable acquisition targets' median and averages were 14.5
and 17.9, respectively. However, no company or transaction used in this
analysis is identical to PSGS, NUI or the PSGS Merger. Accordingly, an
analysis of the results of the foregoing is not strictly mathematical; rather,
it involves complex considerations and judgements concerning differences in
financial and operating characteristics of the companies and other factors
that would affect the public trading values of the companies to which they are
being compared.
For purposes of the above analyses, Berwind used a $39.50 price per
share of PSGS Common Stock, which was the last known bid price of PSGS Common
Stock.
Discounted Dividend Analysis. Using discounted dividend analysis,
Berwind estimated the present value of the future dividend streams that PSGS
could produce over a five year period under different assumptions as to
dividend payout levels, if PSGS performed in accordance with management's
forecasts and certain variants thereof. Berwind also estimated the terminal
value for PSGS's Common Stock after the five year period by applying a range
of earnings multiples from 8 to 16 to PSGS terminal year earnings. The range
of multiples used reflected a variety of scenarios regarding the growth and
profitability prospects of PSGS. The dividend streams and terminal values were
then discounted to the present using discount rates ranging from 8% to 18%
which reflect different assumptions regarding the required rates of return by
holders or prospective buyers of PSGS's common equity. This analysis indicated
a net present value of PSGS shares ranging from $18.61 to $58.44 based on
these various terminal values and discount rates.
Berwind also calculated and applied a weighted average cost of capital
discount rate to the cash flows, with certain variants utilized to establish a
range of values for PSGS.
Although the summary set forth above describes all the material
provisions of the analysis performed by Berwind, it is not intended to be a
complete description of all the analyses performed by Berwind. The preparation
of a fairness opinion is not necessarily susceptible to partial analysis or
summary description. Berwind believes that its analyses and the summary set
forth above must be considered as a whole and that selecting portions of the
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in
Berwind's opinion and presentation to PSGS. In addition, Berwind may have
given various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions so
that the ranges of valuations resulting from any particular analyses described
above should not be interpreted as Berwind's view of the actual value of PSGS
or NUI. That any specific analysis has been referred to in the summary above
is not meant to indicate that such analysis was given greater weight than any
other analysis.
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Additionally, in performing its analyses, Berwind made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
PSGS or NUI. The analyses performed by Berwind are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by the analyses. Such analyses were prepared
solely as part of Berwind's review of the fairness from a financial point of
view of the Merger Consideration to PSGS's Stockholders. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the
present time or at any time in the future. In addition, as described above,
Berwind's opinion to PSGS was one of many factors taken into consideration by
the PSGS Board of Directors in making its determination to approve the Merger
Agreement.
Berwind, as part of its investment banking business, regularly is
engaged in the valuation of assets, securities and companies in connection
with various types of asset and security transactions, including mergers,
acquisitions, private placements, and valuations for various other purposes
and in the determination of adequate consideration in such transactions.
In a letter agreement dated May 3, 1993, PSGS retained Berwind to act
as its financial advisor in connection with a potential merger involving PSGS
and NUI. Pursuant to the letter agreement, PSGS agreed to pay Berwind for its
services, including the rendering of a fairness opinion, a fee which totals
$150,000 of which $15,000 was paid on acceptance of such letter agreement,
$35,000 upon submission of the written fairness opinion and the balance at
closing. Such letter agreement also provides that PSGS will indemnify Berwind
and its affiliates and their respective employees and agents against certain
expenses and liabilities arising out of the transactions contemplated by such
letter agreement.
Federal Income Tax Considerations
Tax Consequences to PSGS Stockholders. In the opinion of Montgomery,
McCracken, Walker & Rhoads ("PSGS Counsel"), the PSGS Merger will qualify for
federal income tax purposes as a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"); and,
accordingly, no gain or loss will be recognized by the PSGS Stockholders upon
their receipt of the NUI Common Stock in exchange for their PSGS Common Stock,
except to the extent that cash is received in lieu of a fractional share of
NUI Common Stock. For a more complete description of the federal income tax
consequences of the PSGS Merger, see "PSGS Merger-Federal Income Tax
Considerations." Because the tax consequences of the PSGS Merger under
federal, state, local and foreign tax laws may vary, depending upon an
individual taxpayer's particular situation, it is recommended that each PSGS
Stockholder consult with his or her tax advisor regarding the applicable tax
consequences of the PSGS Merger.
Tax Consequences to NUI.
PSGS Merger. In the opinion of Kaye, Scholer, Fierman, Hays & Handler
("NUI Counsel"), the PSGS Merger will qualify for Federal income tax purposes
as a reorganization within the meaning of Section 368 of the Code and,
accordingly, no gain or loss will be recognized by NUI or PSGS in connection
with the acquisition of assets and assumption of liabilities resulting from
the PSGS Merger. If the PSGS Merger so qualifies, then, in general, NUI's
adjusted basis for Federal income tax purposes in the assets acquired in the
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PSGS Merger will be the same as PSGS's adjusted basis for Federal income tax
purposes in such assets immediately prior to the PSGS Merger.
EGC Merger. In the opinion of NUI Counsel, the EGC Merger will be
treated, with respect to NUI and EGC, as a complete liquidation under Section
332 of the Code. Thus, no gain or loss will be recognized by NUI upon receipt
of the property and assumption of the liabilities of EGC. In addition, no gain
or loss will be recognized by EGC as a consequence of the transfer of assets
and liabilities to NUI. In general, NUI will have the same adjusted basis for
Federal income tax purposes in the property it receives from EGC as a result
of the liquidation as EGC had in such property immediately before the
liquidation, assuming that the EGC Merger qualifies as a complete liquidation
under Section 332 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. PSGS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGERS INCLUDING
TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAW. IT IS NOT A CONDITION TO
THE CONSUMMATION OF ANY OF THE MERGERS THAT THE MERGERS HAVE THE FEDERAL TAX
CONSEQUENCES DESCRIBED ABOVE.
PSGS MERGER
General
The description of the Merger Agreement and certain related matters
set forth below does not purport to be complete and is qualified in its
entirety by reference to the text of the Merger Agreement, which is attached
as Annex A to this Proxy Statement/Prospectus and is incorporated herein by
reference.
The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions, including but not limited to the receipt of all
necessary regulatory approvals, other consents and the approval of the PSGS
Stockholders, PSGS will be merged with and into NUI. As a result of the PSGS
Merger, the separate corporate existence of PSGS will cease, and the PSGS
Stockholders will receive shares of NUI Common Stock in exchange for their
shares of PSGS Common Stock. See "PSGS Merger-Basic Terms of Merger Agreement-
Conversion of PSGS Common Stock."
Basic Terms of Merger Agreement
Conversion of PSGS Common Stock. At the time the PSGS Merger becomes
effective (the "Effective Time of the PSGS Merger") (see "PSGS Merger-
Effective Time of the PSGS Merger"), each outstanding share of PSGS Common
Stock (other than shares owned by NUI, PSGS or any of their respective
subsidiaries which will be cancelled (the "Cancelled Shares") or shares held
by PSGS Stockholders who perfect appraisal rights' under Delaware law (the
"PSGS Dissenting Shares"; see "Appraisal Rights") will be converted into the
right to receive the number of shares of NUI Common Stock, or fraction thereof
rounded to the nearest thousandth of a share of NUI Common Stock, equal to the
number determined by dividing $71.50 by the arithmetic average of the daily
closing price per share of NUI Common Stock (the "Average Market Price") as
reported on the Composite Tape of the NYSE for the twenty trading days
immediately prior to the Effective Time of the PSGS Merger; provided, however,
that each share of PSGS Common Stock to be converted, shall be converted into
no more than 3.0 and no less than 2.4 shares of NUI Common Stock, except that
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if NUI pays a stock dividend or effects a stock split or reverse stock split
prior to the Effective Time of the PSGS Merger, such 3.0 and 2.4 shares of NUI
Common Stock shall be adjusted to give effect to such event (the "Merger
Consideration"). Market fluctuations in the price of NUI Common Stock will
affect the conversion ratio applicable to the PSGS Common Stock.
Except as adjusted in the event of a NUI stock dividend, stock split
or reverse stock split prior to the Effective Time of the PSGS Merger, each
share of PSGS Common Stock to be converted shall be converted into 3.0 shares
of NUI Common Stock if the Average Market Price is $23.833 per share or lower
and shall be converted into 2.4 shares of NUI Common Stock if the Average
Market Price is $29.792 per share or higher.
THE AVERAGE MARKET PRICE MAY BE MORE OR LESS THAN THE ACTUAL MARKET
PRICE OF NUI COMMON STOCK ON THE DAY OF THE PSGS STOCKHOLDERS MEETING, AT THE
EFFECTIVE TIME OF THE PSGS MERGER OR ON THE DAY ON WHICH CERTIFICATES FOR
SHARES OF NUI COMMON STOCK ARE SENT TO FORMER PSGS STOCKHOLDERS.
Exchange Procedure. As promptly as practicable after the Effective
Time of the PSGS Merger, a letter of transmittal (the "Transmittal Form") will
be mailed to each person who is a holder of record of shares of PSGS Common
Stock which are outstanding as of the Effective Time of the PSGS Merger. The
Transmittal Form will specify the procedure for surrendering certificates
representing shares of PSGS Common Stock to the bank or trust company
designated on the Transmittal Form (the "Exchange Agent"). As soon as
practicable following the surrender to the Exchange Agent of such
certificates, the Exchange Agent will deliver certificates evidencing shares
of NUI Common Stock in accordance with instructions set forth in the
Transmittal Form. NUI has agreed to deposit with the Exchange Agent at the
Effective Time of the PSGS Merger that number of shares of NUI Common Stock to
be issued pursuant to the Merger Agreement for the purpose of exchange of, and
payment for, shares of PSGS Common Stock.
No fractional shares of NUI Common Stock will be issued in the PSGS
Merger. Instead, any PSGS Stockholder otherwise entitled to receive a
fractional share of NUI Common Stock will be paid an amount of cash, without
interest, equal to such fraction multiplied by the Average Market Price.
Until such shares of PSGS Common Stock are surrendered, each
certificate of PSGS Common Stock (other than PSGS Cancelled Shares and PSGS
Dissenting Shares) that immediately prior to the Effective Time of the PSGS
Merger shall have represented any of the PSGS Common Stock shall be deemed at
and after the Effective Time of the PSGS Merger to represent only the right to
receive, upon such surrender, the Merger Consideration. The holder thereof,
however, will not be entitled to receive any dividend or distribution payable
to holders of NUI Common Stock, subject to applicable escheat laws until such
certificate of PSGS Common Stock has been surrendered (or, if missing,
otherwise documented) in accordance with the procedures set forth in the
Transmittal Form. All such dividends or distributions will be accrued and
paid, without interest, to the holder of record of the NUI Common Stock for
which certificates are delivered upon such surrender, subject to applicable
escheat laws.
Beneficial owners of shares of PSGS Common Stock held of record by
others should contact the record owners to provide appropriate instructions
for completion of the Transmittal Form.
Effective Time of the PSGS Merger. If the Merger Agreement is approved
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by the PSGS Stockholders, the PSGS Merger will be consummated as soon as
practicable after the other conditions to the consummation of the PSGS Merger
set forth in the Merger Agreement are satisfied or, to the extent permitted,
waived. See "PSGS Merger-Basic Terms of Merger Agreement-Conditions to
Consummation of the PSGS Merger." The Effective Time of the PSGS Merger will
occur on the later of the filing of a certificate of merger with the Secretary
of State of the State of New Jersey and the filing of a certificate of merger
with the Secretary of State of the State of Delaware or at such other time, if
any, set forth in such certificates of merger.
Certain Covenants. PSGS has agreed that during the period prior to the
Effective Time of the PSGS Merger (except as expressly permitted by the Merger
Agreement or to the extent that NUI shall otherwise consent in writing), PSGS
and each of its subsidiaries will conduct its operations in the ordinary and
usual course of business and consistent with past practice, and will use its
best efforts to preserve intact its business organizations, keep available the
services of its officers and employees and maintain satisfactory relationships
with customers, suppliers, distributors and others having business
relationships with it. In addition, PSGS has agreed that during the period
prior to the Effective Time of the PSGS Merger, it will not and will cause
each of its subsidiaries to not (except as expressly permitted by the Merger
Agreement or to the extent that NUI shall otherwise consent in writing): (a)
amend the PSGS Certificate of Incorporation, as amended (the "PSGS
Certificate"), (or comparable charter documents) or the PSGS By-Laws, as
amended (the "PSGS By-Laws"); (b) issue, sell, transfer, distribute, pledge or
otherwise encumber or dispose of any shares of capital stock, any options,
warrants or rights of any kind to acquire any shares of capital stock or any
securities which are convertible into or exchangeable for any shares of such
capital stock; (c) (i) split, combine, recapitalize or reclassify any shares
of its capital stock; (ii) declare, set aside or pay any dividends on or make
any other distributions (whether in cash, stock, or property or any
combination thereof) in respect of any shares of its capital stock, or redeem
or otherwise acquire any shares of capital stock or of any of its
subsidiaries, except (1) any subsidiary of PSGS may declare and pay dividends
to PSGS or any other subsidiary of PSGS and (2) PSGS may declare and pay
regular quarterly dividends of not more than $0.44 per share on its customary
quarterly dividend declaration and payment dates; (d) (i) except for certain
budgeted annual salary increases, adopt, enter into or amend any bonus, profit
sharing, compensation, stock option, warrant, pension, retirement, deferred
compensation, employment, consulting, indemnification, severance, termination
or other employee benefit plan, agreement, trust fund or arrangement for the
benefit or welfare of any officer, director or employee or (ii) agree to any
increase in the compensation (including bonuses) payable or to become payable
to any officer, director or employee; (e) purchase or otherwise acquire, by
merger, consolidation, acquisition of securities or assets or otherwise,
(i) any corporation, partnership, association or other business entity,
organization or division thereof or (ii) any assets or properties, which, in
the case of either clause (i) or clause (ii), would be material, in the
aggregate, to PSGS and its subsidiaries taken as a whole; (f) sell, lease,
mortgage, pledge, grant a security interest in or a lien on, or otherwise
dispose of or encumber any of its assets or properties which are material, in
the aggregate, to PSGS and its subsidiaries taken as a whole; (g) settle or
compromise any litigation or regulatory proceeding involving the payment or
expenditure of, or an agreement, understanding or commitment to pay over time,
an amount in cash, notes or other property, over any amount paid by insurance
in excess of $10,000; (h) except for (i) short-term indebtedness incurred in
the ordinary course of business consistent with past practices and (ii) bank
line of credit borrowings that shall not exceed $12,500,000 at any time, incur
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any indebtedness for borrowed money or guarantee any such indebtedness or
issue or sell any debt securities or guarantee any debt securities of others;
(i) enter into any agreement, understanding or commitment which has a term of
more than one year, unless such agreement, understanding or commitment may be
terminated by PSGS and, after the Effective Time of the PSGS Merger, NUI at
any time upon no more than thirty (30) days notice without any penalty or
payment of any kind or (j) agree, whether in writing or otherwise, to do any
of the foregoing.
PSGS has agreed that neither PSGS nor any affiliate of PSGS, nor any
officer, director, employee, shareholder, representative or agent of PSGS or
any affiliate of PSGS, shall, directly or indirectly, solicit or initiate or
participate in any way in discussions or negotiations with, or provide any
information or assistance to, or enter into an agreement or understanding with
any person or group of persons (other than NUI) concerning any acquisition,
merger, consolidation, liquidation, dissolution, disposition or other
transaction that would result in the transfer to any such person or group of
persons (other than in the ordinary course of business) of all or any
substantial part of the business or assets of, or all or any substantial
equity interest in, PSGS or any of its subsidiaries. PSGS has also agreed to
provide prompt notice to NUI of any such discussions or negotiations.
NUI has agreed that, without the prior written consent of PSGS, it
will not declare, set aside or pay any cash dividend in respect of any shares
of NUI Common Stock, except that NUI may declare and pay to holders of shares
of NUI Common Stock regular quarterly dividends of not more than $0.50 per
share on its customary quarterly dividend declaration and payment dates.
NUI has agreed to take all required corporate action necessary and NUI
and PSGS have agreed to use their respective best efforts to obtain all
required consents and approvals so that on the day of the Effective Time of
the PSGS Merger at or after the time of consummation of the PSGS Merger, the
EGC Merger will be consummated.
For information regarding the manner in which NUI is obligated after
the Effective Time of the PSGS Merger to run the business formerly conducted
by PSGS, see "PSGS Merger - Basic Terms of Merger Agreement-Operation of PSGS
After the PSGS Merger."
For information regarding the obligation of NUI to provide liability
insurance to the directors and officers of PSGS, see "PSGS Merger-Basic Terms
of Merger Agreement-Interest of PSGS Management and Directors."
Representations and Warranties. PSGS and NUI have made a number of
representations and warranties to one another. PSGS has made representations
and warranties to NUI concerning, among other things, incorporation and
qualification to do business of PSGS and its subsidiaries, capitalization of
PSGS, corporate standing and authority of PSGS, consents, litigation,
financial statements, material adverse effects, employee benefit plans,
insurance, labor matters, tax returns and audits, compliance with applicable
laws, environmental matters and undisclosed liabilities. NUI has made
representations and warranties to PSGS concerning, among other things,
incorporation and qualification to do business of NUI and its subsidiaries,
capitalization of NUI, corporate standing and authority of NUI, litigation,
tax returns and audits, labor matters and insurance.
Conditions to Consummation of the PSGS Merger. The respective
obligations of each of NUI and PSGS to consummate the PSGS Merger are subject
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to the satisfaction at or prior to the closing of the PSGS Merger (the
"Closing") of certain conditions, any one or more of which may be waived in
whole or in part by NUI or PSGS to the extent permitted by law, including the
following: (a) the Merger Agreement shall have been duly adopted and approved
by the requisite vote of the PSGS Stockholders in accordance with applicable
law; (b) the waiting period (and any extension thereof) applicable to the
consummation of the PSGS Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or
been terminated; (c) no law, statute, ordinance, rule, regulation, judgment,
decree, order or injunction shall have been promulgated, enacted, entered or
enforced by any United States federal, state or local government (including
the District of Columbia), governmental or regulatory authority, governmental
or regulatory body, governmental or regulatory agency or court or other
judicial authority ("Governmental Entities"), which restricts or prohibits the
consummation of the PSGS Merger and, in any such case, remains in full force
and effect on the date of the Closing (the "Closing Date"); (d) the
Registration Statement shall have become effective and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC and (e) the NYSE shall have approved the listing, upon
official notice of issuance, of the shares of NUI Common Stock to be issued
upon consummation of the PSGS Merger.
The obligation of NUI to consummate the PSGS Merger is also subject to
the satisfaction of certain additional conditions, including the following,
unless waived by NUI: (a) the representations and warranties of PSGS contained
in the Merger Agreement shall be true in all material respects as of the date
thereof and shall be true in all material respects as of the Closing (except
for such changes therein permitted by the Merger Agreement), and the
obligations of PSGS under the Merger Agreement required to be performed by
PSGS at or prior to the Closing shall have been duly performed and complied
with in all material respects; (b) (i) all permits, authorizations, consents
and approvals of any Governmental Entity required to be obtained by PSGS, any
of its subsidiaries, NUI or any of its subsidiaries as a condition to the
lawful consummation of the transactions contemplated by the Merger Agreement
shall have been obtained and (ii) all consents and approvals of each person
whose consent or approval is required pursuant to any agreement or instrument
prior to the consummation of the transactions contemplated by the Merger
Agreement shall have been obtained, except with regard to the foregoing
clauses (i) and (ii), such permits, authorizations, consents and approvals
which in the aggregate, if not made or obtained, would not have a material
adverse effect on the business, financial (or other) condition, results of
operations or prospects ("Material Adverse Effect") of NUI or its
subsidiaries, taken as a whole, or PSGS and its subsidiaries, taken as a
whole; (c) holders of less than 5% of the shares of the PSGS Common Stock
shall have exercised their right to dissent and seek appraisal of such shares
pursuant to the DGCL and (d) no law, statute, ordinance, rule, regulation,
decree, judgment, order or injunction shall have been promulgated, enacted,
entered or enforced by any Governmental Entity, which would have a Material
Adverse Effect on PSGS and its subsidiaries, taken as a whole, or, upon
consummation of the PSGS Merger and the EGC Merger, on NUI and its
subsidiaries, taken as a whole, and, in any such case, remains in full force
and effect on the Closing Date.
The obligation of PSGS to consummate the PSGS Merger is also subject
to the satisfaction of certain additional conditions, including the following,
unless waived by PSGS: (a) the representations and warranties of NUI contained
in the Merger Agreement shall be true in all material respects as of the date
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thereof and shall be true in all material respects as of the Closing (except
for such changes therein permitted by the Merger Agreement), and the
obligations of NUI under the Merger Agreement required to be performed by it
at or prior to the Closing shall have been duly performed and complied with in
all material respects; (b) all permits, authorizations, consents and approvals
of any Governmental Entity required to be obtained by PSGS, any of its
subsidiaries, or NUI or any of its subsidiaries as a condition to the lawful
consummation of the PSGS Merger which, in the aggregate if not obtained, would
have a Material Adverse Effect on NUI and its subsidiaries, taken as a whole,
shall have been obtained and (c) no law, statute, ordinance, rule, regulation,
judgment, decree, order or injunction shall have been promulgated, enacted,
entered or enforced by any Governmental Entity, which would have a Material
Adverse Effect on NUI and its subsidiaries taken as a whole and, in any such
case, remains in full force and effect on the Closing Date.
Regulatory Filings and Approvals. EGC is subject, as a public utility
company, to the jurisdiction of the New Jersey Board of Regulatory
Commissioners (the "NJBRC") and the Florida Public Service Commission (the
"FPSC") with respect to service and facilities, rates and charges,
classification of accounts, valuations of property, issuances of securities
and various other matters.
PSGS's natural gas operations are regulated by the Pennsylvania Public
Utility Commission (the "PPUC"), the New York Public Service Commission (the
"NYPSC"), the Maryland Public Service Commission (the "MPSC") and the North
Carolina Utilities Commission (the "NCUC") with respect to service and
facilities, rates and charges, classification of accounts, valuations of
property and various other matters.
After the PSGS Merger and the EGC Merger are consummated, NUI will be
subject to the jurisdiction of the NJBRC and the FPSC with respect to the same
matters as EGC is currently subject, and NUI will be subject to the
jurisdiction of the PPUC, the NYPSC, the MPSC and the NCUC with respect to the
same matters as PSGS is currently subject.
The PSGS Merger is subject to prior approval by the PPUC, the NYPSC,
the MPSC and the NCUC and to this end a joint application of PSGS and NUI was
filed with the PPUC on September 3, 1993; the MPSC on September 9, 1993 and
the NCUC on September 10, 1993, seeking approval of: (a) the Merger Agreement;
(b) the transfer to NUI of all of PSGS's rights to offer, render, furnish, or
supply gas service; (c) the commencement of gas service by NUI and (d) the
abandonment of gas service by PSGS. Such approval was obtained from the MPSC
on September 9, 1993, the PPUC on November 10, 1993, and the NCUC on December
15, 1993. On December 30, 1993, the public staff of the NCUC filed a notice of
appeal and exceptions with respect to the NCUC's December 15, 1993 order and
requested that the NCUC postpone the effective date of its order. On January
6, 1994, the NCUC denied the public staff's request to postpone the effective
date of the NCUC's December 15, 1993 order. A joint application of PSGS and
NUI was filed with the NYPSC on September 14, 1993, seeking approval for NUI
to acquire all of the outstanding stock and assume the debt obligations of
PSGS.
The EGC Merger is subject to prior approval by the NJBRC, and to this
end a joint application of NUI and EGC was filed with the NJBRC on September
13, 1993, seeking approval of: (a) the transfer of all of the assets of NUI's
New Jersey Division from EGC to NUI; (b) the adoption by NUI of tariffs, the
assumption by NUI of the securities and other debt obligations, the adoption
by NUI of the depreciation rates, and the assignment to NUI of all contracts,
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of NUI's New Jersey Division presently applicable to EGC; (c) the transfer of
all of the franchises of NUI's New Jersey Division from EGC to NUI, and the
assumption by NUI of all service obligations of NUI's New Jersey Division
presently applicable to EGC; (d) the maintenance of certain of NUI's books and
records outside of the State of New Jersey and (e) the authority for NUI to
continue to issue NUI Common Stock under certain currently effective stock
distribution plans. NUI is unable to predict at this time the date or the
outcome of the NJBRC's determination with respect to the application.
The PSGS Merger is subject to the requirements of the HSR Act, and the
rules and regulations thereunder, which provide that certain transactions may
not be consummated until required information has been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission ("FTC") and certain waiting periods have been
satisfied. NUI and PSGS filed the required information and material with the
Antitrust Division and the FTC on November 9, 1993. The waiting period
terminated on December 9, 1993. The termination of the waiting period does not
preclude the Antitrust Division or the FTC from challenging the PSGS Merger on
antitrust grounds.
In addition, PSGS and NUI must receive the approval of the FERC in
order to effect the PSGS Merger. To this end, a joint application of PSGS and
NUI was filed with FERC on December 21, 1993.
It is a condition to each of the parties' obligation to consummate the
PSGS Merger that all necessary regulatory approvals be in full force and
effect and not subject to any condition which would prevent consummation of
the PSGS Merger. The parties have agreed to use their best efforts to obtain
all necessary regulatory approvals. Either NUI or PSGS may unilaterally
terminate the Merger Agreement if any Governmental Entity, the consent of
which is a condition to the obligation of such party to consummate the PSGS
Merger, has determined not to grant its consent and all appeals of such
determination have been taken and have been unsuccessful. See "PSGS Merger-
Basic Terms of Merger Agreement-Amendment and Termination."
Other Consents and Approvals. Other governmental approvals and
consents required to consummate the PSGS Merger include consents required in
order to transfer PSGS's utility franchises and EGC's utility franchise to NUI
and consents required under the New Jersey Industrial Site Recovery Act.
Amendment and Termination. The Merger Agreement may not be amended
except by an instrument in writing executed on behalf of NUI and PSGS,
provided, however, that after the approval of the Merger Agreement by the PSGS
Stockholders, no amendment may be made which would change (a) the amount or
type of consideration to be received for or on conversion of all or any of the
shares of the PSGS Common Stock upon consummation of the PSGS Merger, (b) any
term of the Amended and Restated Certificate of Incorporation of NUI (the "NUI
Certificate") or (c) any of the terms and conditions of the Merger Agreement
if such change would adversely affect the PSGS Stockholders.
The Merger Agreement may be terminated at any time prior to the
Effective Time of the PSGS Merger, before or after approval of matters
presented in connection with the PSGS Merger to the PSGS Stockholders: (a) by
mutual consent of NUI and PSGS; (b) by either NUI or PSGS if: (i) a permanent
injunction is entered, enforced or deemed applicable to the PSGS Merger which
prohibits the consummation of the PSGS Merger and all appeals of such
injunction shall have been taken and shall have been unsuccessful; (ii) at the
PSGS Special Meeting (including any adjournment or postponement thereof) or
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any successor meeting called for the same purpose, the requisite affirmative
approval of the PSGS Stockholders shall not have been obtained; (iii) any
Governmental Entity, the consent of which is a condition to the obligations of
NUI and PSGS to consummate the PSGS Merger shall have determined not to grant
its consent and all appeals of such determination have been taken and have
been unsuccessful or (iv) without fault of the terminating party, the PSGS
Merger has not been consummated by May 2, 1994 or (c) by NUI if: (i) a
permanent injunction is entered, enforced or deemed applicable to the EGC
Merger which prohibits the consummation of the EGC Merger and all appeals of
such injunctions shall have been taken and shall have been unsuccessful or
(ii) any Governmental Entity, the consent of which is a condition to the
obligations of NUI or EGC to consummate the EGC Merger, shall have determined
not to grant its consent and all appeals of such determination have been taken
and have been unsuccessful.
Listing on New York Stock Exchange. The NYSE has authorized the
listing of the shares of NUI Common Stock issuable in connection with the PSGS
Merger upon official notification of issuance. It is a condition to each
party's obligation to consummate the PSGS Merger that such shares be approved
for listing on the NYSE subject to official notice of issuance. See "PSGS
Merger-Basic Terms of Merger Agreement-Certain Covenants."
Certain Fees, Expenses and Related Matters. PSGS has agreed that from
the date of the Merger Agreement and prior to the termination thereof, if any
person or group other than NUI shall have (a) commenced a tender offer for 30%
or more of the outstanding shares of PSGS Common Stock, the acceptance of
which has been recommended by the Board of Directors of PSGS, or (b) entered
into an agreement, understanding for, or effected, a merger or other business
combination with PSGS, the acquisition of 30% or more of the outstanding
shares of PSGS Common Stock or the acquisition of all or any substantial part
of the business or assets of PSGS, then, at NUI's request, PSGS shall (i) pay
to NUI (immediately upon submission by NUI of an invoice therefor) the sum of
$500,000 plus all of the actual expenses of NUI and its subsidiaries
(including legal fees and expenses) incurred in connection with the
negotiation, preparation, execution and delivery of the Letter of Intent,
dated June 24, 1993, between NUI and PSGS, the negotiation, preparation,
execution and delivery of the Merger Agreement and any other actions taken in
connection with the transactions contemplated thereby and (ii) pay to NUI, not
later than the consummation of such tender offer or the closing of such
merger, business combination or any such acquisition, as the case may be, the
sum of $500,000.
Except as set forth in the preceding paragraph, each of the parties to
the Merger Agreement will pay its own expenses in connection with the Merger
Agreement.
Operation of PSGS After the PSGS Merger. For at least three years
after the Effective Time of the PSGS Merger, NUI has agreed to maintain PSGS's
independent identity as a Division of NUI with its own Division Board of
Directors.
NUI has agreed to maintain for at least five years after the Effective
Time of the PSGS Merger, the PSGS Retirement Plan and Employee Savings Plan as
in effect on the date of the Merger Agreement or provide benefits comparable
in type and amount to participants in such Plans. In addition, for a period of
at least five years following the Effective Time of the PSGS Merger, NUI has
agreed to continue to provide to each officer and employee of PSGS and its
subsidiaries, for so long as such officer or other employee is employed during
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such period by NUI, benefits which in the aggregate are at least comparable to
those currently provided by PSGS and its subsidiaries.
NUI has agreed that, if it terminates without cause the employment of
any PSGS employee (other than Lyle C. Motley, Jr., James W. Carl, James K.
Turpin, Bernard L. Smith and Donna K. Scrivens (see "PSGS Merger-Interest of
PSGS Management and Directors-Management and Employment Agreement")) during
the first year following the Closing Date, NUI shall pay to such employee an
amount equal to one week's salary (at the then current salary) for each year
such employee was employed by NUI (including employment by PSGS prior to the
Closing Date).
Interests of PSGS Management and Directors
In considering the recommendations of the Board of Directors of PSGS
with respect to the Merger Agreement, PSGS Stockholders should be aware that
certain members of PSGS's management and its Board of Directors have certain
interests that are described below that may present them with actual or
potential conflicts of interest in connection with the Merger Agreement.
Management and Employment Agreements. NUI has agreed to enter into, at
or prior to the Effective Time of the PSGS Merger, an employment agreement
with Lyle C. Motley, Jr., President and Chief Executive Officer of PSGS.
Pursuant to such employment agreement, NUI shall agree to employ Mr. Motley
for a period of three years, commencing on the Closing Date on the basis of
Mr. Motley's title, duties and salary structure as of June 23, 1993. Such
employment agreement shall provide that in the event that (a) Mr. Motley
terminates his employment because NUI requests Mr. Motley to relocate or Mr.
Motley's title or duties are downgraded from his title or duties on June 23,
1993 or (b) NUI terminates Mr. Motley's employment without cause, NUI shall
pay to Mr. Motley the salary payments payable to Mr. Motley under the terms of
such employment agreement from the date of such termination through the
remainder of such three-year period.
NUI has also agreed to enter into, at or prior to the Effective Time
of the PSGS Merger, employment agreements with (a) James W. Carl, Vice
President of PSGS, (b) James K. Turpin, Vice President of PSGS, (c) Bernard L.
Smith, Treasurer and Assistant Secretary of PSGS, and (d) Donna K. Scrivens,
Secretary of PSGS (individually, an "Officer" and collectively, the
"Officers"). Pursuant to such employment agreements, NUI shall agree to employ
the Officers for a period of two years, commencing on the Closing Date on the
basis of the Officers' respective titles, duties and salary structure as of
June 23, 1993. Each such employment agreement shall provide that in the event
NUI terminates the Officer's employment without cause, NUI shall pay to such
Officer the salary payments payable to such Officer under the terms of such
employment agreement from the date of such termination through the remainder
of such two-year period. Each such employment agreement shall further provide
that in the event that the Officer terminates his or her employment because
NUI requests the Officer to relocate or the Officer's title or duties are
downgraded from such Officer's title or duties on June 23, 1993, NUI shall pay
to such Officer an amount equal to the greater of (a) the salary payments
payable to such Officer under the terms of such employment agreement for a
period of one year following the date of such termination and (b) one month's
salary (at the then current salary) for each year such Officer was employed by
NUI (including employment by PSGS prior to the Closing Date); provided,
however, that in no event shall such payment exceed the salary payments
payable to such Officer under the terms of such employment agreement from the
date of such termination through the remainder of such two-year period.
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Insurance. After consummation of the PSGS Merger, the directors and
officers of PSGS at the effective time of the PSGS merger will be insured
under an extension of their current AEGIS Directors and Officers Liability
policy.
Stock Ownership. As of December 21, 1993, executive officers and
directors of PSGS owned an aggregate 81,151 shares of PSGS Common Stock.
Federal Income Tax Considerations
PSGS Counsel has advised PSGS that for federal income tax purposes,
under current law, assuming that the PSGS Merger and related transactions take
place as described in the Merger Agreement, the PSGS Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and PSGS and
NUI will each be a party to the reorganization within the meaning of Section
368(b) of the Code.
PSGS Counsel has advised that the following will be the material
federal income tax consequences of the PSGS Merger:
(i) no gain or loss will be recognized by PSGS or NUI in the PSGS
Merger;
(ii) no gain or loss will be recognized by the stockholders of PSGS
upon their receipt of NUI Common Stock in exchange for their PSGS Common
Stock, except that stockholders who receive cash proceeds in lieu of
fractional interests in NUI Common Stock will recognize gain or loss equal to
the difference between such proceeds and the tax basis allocated to their
fractional share interests, and such gain or loss will constitute capital gain
or loss if their PSGS Common Stock is held as a capital asset at the Effective
Date;
(iii) the tax basis of the shares of NUI Common Stock (including
fractional share interests) received by the PSGS Stockholders will be the same
as the tax basis of their PSGS Common Stock exchanged therefor; and
(iv) the holding period of the NUI Common Stock in the hands of PSGS
Stockholders will include the holding period of their PSGS Common Stock
exchanged therefor, provided such PSGS Common Stock is held as a capital asset
at the Effective Time of the PSGS Merger.
No advance ruling from the Internal Revenue Service ("Service") with
respect to the federal income tax consequences of the PSGS Merger is being
sought. As a general matter, the Service no longer will rule on the federal
income tax consequences of a proposed merger. The foregoing tax discussion is
based upon opinions to be rendered by PSGS Counsel; however, such opinions are
not binding on the Service. In rendering its advice, counsel will assume that
the parties to the Merger Agreement will comply with various representations
and covenants contained therein and that certain major stockholders of PSGS
will comply with representations and covenants they have made in the
Continuity of Interest Agreement, dated as of October 8, 1993, by and among
NUI, PSGS and certain PSGS Stockholders (the "Continuity of Interest
Agreement"). Among such representations and covenants are a covenant by such
major stockholders to restrict for a stated period of time the disposition of
a certain percentage of the NUI Common Stock they will receive pursuant to the
PSGS Merger (see "Resale of NUI Common Stock"), a representation by such major
stockholders that they have no present plan, intention or arrangement to
dispose of any of the NUI Common Stock to be received in the PSGS Merger and a
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representation by NUI that it presently plans and intends either to (i)
continue the historic business of PSGS after the PSGS Merger or (ii) use a
significant portion of PSGS' historic business assets in a business. A breach
of any of these representations or covenants could jeopardize the
qualification of the PSGS Merger as a tax-free reorganization. If the PSGS
Merger does not qualify as a tax-free reorganization, PSGS Stockholders who
receive NUI Common Stock in the PSGS Merger will recognize capital gain or
loss equal to the difference between (i) the fair market value of the NUI
Common Stock received in the PSGS Merger and (ii) such holder's tax basis in
his or her PSGS Common Stock. A PSGS Stockholder who receives solely cash in
exchange for his or her PSGS Common Stock pursuant to the exercise of
appraisal rights (see "Appraisal Rights"), generally will recognize capital
gain or loss equal to the difference between (i) the amount of cash received
and (ii) such holder's tax basis in his or her PSGS Common Stock.
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE PSGS MERGER. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE 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 CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. EACH PSGS STOCKHOLDER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE PSGS MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS.
Resale of NUI Common Stock
Under applicable federal securities laws, the shares of NUI Common
Stock issuable to the PSGS Stockholders in the PSGS Merger may be traded
freely and without restriction by those PSGS Stockholders who are not deemed
to be "affiliates" of either NUI or PSGS within the meaning of Rule 145
promulgated under the Securities Act ("Rule 145"). Persons who may be deemed
to be affiliates of PSGS generally include individuals or entities that
control, or are controlled by, or are under common control with, PSGS and may
include certain officers and directors of PSGS as well as principal PSGS
Stockholders. Affiliates may resell shares of NUI Common Stock only in
transactions permitted by Rule 145, pursuant to an effective registration
statement under the Securities Act or in transactions otherwise exempt from
registration. Prior to the PSGS Merger, PSGS will cause to be delivered to NUI
a written agreement, from any person deemed an affiliate, to the effect that
no disposition of NUI Common Stock received in the PSGS Merger will be made
except as permitted by Rule 145 or in a transaction which is exempt under the
Securities Act.
As indicated above, the PSGS Merger is intended to qualify as a
tax-free reorganization under Section 368(a) of the Code. One of the
requirements for a tax-free reorganization is that the former shareholders of
the acquired corporation maintain a continuity of proprietary interest in the
acquiring corporation through ownership of the acquiring corporation's stock.
There is no bright-line rule as to the percentage of stock consideration which
must be received and retained by the historic shareholders of the acquired
corporation in order to satisfy such a continuity of interest test. Likewise,
there is no fixed period after a merger during which the historic shareholders
of the acquired corporation must retain the acquiring corporation's stock. In
connection with this requirement, upon advise of PSGS Counsel and NUI Counsel,
certain Major Stockholders have agreed to restrict transfers of a portion of
their PSGS Common Stock during a limited pre-Merger period and a portion of
their NUI Common Stock during the one year period commencing with the
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Effective Time of the PSGS Merger, such that at least 40% in value of the
total PSGS Common Stock held by all PSGS historic shareholders is retained by
the Major Stockholders in the form of continued ownership of NUI Common Stock.
In accordance with Internal Revenue Service guidelines, "Major Stockholders"
for this purpose include (i) all shareholders who own beneficially 1% or more
of PSGS's outstanding stock, (ii) all officers and directors of PSGS and (iii)
certain relatives of, and entities controlled by or under common control with,
the above-described shareholders. The Major Stockholders have executed the
Continuity of Interest Agreement, which contains a formula designed to meet
the 40% goal during the pre-Merger and one year post-Merger period by
restricting sales of a specified percentage of each Major Stockholder's
shares. The Major Stockholders, by executing the Continuity of Interest
Agreement, also represent that they have no present plan, intention or
arrangement to dispose of any of the NUI Common Stock to be received in the
PSGS Merger.
Execution of the Continuity of Interest Agreement by the required
number of Major Stockholders is a condition to Closing under the Merger
Agreement. As of the date of this Proxy Statement/Prospectus, holders of more
than 68.54% of the outstanding shares of PSGS Common Stock have executed the
Continuity of Interest Agreement so that this condition has been satisfied.
The restrictions on transfers of PSGS Common Stock and NUI Common
Stock during the pre-Merger and one year post-Merger period under the
Continuity of Interest Agreement are in addition to the securities law
restrictions on transfers described above.
Accounting Treatment
The PSGS Merger will be accounted for as a purchase of PSGS by NUI in
accordance with generally accepted accounting principles. The regulatory
process establishes rates on the basis of historical net book value;
therefore, the underlying net assets of PSGS will, generally, be recorded as
net assets of NUI at their historical net book value and the excess of the
purchase price over the recorded net assets of PSGS, which amounts to
approximately $6.8 million, will be added to utility plant as a "utility plant
acquisition adjustment," which will be amortized over a thirty-year period
that approximates the remaining useful life of the utility plant acquired. See
"Pro Forma NUI Financial Data."
Comparison of PSGS Stockholder Rights with NUI Shareholder Rights
Upon consummation of the PSGS Merger, PSGS Stockholders will receive
NUI Common Stock and will become shareholders of NUI. Consequently, such
stockholders' rights will be governed by the corporation law of New Jersey,
the state of NUI's incorporation, by the NUI Certificate and by the NUI
Amended and Restated By-Laws, (the "NUI By-Laws"), which differ in certain
respects from the corporation law of Delaware, the state of PSGS's
incorporation, the PSGS Certificate and the PSGS By-Laws. The following is a
summary discussion of the most significant differences in shareholder rights.
This summary is not intended to be complete and is qualified in its entirety
by reference to the DGCL and the New Jersey Business Corporation Act (the
"NJBCA") and to the respective corporate documents of NUI and PSGS.
Voting Power. Depending upon the number of shares of NUI Common Stock
issued upon the conversion of the PSGS Common Stock based upon the Average
Market Price (see "PSGS Merger-Basic Terms of Merger Agreement-Conversion of
PSGS Common Stock"), PSGS Stockholders, who formerly controlled 100% of the
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voting stock of PSGS, as a result of the issuance of shares of NUI Common
Stock pursuant to the PSGS Merger, will own between approximately 7% and 8% of
the shares of NUI Common Stock outstanding after the Effective Time of the
PSGS Merger, thereby significantly reducing their voting power as a class in
the surviving corporation, NUI. See "PSGS Merger-Basic Terms of Merger
Agreement-Conversion of PSGS Common Stock."
Preferred Stock Capitalization. PSGS is not authorized to issue
preferred stock. The NUI Certificate authorizes the Board of Directors of NUI,
without shareholder approval, to issue up to 5,000,000 shares of NUI preferred
stock ("NUI Preferred Stock") in classes and series and to determine the
designation, number of shares, relative voting rights, dividends, preferences,
conversion, redemption and other rights of each such class or series, and to
increase the number of shares of any such class or series up to the limit of
the total authorized NUI Preferred Stock. The power to establish the rights
and preferences of holders of any NUI Preferred Stock and issue such shares,
however, may in the future affect the rights of PSGS Stockholders as NUI
shareholders.
Amendments of Governing Documents. In general, unless a corporation's
certificate of incorporation requires a greater vote, the DGCL requires the
affirmative vote of a majority of shares entitled to vote thereon, as well as
a majority of the outstanding shares of any class entitled to vote as a class,
to authorize amendments to a corporation's certificate of incorporation. The
PSGS Certificate does not change the vote required under the DGCL.
The NJBCA requires the affirmative vote of a majority of the votes
cast by the holders entitled to vote thereon as well as, if any class or
series is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each class vote to authorize amendments to a
corporation's certificate of incorporation unless greater requirements are
provided for by other provisions of the NJBCA for specific amendments or
provided for in the corporation's certificate of incorporation. The NUI
Certificate contains a provision requiring the approval of 75% of all of the
then-outstanding shares of the voting stock, voting together as a single
class, to amend certain provisions of the NUI Certificate. The provisions of
the NUI Certificate which require a 75% vote for amendment are (i) the
capitalization and the rights and privileges of each class of stock of NUI,
(ii) the number of directors, classification of the Board of Directors into
three classes and specific methods for appointment and removal of directors,
(iii) the requirement that all shareholder actions (other than by unanimous
written consent) be taken at a meeting, (iv) restrictions upon the calling of
special meetings of shareholders to a majority of the Board of Directors of
NUI, (v) limitation of the liability of NUI directors and officers for money
damages for breach of fiduciary duty and indemnification of certain NUI
directors, officers and agents under certain circumstances and (vi) procedures
and requirements for amendment of the NUI Certificate. For a discussion
regarding certain anti-takeover effects of a 75% voting requirement, see "PSGS
Merger-Comparison of PSGS Stockholder Rights with NUI Shareholder Rights-
Certain Anti-Takeover Matters-Classification of the Board of Directors of NUI"
and "-Removal of Directors."
Appraisal Rights. The DGCL provides that stockholders of a Delaware
corporation generally have the right to dissent from, and to obtain payment of
the fair value of shares in the event of, specified corporate actions
including a merger or consolidation, and, if the certificate of incorporation
provides, for amendments to the certificate of incorporation and a sale of all
or substantially all of the assets of a corporation. No such appraisal rights
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exist for any such corporate action, however, with respect to securities
(a) listed on a national securities exchange or designated as a national
market system security on an inter-dealer quotation system by the National
Association of Securities Dealers, Inc. or (b) held of record by more than
2,000 stockholders, except if the securities converted by such corporate
action are not converted solely into some combination of (i) shares of the
surviving or resulting corporation, (ii) shares of any other corporation
(which other corporation meets the requirements set forth in (a) or (b) above)
or (iii) cash in lieu of fractional share of the corporations described in (i)
or (ii) above. See "Appraisal Rights."
The NJBCA grants dissenters' rights under certain circumstances,
including in the case of a merger, a sale or disposition of all or
substantially all of a corporation's assets; except that there are no
dissenters' rights where the shares are, as is the case with the NUI Common
Stock (both before and after the Mergers), listed on a national securities
exchange or held of record by not less than 1,000 shareholders, or where the
shareholder will receive consideration in the form of cash, securities listed
on a national securities exchange or held of record by not less than 1,000
holders, or a combination of cash and such securities.
Special Meetings. Pursuant to the DGCL, special stockholder meetings
may be called by the board of directors and by such person or persons as may
be provided in the certificate of incorporation or the by-laws. The PSGS
By-Laws provide that special meetings of the PSGS Stockholders may be called
by the president, by the president or secretary upon the written request of a
majority of the directors or at the written request of stockholders owning a
majority in amount of the issued and outstanding capital stock of PSGS. Under
the NJBCA, special meetings of shareholders may be called by the president or
the board of directors, or by such other officers, directors or shareholders
as may be provided in the by-laws, or upon application to a court by the
holders of not less than 10% of the shares entitled to vote. The NUI
Certificate provides that shareholder action may be taken only at an annual or
special meeting of shareholders, prohibits shareholder action by written
consent in lieu of a meeting (except for unanimous written consent of
shareholders) and further provides that special meetings of shareholders may
be called only pursuant to the written request of a majority of the entire
board of directors or, as required by New Jersey law, by holders of not less
than 10% of all the shares entitled to vote at a meeting upon application to a
court, subject to the provisions of any NUI Preferred Stock.
Shareholder Action by Written Consent. Under the DGCL, action by
stockholders may be taken by the written consent of stockholders having not
less than the minimum number of votes that would be necessary to authorize the
action at a meeting. Under the NJBCA, except as provided in a corporation's
certificate of incorporation or by-laws, action may be taken by the written
consent of all of the shareholders entitled to vote thereon, except in the
case of mergers, consolidations, sale of all or substantially all assets or
similar transactions (which require all shareholders to consent in writing
thereto or all of the shareholders entitled to vote thereon to consent in
writing and the corporation to give certain advance notification to all other
shareholders). The NUI Certificate requires the written consent of all of the
shareholders to take any action in lieu of a meeting.
Removal of Directors. Pursuant to the DGCL, any director or the entire
board of directors may be removed with or without cause by the majority vote
of stockholders entitled to vote at an election of directors. The DGCL
contains additional restrictions on the removal of a director of a corporation
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that has a classified board of directors or has cumulative voting; however,
PSGS does not have a classified board of directors or cumulative voting.
The NJBCA permits removal of directors for cause by a majority of
shareholders entitled to vote for the election of directors and, unless
otherwise provided in the corporation's certificate of incorporation, also
permits removal of directors without cause by a like vote of the shareholders.
However, shareholders of a corporation with a classified board of directors,
as is the case with NUI, may only remove directors for cause. The NUI
Certificate provides that any director, or the entire board of directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 75% of all of the then-outstanding
shares of the voting stock, voting together as a single class. If a director
is to be removed, NUI must notify the director of the grounds for the proposed
removal and the director shall have an opportunity, at the expense of NUI, to
present a defense to the NUI Shareholders by a statement which accompanies or
precedes NUI's solicitation of proxies to remove such director. For a
discussion regarding certain anti-takeover effects of a 75% voting requirement
for the removal of a director, see "PSGS Merger-Comparison of PSGS Stockholder
Rights with NUI Shareholder Rights-Certain Anti-Takeover Matters."
Vacancies on the Board of Directors. Under the DGCL, any vacancy
occurring in any office of a Delaware corporation by death, resignation,
removal or otherwise, shall be filled as the by-laws provide. The PSGS By-Laws
provide that vacancies occurring in the office of any director or directors,
from whatever cause arising, shall be filled by a majority of the remaining
directors, although less than a quorum. Each person so selected shall serve
for the balance of the unexpired term or until the next election of directors.
Under the NJBCA, unless otherwise provided in the certificate of incorporation
or in the by-laws, vacancies in the board of directors of a New Jersey
corporation, including vacancies resulting from an increase in the number of
directors or resulting from resignations may be filled by an affirmative vote
of a majority of the remaining directors even though less than a quorum, or by
a sole remaining director. A director so elected by the board shall hold
office until the next succeeding annual meeting of shareholders and until his
successor shall have been elected and qualified. Any directorship not filled
by the board may be filled by the shareholders at an annual meeting or at a
special meeting of shareholders called for that purpose. Subject to the rights
of holders of any classes or series of NUI Preferred Stock, the NUI
Certificate provides that vacancies resulting from an increase in the
authorized number of directors or resulting from death, resignation,
retirement, disqualification, removal or other cause may be filled only by a
majority of the directors then in office, though less than a quorum. The NUI
Certificate also provides that if under the NJBCA the NUI shareholders have
the power to elect a director to fill such a vacancy at a special meeting of
shareholders (which is the case under the NJBCA if the vacancy has not been
filled by the directors), such a vacancy may be filled at such a meeting only
by the affirmative vote of at least 75% of the then-outstanding shares of the
voting stock, voting together as a single class. For a discussion regarding
certain anti-takeover effects of a 75% voting requirement for filling
vacancies of the board of directors, see "PSGS Merger-Comparison of PSGS
Stockholder Rights with NUI Shareholder Rights-Certain Anti-Takeover Matters."
Classified Board of Directors. Under the NJBCA, a New Jersey
corporation may provide in its certificate of incorporation for the
classification of its directors with respect to the time for which they shall
severally hold office, but no class of directors shall hold office for a term
shorter than one year or longer than five years and the term of office of at
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least one class of directors must expire in each year. In addition, any New
Jersey corporation having more than one class or series of shares may provide
in its certificate of incorporation for the election of one or more directors
by the shareholders of any class or series to the exclusion of other
shareholders. Also, the certificate of incorporation may grant shareholders of
a class or series of shares the right to elect one or more directors upon the
occurrence of stated events for a specified term or for a term ending upon the
occurrence of stated events. As permitted under the NJBCA, the NUI Certificate
provides that NUI's directors (other than those who may be elected by the
holders of any class or series of preferred stock having a preference over the
NUI Common Stock as to dividends or upon liquidation) are classified, with
respect to the time for which they severally hold office, into three classes,
as nearly equal as possible. Directors from each class are elected every three
years to serve for a term of three years. Although permitted under the DGCL,
PSGS does not have a classified board of directors. For a discussion regarding
certain anti-takeover effects of a classified board of directors, see "PSGS
Merger-Comparison of PSGS Stockholder Rights with NUI Shareholder Rights-
Certain Anti-Takeover Matters."
Limitations on Director Liability. The DGCL permits corporations to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision can not eliminate or limit the
liability or a director (a) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) for unlawful payment of dividends or stock repurchases or redemptions or
(d) for any transaction from which the director derived an improper personal
benefit. The PSGS Certificate contains a provision which limits the personal
liability of directors and officers of PSGS to the fullest extent permissible
under the DGCL. The NJBCA provides that the certificate of incorporation of a
New Jersey corporation may contain a provision limiting director and officer
liability. The NUI Certificate contains a provision limiting liability for
directors and officers for monetary damages for breach of fiduciary duty,
subject only to current restrictions on such limitations under the NJBCA.
Currently, the NJBCA restricts such limitations if such breach of duty is
based upon an act or omission (a) in breach of such person's duty of loyalty
to the corporation or its shareholders, (b) not in good faith or involving a
knowing violation of law or (c) resulting in receipt by such person of an
improper personal benefit.
Indemnification of Directors, Officers and Agents. Both the DGCL and
the NJBCA permit a corporation under certain circumstances to indemnify a
director, officer, employee or agent ("corporate agent") against his or her
expenses and liabilities in connection with any proceeding involving such
corporate agent by reason of his or her having been such a corporate agent.
Both the DGCL and the NJBCA require that a corporate agent who has been
successful on the merits or otherwise be indemnified by the corporation. The
DGCL permits the payment of expenses in advance so long as the corporate agent
undertakes to repay such expenses if such agent is ultimately found not to be
entitled to indemnification. The PSGS By-Laws provide for indemnification to
directors and officers against reasonable expenses and any liabilities paid or
incurred in connection with any proceeding in which such directors and
officers may be involved by reason of being or having been a director or
officer of PSGS or by reason of the fact that such director or officer is or
was serving at the request of PSGS as a corporate agent of any other entity.
The NUI Certificate provides for indemnification of directors and officers of
NUI and of people acting as corporate agents for another entity at the request
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of NUI to the fullest extent permitted under applicable New Jersey law, which,
with certain limitations, permits corporations to indemnify a corporate agent
against expenses and liabilities in connection with any proceeding involving
the corporate agent by reason of his or her being or having been a corporate
agent, other than a proceeding by or in the right of the corporation where the
person or persons seeking indemnification has been adjudged to be liable to
the corporation unless the applicable court deems indemnification proper in
such a case. The NJBCA also permits the payment of expenses in advance so long
as the corporate agent undertakes to repay such expenses if such corporate
agent is ultimately found not to be entitled to indemnification. The NUI
Certificate restricts indemnification for proceedings initiated by a person
seeking indemnification unless the proceeding was authorized by the Board of
Directors of NUI.
Inspection of Books and Records. The DGCL provides an absolute right
of inspection by a stockholder of the stockholders list and the corporation's
books and records to any stockholder for any proper purpose (a purpose
reasonably related to the interest of the person as a stockholder). The NJBCA
provides for a right of inspection by a shareholder of the shareholders list
and the corporation's minutes of shareholders' meetings by any person who has
been a shareholder of record for at least six months or any person holding, or
authorized in writing by the holders of, at least 5% of the outstanding shares
of any class or series.
Certain Business Combinations.
Combinations Involving an Interested Shareholder. The DGCL prevents an
"interested stockholder" (defined in general as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in certain business
combinations with a "publicly-held" Delaware corporation (one which is either
(a) listed on a national securities exchange, (b) authorized for quotation on
inter-dealer quotation system of a registered national securities association
or (c) held of record by more than 2,000 stockholders) for three years
following the date such person became an interested stockholder unless
(i) before such person became an interested stockholder, the board of
directors of the corporation approved either the business combination or the
transaction in which the interested stockholder became an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer) or (iii) following the transaction in which such person became
an interested stockholder, the business combination is approved by the board
of directors of the corporation and authorized at a meeting of stockholders by
the affirmative vote of the holders of 66-2/3% of the outstanding voting stock
of the corporation not owned by the interested stockholder.
The NJBCA imposes additional voting rights in the case of a business
combination that involves any "interested stockholder." The NJBCA contains a
statute entitled "New Jersey Shareholders Protection Act" that provides, among
other things, that in addition to any requirements contained in the
certificate of incorporation or by-laws of a resident domestic corporation, no
such corporation may engage in any business combination with any "interested
stockholder" of such corporation (defined as a beneficial owner of 10% or more
of such corporation's stock) for a period of five years following the date of
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acquisition of stock such that such holder becomes an "interested stockholder"
unless such combination is approved by the board of directors prior to such
acquisition date. In addition to the foregoing, no New Jersey corporation may
engage in a business combination with an interested stockholder other than one
in which (a) the board of directors has approved such business combination
prior to such interested stockholder's stock acquisition date, (b) such
business combination is approved by the affirmative vote of the holders of
two-thirds of the voting stock not beneficially owned by that interested
stockholder at a meeting called for such purpose or (c) the aggregate amount
of cash and the market value, as of the consummation date, of consideration to
be received per share by holders of the outstanding shares of common stock in
the business combination is at least equal to a certain "fair price" as
determined by various criteria set forth in the statute, subject to certain
exceptions.
Other Business Combinations. Under the DGCL, any business combination
or major asset sale transaction involving a Delaware corporation but not an
"interested stockholder" would generally require the affirmative vote of a
majority of the outstanding shares entitled to vote thereon. The PSGS
Certificate restates the majority stockholder approval requirement for the
sale, lease or exchange of all of the property and assets of PSGS. Under the
NJBCA, which is not modified by the NUI Certificate, any business combination
or major asset sale transaction between NUI and any person that is not an
"interested stockholder" would generally require the affirmative vote of a
majority of the votes cast by the holders of NUI Common Stock voting in person
or by proxy.
Certain Anti-Takeover Matters.
Effect of Classification of the Board of Directors of NUI. The
classification of the Board of Directors of NUI pursuant to the NUI
Certificate would delay NUI shareholders from removing a majority of the Board
of Directors of NUI for two years, unless removal for cause can be established
and the required 75% vote for removal can be obtained. Because the existence
of a classified board would operate to delay a potential purchaser's ability
to obtain control of the board in a relatively short period of time, a
classified board may have the effect of discouraging attempts to acquire
significant minority positions with the intent of obtaining control of NUI by
electing a slate of directors. The delay arises because under this provision
it could take a purchaser as long as two annual meetings of shareholders to
elect a majority of the Board of Directors of NUI. Also because neither the
NJBCA nor the NUI Certificate require cumulative voting, a purchaser of a
block of stock of NUI constituting less than a majority of the outstanding
shares has no assurance of proportional representation on the Board of
Directors of NUI. For the same reasons, the classified board provision of the
NUI Certificate may also deter certain mergers, tender offers or other future
takeover attempts which some or a majority of the holders of NUI stock may
deem to be in their best interests.
Removal of Directors. The NUI Certificate also provides that directors
may be removed only for cause and only by the affirmative vote of holders of
at least 75% of the voting stock, voting together as a single class, that
shareholder action can be taken only at an annual or special meeting of
shareholders and prohibits shareholder action in lieu of a meeting unless such
action is by unanimous written consent. The NUI Certificate and NUI By-Laws
provide that, subject to the rights of any holders of any series of NUI
Preferred Stock, special meetings of shareholders can only be called pursuant
to a resolution adopted by a majority of the authorized directors of NUI and
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by a court upon the application to a court by the holders of not less than 10%
of the shares entitled to vote. The NUI Certificate and the NUI By-Laws
contain provisions requiring the affirmative vote of the holders of at least
75% of the voting stock to amend certain provisions relating to the number,
term, removal and classification of directors.
These provisions taken together could impede the completion of a
merger, tender offer or other takeover attempt by restricting the ability of
any person, including a potential acquiror, of gaining control of the NUI
Board of Directors. This could discourage an acquisition attempt or other
transaction that some or a majority of the NUI shareholders might believe to
be in their best interests or in which the NUI shareholders might receive a
premium for their stock over the then market prices of such stock. NUI
believes that its Board of Directors will make any determination with respect
to the recommendation of an offer for the stock of the company based on its
judgment as to the best interests of NUI and its then existing shareholders
and that the requirement that directors may only be removed for cause together
with the 75% affirmative voting requirement, a 75% voting requirement for any
changes to the NUI Certificate and any shareholder amendment to the NUI
By-Laws will enable the NUI Board of Directors to attain those best interests
without an acquiror gaining control at a less than optimum price for NUI
Common Stock.
Issuance of Preferred Stock. As described above, the NUI Board of
Directors is authorized to provide for the issuance of shares of NUI Preferred
Stock, in one or more series, and to fix by resolution of the Board of
Directors and to the extent permitted by New Jersey law, the terms and
conditions of each such series. NUI believes that the availability of the NUI
Preferred Stock provides NUI with increased flexibility in structuring
possible future financings and acquisitions and in meeting other corporate
needs which might arise. The authorized shares of NUI Preferred Stock, as well
as shares of NUI Common Stock, are available for issuance without further
action by the shareholders, unless such action is required by applicable law
or the rules of any stock exchange on which shares of NUI Common Stock are
listed or on which NUI Preferred Stock may be listed in the future.
Although the NUI Board of Directors has no present intention of doing
so, it could issue a series of NUI Preferred Stock that could, depending on
the terms of such term series, impede the completion of a merger, tender offer
or other takeover attempt by including class voting rights that would enable
the holders of such series to block such a transaction. The Board of Directors
of NUI will make any determination to issue such shares based on its judgment
as to the best interests of NUI and its then existing shareholders. The Board
of Directors of NUI, if so acting, could issue NUI Preferred Stock having
terms that would discourage an acquisition attempt or other transaction that
some or a majority of the shareholders might believe to be in their best
interests or in which the shareholders might receive a premium for their stock
over the then market price of such stock.
EGC MERGER
General
Under the provisions of the PUHCA, in order to consummate the PSGS
Merger, NUI will be required to eliminate its status as a public utility
holding company by effecting the EGC Merger. The Board of Directors of NUI has
prepared and approved the EGC Plan of Merger and Liquidation pursuant to
which, at or after the Effective Time of the PSGS Merger, EGC will be merged
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with and into NUI pursuant to the NJBCA. No vote of the shareholders of either
NUI or EGC is required in connection with the EGC Merger. The EGC Merger will
be effective upon the filing of a certificate of merger with the Secretary of
State of the State of New Jersey (the "Effective Time of the EGC Merger"). NUI
will be the surviving corporation in the EGC Merger. At the Effective Time of
the EGC Merger, all of the outstanding shares of EGC Common Stock will be
cancelled. The operations of EGC will be continued by the New Jersey and
Florida Divisions of NUI.
For information regarding the regulatory filings and approvals
relating to the EGC Merger, see "PSGS Merger-Basic Terms of Merger Agreement-
Regulatory Filings and Approvals."
APPRAISAL RIGHTS
Pursuant to the DGCL, PSGS Stockholders have the right to dissent from
the Merger, and to obtain an appraisal and payment of the "fair value" (as
defined therein) of their PSGS Common Stock if the PSGS Merger is completed.
Any PSGS Stockholder who contemplates exercising appraisal rights is
urged to read carefully the provisions of Section 262 of the DGCL. The
following summary of the steps to be taken in order to exercise appraisal
rights is qualified in its entirety by the full text of Section 262 of the
DGCL, which is attached as Annex C to this Proxy Statement/Prospectus.
Each step must be taken in the indicated order and in strict
compliance with the applicable provisions of the statute in order to perfect
appraisal rights. The failure of any PSGS Stockholder to comply with the
aforesaid steps will result in the PSGS Stockholder receiving the
consideration contemplated by the Merger Agreement. See "PSGS Merger-Basic
Terms of Merger Agreement-Conversion of PSGS Common Stock." Any written notice
or demand which is required in connection with the exercise of appraisal
rights, whether before or after the Effective Date, must be sent to PSGS, at
102 Desmond Street, Sayre, Pennsylvania 18840, Attention: Secretary.
Eligibility
Any PSGS Stockholder who holds shares of PSGS Common Stock at the time
he or she makes a demand to exercise appraisal rights, who continuously holds
such shares through the Effective Date, who neither votes in favor of the
Merger nor consents in writing thereto and who properly perfects his or her
appraisal rights shall be entitled to an appraisal of the fair value of his or
her shares. Failure by a PSGS Stockholder to vote against the PSGS Merger does
not constitute a waiver of appraisal rights. Shares represented by proxies
which do not contain voting instructions will be voted in favor of approval
and adoption of the Merger Agreement and such shares will not be entitled to
appraisal rights.
Notice of Appraisal Rights
Not less than twenty days prior to the PSGS Special Meeting, PSGS must
notify PSGS Stockholders who are such as of the record date for the PSGS
Special Meeting that appraisal rights are available for any or all such
shares. This notice must include a copy of Section 262 of the DGCL.
Stockholder's Written Demand for Appraisal
Any PSGS Stockholder who elects to dissent and to demand appraisal of
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his or her shares must deliver to PSGS, prior to the PSGS Stockholders' vote
on the PSGS Merger at the PSGS Special Meeting, a separate written demand for
appraisal of his or her shares. Such written demand for appraisal must
reasonably inform PSGS of the PSGS Stockholder's identity and that he or she
intends to demand an appraisal. Neither a proxy nor a vote against the PSGS
Merger will constitute the necessary written demand for appraisal.
NUI's Response
Within ten days of the Effective Time of the PSGS Merger, each PSGS
Stockholder who delivered the above written demand for appraisal and who
neither voted in favor of nor consented to the PSGS Merger shall receive from
NUI notification of the date that the PSGS Merger has become effective.
Stockholders' Rights After Demanding Appraisal
Any PSGS Stockholder has the right to withdraw his or her written
demand for appraisal and to accept the PSGS Merger terms at any time within
sixty days after the Effective Time of the PSGS Merger. Within 120 days after
the Effective Date, any PSGS Stockholder who has complied with the above
requirements, upon written request, shall be entitled to receive from NUI a
statement of the aggregate number of shares not voted in favor of the PSGS
Merger and with respect to which written demands for appraisal were delivered
and the aggregate number of holders of such shares. NUI must mail this
statement within ten days after it receives a PSGS Stockholder's written
request for such a statement, or within ten days after expiration of the
period for delivery of written demands for appraisal, whichever is later.
From and after the Effective Time of the PSGS Merger, no PSGS
Stockholder who has delivered his or her written demand for appraisal shall be
entitled to vote his or her PSGS Common Stock for any purpose or to receive
dividends or other distributions on the stock, except those payable to PSGS
Stockholders of record at a date which is prior to the Effective Time of the
PSGS Merger.
Petition for Appraisal
Within 120 days after the Effective Time of the PSGS Merger, NUI or
any PSGS Stockholder who has complied with the above requirements and is
otherwise entitled to appraisal rights may file a petition in the Court of
Chancery demanding a determination of share value.
If a PSGS Stockholder files a petition with the Court of Chancery,
service of a copy of such petition must be made upon NUI. NUI must then,
within twenty days after such service, file with the Register in Chancery a
duly verified list containing the names and addresses of all of the PSGS
Stockholders who have delivered written demands for appraisal but with whom
NUI has not reached agreement as to the value of their shares. If NUI files a
petition with the Court of Chancery, such a duly verified list must accompany
its petition.
Notice of Hearing
If the Court so orders, the Register in Chancery shall give approved
forms of notice by mail and by publication of the time and place fixed for the
hearing of such petition to NUI and to PSGS Stockholders shown on the duly
verified list. NUI shall bear the costs of such notice.
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Hearing
The Court shall determine which PSGS Stockholders have complied with
all provisions of the applicable law and have become entitled to appraisal
rights. It may also require that such PSGS Stockholders submit their stock
certificates to the Register in Chancery for notation thereon of the pendency
of the appraisal proceeding. If the Court so requires and any such PSGS
Stockholder fails to comply, the court may choose to dismiss the proceedings
as to such PSGS stockholder.
The Court shall appraise the shares and determine their fair value.
Fair value shall exclude any element of value arising from the accomplishment
or expectation of the Mergers but includes any fair rate of interest to be
paid upon the amount determined to be fair value. The Court may take into
account all relevant factors in determining fair value. Likewise, the
determination of the fair rate of interest may be based on consideration of
all relevant factors, including the rate of interest NUI would have to pay if
it borrowed money during the course of the appraisal proceeding. Interest may
be simple or compound.
Upon application by NUI or by a PSGS Stockholder entitled to
participate in the appraisal proceeding, the Court may exercise its discretion
to permit discovery or other pretrial proceedings and to proceed to trial upon
the appraisal prior to finally determining which PSGS Stockholders are
entitled to an appraisal. Notwithstanding this discretion, any PSGS
Stockholder whose name appears on NUI's duly verified list and who submitted
his or her certificates, if so required, may participate in appraisal
proceedings until it is finally determined that he or she is not entitled to
appraisal rights.
Allocation of Costs
The Court may determine the costs of an appraisal proceeding and tax
them upon the parties as it deems equitable. Any PSGS Stockholder who incurs
expenses in connection with the appraisal proceeding may apply to the Court to
have such costs charged pro rata against the value of all of the shares
entitled to an appraisal. Such costs may include, without limitation,
reasonable attorney's fees and fees and expenses of experts.
Payment of Fair Value
The Court shall direct payment of the fair value and interest, if any,
by NUI and may enforce such decree as necessary. Holders of uncertificated
stock shall receive payment forthwith, while holders of stock represented by
certificates shall receive payment upon surrendering such certificates to NUI.
Dismissal of Appraisal Rights
The Court must approve any dismissal of any appraisal proceeding as to
any PSGS Stockholder, and it may condition such dismissal upon terms deemed
just by the Court. The appraisal rights of a PSGS Stockholder shall cease if a
petition for appraisal is not timely filed or if such PSGS Stockholder
delivers to NUI a written withdrawal of his or her demand for appraisal and an
acceptance of the PSGS Merger. The PSGS Stockholder must deliver any such
written withdrawal and acceptance either within sixty days after the Effective
Time of the PSGS Merger or, with NUI's written approval, at some point
thereafter.
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COMPARATIVE PER SHARE FINANCIAL INFORMATION
The following table sets forth certain unaudited per share information
for NUI and PSGS, certain pro forma per share information for NUI after giving
effect to the Mergers, and equivalent pro forma per share information for
PSGS. Because the PSGS Merger will be accounted for as a purchase transaction,
pro forma and equivalent per share income and dividend information is
presented for only the most recent fiscal year for which financial information
is available, which ended September 30, 1993. The data is based upon and
should be read in conjunction with the NUI consolidated financial statements
and the related notes thereto incorporated herein by reference; and the PSGS
consolidated financial statements and the related notes thereto and the pro
forma NUI financial data, each of which are included elsewhere in this Proxy
Statement/Prospectus.
Pro Forma
NUI Data
NUI Data Per NUI Share Actual Per
PSGS Data Equivalent
Pro Per PSGS PSGS
Actual Forma(a) Share Share(b)
For the Fiscal Year Ended
September 30, 1993:
Net Income $1.70 $1.63 $1.74 $4.11
Dividends $1.59 $1.59 $1.54 $4.01
Net Book Value (as of fiscal
year end) $14.93 $15.83 $38.48 $39.89
(a) The pro forma NUI data per NUI share give effect to the PSGS Merger,
pursuant to which the PSGS Stockholders will receive shares of NUI Common
Stock equal in value to $71.50 for each share of PSGS Common Stock as set
forth under "PSGS Merger-Basic Terms of Merger Agreement-Conversion of PSGS
Common Stock"; followed by the EGC Merger. The pro forma NUI data are prepared
on the basis of accounting for the PSGS Merger as a purchase transaction. The
regulatory process establishes rates on the basis of historical net book
value; therefore, (i) the underlying net assets of PSGS will be recorded as
assets of NUI at their historical net book value as of the date of the PSGS
Merger, (ii) the funded status of the PSGS pension plan will be recognized by
recording an asset equal to the excess of plan assets at fair value as
compared with the projected benefit obligation as of the date of acquisition
($1.4 million), (iii) the excess of the Merger Consideration over the recorded
net assets will be recorded as a "plant acquisition adjustment" (amounting to
approximately $6.8 million) and (iv) the plant acquisition adjustment will be
amortized over a thirty-year period (amounting to approximately $225,000 per
year) that approximates the remaining useful life of the utility plant
acquired; all in accordance with generally accepted accounting principles.
Furthermore, the pro forma NUI net income per share for the fiscal year ended
September 30, 1993 excludes merger expenses incurred by PSGS ($226,000, net of
$117,000 of income tax), which would have equated to $0.03 per NUI share.
(b) Represents the pro forma equivalent of one share of PSGS Common Stock
calculated by multiplying the pro forma per share NUI data by the conversion
ratio of 2.520 ($71.50 divided by $28.375, the assumed Average Market Price
per share of NUI Common Stock). Furthermore, the pro forma NUI net income per
equivalent PSGS share for the fiscal year ended September 30, 1993 excludes
merger expenses incurred by PSGS ($226,000 net of $117,000 of income tax),
which would have equated to $0.07 per equivalent PSGS share. The actual
conversion ratio may be greater (but not greater than 3.0) or less (but not
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less than 2.4) depending upon the actual Average Market Price. See "PSGS
Merger-Basic Terms of Merger Agreement-Conversion of PSGS Common Stock." In
the event that the actual conversion ratio is 3.0, the pro forma net income
and dividends per equivalent PSGS share would be $4.83 and $4.77,
respectively, for the fiscal year ended September 30, 1993 and the net book
value per PSGS equivalent share would be $46.89 at September 30, 1993. In the
event that the actual conversion ratio is 2.4, the pro forma net income and
dividends per equivalent PSGS share would be $3.93 and $3.82, respectively,
for the fiscal year ended September 30, 1993 and the net book value per PSGS
equivalent share would be $38.12 at September 30, 1993.
The NUI Common Stock is listed on the NYSE and is traded under the
symbol NUI.
The following sets forth the closing market price per share for NUI
Common Stock and the NUI closing market price per equivalent PSGS share on
June 23, 1993, the last trading day before the announcement of the preliminary
agreement between NUI and PSGS with respect to the PSGS Merger; on July 26,
1993, the last trading day before the announcement of the signing of the
Merger Agreement; and on January 3, 1994. There is no established public
trading market for the PSGS Common Stock, therefore no PSGS Common Stock
market price information is included herein.
NUI Market
Closing Price Per
Market Equivalent
Price Per PSGS
NUI Share Share (a)
June 23, 1993 $26.375 $66.465
July 26, 1993 $29.00 $73.08
January 7, 1994 $26.00 $65.52
(a) Represents the pro forma equivalent of one share of PSGS Common Stock
calculated by multiplying the closing market price per share of NUI Common
Stock by the conversion ratio of 2.520 ($71.50 divided by $28.375, the assumed
Average Market Price per share of NUI Common Stock). The actual conversion
ratio may be greater (but not greater than 3.0) or less (but not less than
2.4) depending upon the actual Average Market Price. See "PSGS Merger-Basic
Terms of Merger Agreement-Conversion of PSGS Common Stock." In the event that
the actual conversion ratio is 3.0, the NUI market price per equivalent PSGS
share would be $79.126 as of June 23, 1993, $87.001 as of July 26, 1993, and
$78.00 as of January 7, 1994. In the event that the actual conversion ratio is
2.4, the NUI market price per equivalent PSGS share would be $63.299 as of
June 23, 1993, $69.599 as of July 26, 1993, and $62.40 as of January 7, 1994.
NUI COMMON STOCK DIVIDENDS AND PRICE RANGE
NUI or its predecessor has paid cash dividends on the NUI Common Stock
since 1893 and intends to continue to pay quarterly cash dividends. NUI's
dividend policy is reviewed on an ongoing basis and is dependent upon NUI's
expectations of future earnings, cash flow, financial condition, capital
requirements and other factors.
Under the terms of its outstanding indebtedness, NUI is subject to
restrictions that affect the payment of dividends on NUI Common Stock. In
accordance with an NUI credit agreement, approximately $21.5 million of NUI's
shareholders' equity was available as of September 30, 1993 for the payment of
cash dividends. Consummation of the Mergers will not reduce the amount of
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NUI's shareholders' equity available for the payment of cash dividends.
NUI is structured as a holding company and, as such, the funds
required to enable NUI to pay dividends on NUI Common Stock are derived from
the dividends paid by EGC on its common stock, all of which is held by NUI.
Furthermore, after the Effective Time of the EGC Merger, all restrictions
applicable to the payment of EGC dividends will be directly applicable to the
payment of NUI dividends. Under the terms of its outstanding indebtedness, EGC
is subject to restrictions on the payment of dividends on its common stock. As
of September 30, 1993, the terms of EGC's indebtedness permitted EGC to pay
cash dividends to NUI aggregating $47.3 million.
As of October 31, 1993, the number of shares of NUI Common Stock
outstanding was 8,205,412. Based on an assumed Average Market Price of $28.375
per share of NUI Common Stock, on a pro forma basis as of October 31, 1993,
reflecting the issuance in connection with the PSGS Merger of 594,318 shares
of NUI Common Stock comprising the Merger Consideration, there would be
8,799,730 shares of NUI Common Stock outstanding. Based on a $0.40 per share
quarterly dividend payment, the aggregate quarterly dividend payment on
8,799,730 shares would be $3.5 million.
The NUI Common Stock is listed on the NYSE and is traded under the
symbol NUI. The quarterly cash dividends paid and the reported closing price
range per share of NUI Common Stock for the fiscal periods set forth below
were as follows:
Quarterly
Price Range
Cash
Dividend High Low
Fiscal 1992:
First Quarter $0.395 $20.25 $16.125
Second Quarter 0.395 21.00 18.125
Third Quarter 0.395 20.625 18.875
Fourth Quarter 0.395 25.00 20.125
Fiscal 1993:
First Quarter $0.395 $25.25 $22.25
Second Quarter 0.395 28.125 23.50
Third Quarter 0.40 28.00 25.12
Fourth Quarter 0.40 29.375 27.875
Fiscal 1994:
First Quarter $0.40 $29.00 $25.25
Second Quarter through January
7, 1994 (a) 26.25 25.625
(a) The dividend for the second quarter of fiscal 1994, which traditionally is
payable on March 15, has not yet been declared as of the date of this Proxy
Statement/Prospectus.
On June 23, 1993, the last trading day before the announcement of the
preliminary agreement between NUI and PSGS with respect to the PSGS Merger,
the closing price per share of NUI Common Stock on the NYSE was $26.375. On
July 26, 1993, the last trading day before the announcement of the signing of
the PSGS Merger Agreement, the closing price per share of NUI Common Stock on
the NYSE was $29.00. On January 7, 1994, the closing price per share of NUI
Common Stock on the NYSE was $26.00.
There were 6,055 shareholders of record of NUI Common Stock at October
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31, 1993.
PSGS COMMON STOCK DIVIDENDS
Listed below are the dividends per share of common stock paid for the
fiscal periods set forth. There is no public market for shares of PSGS Common
Stock thus no information with respect to the price range of PSGS Common Stock
is supplied.
Quarterly
Cash
Dividend
Fiscal 1992:
First Quarter $0.20
Second Quarter 0.20
Third Quarter 0.20
Fourth Quarter 0.20
Fiscal 1993:
First Quarter $0.30
Second Quarter 0.40
Third Quarter 0.42
Fourth Quarter 0.42
Fiscal 1994:
First Quarter $0.42
Second Quarter through January 7, 1994 (a)
(a) The dividend for the second quarter of fiscal 1994, which traditionally is
payable on March 10, has not yet been declared as of the date of this Proxy
Statement/Prospectus.
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PRO FORMA NUI FINANCIAL DATA
The pro forma NUI financial data give effect to the PSGS Merger,
pursuant to which the PSGS Stockholders will receive shares of NUI Common
Stock equal in value to $71.50 for each share of PSGS Common Stock as set
forth in "PSGS Merger-Basic Terms of Merger Agreement-Conversion of PSGS
Common Stock"; followed by the EGC Merger.
The pro forma NUI financial data are prepared on the basis of
accounting for the PSGS Merger as a purchase transaction. The regulatory
process establishes rates on the basis of historical net book value;
therefore, (i) the underlying net assets of PSGS will be recorded as assets of
NUI at their historical net book value as of the date of the PSGS Merger, (ii)
the funded status of the PSGS pension plan will be recognized by recording an
asset equal to the excess of plan assets at fair value as compared with the
projected benefit obligation as of the date of acquisition ($1.4 million),
(iii) the excess of the Merger Consideration over the recorded net assets will
be recorded as a "plant acquisition adjustment" (amounting to approximately
$6.8 million) and (iv) the plant acquisition adjustment will be amortized over
a thirty-year period (amounting to approximately $225,000 per year) that
approximates the remaining useful life of the utility plant acquired; all in
accordance with generally accepted accounting principles. Furthermore, the pro
forma NUI net income for the fiscal year ended September 30, 1993 excludes
merger expenses incurred by PSGS ($226,000, net of $117,000 of income tax),
which would have equated to $0.03 per NUI share.
The pro forma NUI financial data includes the financing of the
purchase price for PSGS ($17,194,000), reflecting (1) the issuance of 594,318
shares of NUI Common Stock based on an assumed Average Market Price of $28.375
per share of NUI Common Stock ($16,864,000) and (2) the incurrence of
short-term indebtedness to finance the fees and expenses estimated to be
incurred in connection with the Mergers ($330,000). The additional short-term
indebtedness will be incurred under existing lines of credit and is intended
to be refinanced at a later date through the issuance of equity or long-term
indebtedness or a combination thereof. In addition, the pro forma NUI
financial data includes the short-term indebtedness of PSGS ($3,124,000) and
long-term indebtedness of PSGS ($9,530,000) that will become the indebtedness
of NUI as a result of the PSGS Merger.
No adjustments are required in the pro forma NUI financial data in
order to give effect to the EGC Merger because EGC's financial data are
already included in the historical NUI financial data.
The pro forma NUI financial data provides information about the impact
that the above mentioned transactions have on the historical financial data of
NUI by showing how such transactions might have affected such historical
financial data if the transactions had been consummated at the beginning of
each period. However, the pro forma NUI financial data are not necessarily
indicative of the results of operations or the financial position that would
actually have been reported had the transactions been consummated at the
beginning of each of the periods or that may be reported in the future. The
pro forma NUI financial data should be read in conjunction with the financial
statements and the notes thereto of NUI and PSGS that are included elsewhere
in this Proxy Statement/Prospectus or incorporated herein by reference.
58
<PAGE>
Actual NUI Pro Forma NUI
Financial Data Financial Data
Fiscal Year Ended September 30, 1993 (in
thousands, except per share amounts):
Operating Revenues $354,889 $385,570
Operating Income 26,702 28,230
Interest Expense 13,768 14,891
Net Income 13,810 14,215
Net Income Per Share $1.70 $1.63
Weighted Average Number of Shares of
Common Stock Outstanding 8,124 8,718
CAPITALIZATION
The following unaudited table, which should be read in conjunction
with the financial statements and related notes thereto of NUI and PSGS that
are included elsewhere in the Proxy Statement/Prospectus or incorporated
herein by reference, sets forth the capitalization of NUI and PSGS as of
September 30, 1993 and the pro forma capitalization of NUI as adjusted to give
effect to the Mergers (in thousands):
Actual Pro Forma
Actual NUI PSGS NUI (a)
Short-Term Debt, Including Current
Maturities $73,207 $3,124 $76,661
Capital Lease Obligations $12,290 - $12,290
Long-Term Debt $142,090 $9,530 $151,620
Preferred Stock - - -
Common Shareholders' Equity:
Common stock $114,895 $295 $131,759
Premium on common stock 640
Capital surplus 53
Shares held in treasury (797) (797)
Retained earnings 9,718 8,088 9,718
Valuation of marketable securities (93) (93)
Subsidiary's guaranty of ESOP
indebtedness (1,339) (1,339)
Total common shareholders' equity $122,384 $9,076 $139,248
Total Capitalization $264,474 $18,606 $290,868
(a) The pro forma NUI capitalization is prepared on the basis of accounting
for the PSGS Merger as a purchase transaction. The pro forma NUI
capitalization includes the financing of the purchase price for PSGS
($17,194,000), reflecting (1) the issuance of 594,318 shares of NUI Common
Stock based on an assumed Average Market Price of $28.375 per share of NUI
Common Stock ($16,864,000) and (2) the incurrence of short-term indebtedness
to finance the fees and expenses estimated to be incurred in connection with
59
<PAGE>
the Mergers ($330,000). The additional short-term indebtedness will be
incurred under existing lines of credit and is intended to be refinanced at a
later date through the issuance of equity or long-term indebtedness or a
combination thereof. In addition, the pro forma NUI capitalization includes
the short-term indebtedness of PSGS ($3,124,000) and long-term indebtedness
($9,530,000) of PSGS that will become the indebtedness of NUI as a result of
the PSGS Merger.
At September 30, 1993, NUI had approximately $63.7 million of
available unused short-term credit lines and PSGS had approximately $3.0
million of available unused short-term credit lines. In addition, NUI had
Funds for Construction Held by Trustee amounting to $24.2 million,
representing the unexpended portion of the net proceeds from $54.6 million of
long-term debt incurred by NUI in October 1991 that is held by a trustee until
drawn upon the incurrence of eligible construction expenditures.
NUI SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data of NUI set forth below for the
five fiscal years ended September 30, 1993 have been derived from the NUI
Consolidated Financial Statements which have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their report incorporated
by reference in this Proxy Statement/Prospectus. The summary consolidated
financial data should be read in conjunction with the NUI Consolidated
Financial Statements and related notes incorporated by reference in this Proxy
Statement/Prospectus.
60
<PAGE>
<TABLE>
NUI Summary Consolidated Financial Data
(in thousands, except per share amounts)
<CAPTION>
Fiscal Years Ended September 30,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues $354,889 $291,032 $291,320 $295,950 $265,450
Operating Income 26,702 25,170 19,457 22,396 21,190
Interest Expense 13,768 14,980 15,634 15,058 14,822
Income Before Cumulative
Effect of a Change in
Accounting to Accrue
Unbilled Revenues $13,810 $11,808 $ 3,447 $ 8,719 $ 7,214
Cumulative Effect of a
Change in Accounting to
Accrue Unbilled Revenues - - - - 1,193
Net Income $13,810 $11,808 $ 3,447 $ 8,719 $ 8,407
Per Share of Common
Stock:
Income Before
Cumulative Effect of
a Change in
Accounting to Accrue
Unbilled Revenues $ 1.70 $ 1.68 $ 0.55 $ 1.42 $ 1.39
Cumulative Effect of
a Change in
Accounting to Accrue
Unbilled Revenues - - - - 0.24
Net Income $ 1.70 $ 1.68 $ 0.55 $ 1.42 $ 1.63
Dividends Paid Per Share $ 1.59 $ 1.58 $ 1.57 $ 1.56 $ 1.56
Total Assets at
September 30 $486,536 $467,321 $406,491 $384,344 $364,927
Funds for Construction
Held by Trustee at
September 30 $24,184 $34,123 - - -
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Capitalization at
September 30:
Current Portion of
Long-Term Debt and
Capital Lease
Obligations $3,882 $7,550 $4,147 $2,942 $3,094
Notes Payable to Banks 69,325 46,375 46,875 51,300 55,425
Capital Lease
Obligations 12,290 13,422 14,871 16,369 17,116
Long-Term Debt 142,090 131,546 106,189 97,048 78,628
Common Shareholders'
Equity 122,384 116,933 85,182 89,291 87,246
Book Value Per Share $14.93 $14.55 $13.43 $14.39 $14.44
Common Shares
Outstanding 8,201 8,036 6,342 6,204 6,044
<FN>
Note: Net income for fiscal 1991 includes provisions to write off certain merger-related fees and
expenses and to write down certain properties and investments amounting to $3.3 million (after tax), or
$0.53 per share.
</TABLE>
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<PAGE>
PSGS SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
PSGS as of and for the years ended September 30, 1993, 1992, 1991, 1990 and
1989. The "Income Statement Data" and the "Balance Sheet Data" are derived
from financial statements which have been audited by Coopers & Lybrand,
independent public accountants. The "Operating Statistics" and "Other Data"
for all periods are unaudited. Historical data is not necessarily indicative
of future results. All financial information in this table should be read in
conjunction with the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and with
"Consolidated Financial Statements" and the notes thereto included elsewhere
in this document.
63 <PAGE>
<TABLE>
PSGS Summary Consolidated Financial Data
(In thousands, except per share amounts)
<CAPTION>
Years Ended September 30,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues $ 30,681 $ 27,619 $ 27,064 $ 25,998 $ 25,622
Operating income 1,865 1,426 732 885 1,238
Merger expenses 343 - - - -
Interest expense 1,114 973 967 589 425
Gain on sale of
certain propane
operations 596
Net income (loss) 411 1,053 (228) 311 970
Net income (loss) per
share of common stock 1.74 4.47 (0.97) 1.32 4.11
Cash dividends
declared per common
share (235,857 shares
outstanding for all
periods presented) 1.54 0.80 1.30 2.60 2.55
Other data:
Capital expenditures 2,172 2,127 3,707 3,523 2,241
Book value per share 38.48 38.28 34.62 36.89 38.17
Operating Statistics:
Gas sales (Mcf):
Residential and
commercial 2,574,963 2,399,840 2,026,357 2,157,150 2,181,052
Industrial 2,556,703 2,284,735 2,545,233 2,671,267 2,513,170
Transported 2,602,917 2,686,241 1,938,857 1,705,775 1,555,347
Degree days (total
system):
Actual 14,637 14,228 12,682 14,251 15,317
Normal 15,130 15,130 15,130 15,130 15,130
Balance sheet data:
Total assets 28,721 27,822 25,340 21,757 18,545
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<PAGE>
Notes payable to banks 2,475 1,825 3,416 855 1,255
Long-term debt
(including current
portion) 10,179 9,224 7,896 6,909 3,290
Common shareholders'
equity 9,076 9,029 8,165 8,700 9,002
</TABLE>
65 <PAGE>
PSGS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Fiscal years ended September 30, 1993; 1992; 1991: Net income for the
fiscal year ended September 30, 1993 amounted to $411,000, after merger
expenses, compared to $1,053,000 for the prior fiscal year. The September 30,
1992 net income reflects the sale of two propane operations which are
discussed later in this section. Excluding the gain on this sale, the income
from operations of $457,000 can be compared to the $411,000 for the year ended
September 30, 1993.
Natural gas gross margins increased in fiscal 1993 by $835,000, or
8.7%, over those of the prior fiscal year. This increase was due to the
approval of base rate increases in our Pennsylvania and Maryland operations,
which were effective in January 1993 and June 1992 respectively, along with a
4.9% increase in gas sales. The increased gas sales were due to the weather
being 3% colder than last year, 3% customer growth in the residential and
commercial market, and increased sales to our industrial customers.
Other operating expenses increased $203,000, or 4%, over fiscal 1992.
These expenses are made up of various expense items including natural gas
distribution expense of $1,328,000, customer accounts expense of $953,000,
sales expense of $182,000, administrative and general expense of $2,850,000
and miscellaneous expenses of $20,000, which includes the net impact of PSGS
merchandise and jobbing activities. The distribution expense increased
approximately $30,000 from last year due to increased payroll costs. Customer
accounting expense increased $42,000 due to increased payroll and additional
expense associated with installing a new natural gas billing system in our
North Carolina operations. The increase in the sales expense of $10,000 was
due to an increase in advertising for natural gas. The administrative and
general expense increase of $159,000 was due to increased liability insurance
($86,000), primarily workmens compensation, and increased employee benefits
($49,000), primarily health insurance.
Maintenance expense increased $33,000 in fiscal 1993. This increase is
attributable to the revamping and upgrading of PSGS' cathodic protection
system in the Maryland operations. Depreciation expense increased $124,000
during the past fiscal year due to increased capital expansion along with
approval of new depreciation rates in PSGS' North Carolina Division. The new
rates will increase depreciation expense approximately $80,000 annually.
General business taxes increased due to the increase in natural gas revenues.
Interest expense increased $142,000 over fiscal 1992 principally due
to utilizing more of its revolving loan and lines of credit in 1993 to finance
capital expenditures and operating costs. In fiscal 1992 financing needs were
somewhat less due to the proceeds from the propane asset sale.
Net income for PSGS for the fiscal year ended September 30, 1992, was
$1,053,000 compared with a net loss of $228,000 in 1991. The 1992 net income
includes a net gain of $596,000 for the sale of two of the PSGS' propane
distribution operations which, when deducted from the total net income, leaves
$457,000 of income from operations. Natural gas gross margin variances were
the primary cause of the increased income from 1991 to 1992.
Natural gas gross margins increased by $1.6 million in 1992 as
compared with 1991. This increase was due to increased throughput of 860,000
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Mcf brought about by 12% colder weather, even though the weather was 6% warmer
than normal, and 3.5% customer growth. Volumes sold to PSGS' residential and
commercial customers (core market) increased 18% over 1991 sales, and PSGS'
industrial throughput rose 487,000 Mcf or 11%. Another significant contributor
to the increased margins were base rate increases in PSGS' Maryland and North
Carolina operations.
Other operating and maintenance expense increased to $5,724,000 in
1992 compared with $5,604,000 in 1991. The various components of the 1992
other operating expense included natural gas distribution expense of
$1,298,000, customer account expense of $911,000, sales expense of $173,000,
administrative and general expense of $2,691,000 and miscellaneous expenses
of $57,000. PSGS' management concentrated effort to hold costs down, due to
the erosion of earnings, resulted in a relatively small increase (2.1%) in
these expenses. During the 1992 fiscal year wages were frozen for all
non-contract personnel. The increase in distribution, customer accounting and
sales expense remained relatively stable increasing less than 1%.
Administrative and general expenses increased 6.5% over fiscal 1991, primarily
from the increase in liability insurance ($44,000) and employee benefits
($24,000). Maintenance expense decreased slightly in 1992. The decrease
reflects a return to a normalized level of maintenance expense after the
significant upturn in 1990 due to a show cause order issued by the North
Carolina Utilities Commission in October 1989 for alleged safety violations.
The increase in depreciation expense from 1991 to 1992 of $146,000 was
primarily the result of amortization of removal cost associated with the
removal of a gas holder in PSGS' North Carolina operations. The cost of
removal (approximately $900,000) is being amortized over a ten (10) year
period which began in October 1991.
General business taxes were up slightly (2.6%) due to the overall
operating revenue and payroll increases, on which the majority of these taxes
are based. Income taxes have increased as a result of the increase in taxable
income from 1991. Interest expense remained relatively stable in 1992 as
compared to 1991. This stability was the result of reduced interest rates on
PSGS' revolving loan and lines-of-credit, along with the reduced dependency on
our lines-of-credit because of the proceeds received from the sale of the
propane operations.
In February 1992, PSGS sold two of its propane distribution
operations, one located in Elizabeth City, North Carolina, and the other in
Sayre, Pennsylvania. In recent years these two operations were faced with
increased competition in an extremely competitive industry resulting in a
reduced customer base, market share, and profitability. PSGS' management
decided to sell these two operations to better focus on its primary business
of natural gas distribution. The sale of these two operations, with net assets
of $686,000, resulted in a gain of $596,000. PSGS still maintains a propane
distribution operation in Reidsville, North Carolina, which has begun to
experience the same competitive pressure felt by the operations which were
sold. This operation reflected a net loss of $24,000 in fiscal 1992.
In 1991, PSGS recorded approximately $317,000 in operating income from
propane distribution operations. This income was primarily from the sale of
"field inventory" located at customer sites. Historically, the propane located
on the customer's premises was retained in PSGS' inventory and the customer
was invoiced monthly for replacement volumes. This method of maintaining
propane inventory had proven to be very costly due to increased carrying and
operating costs. Therefore, in July 1991, PSGS sold this inventory,
approximately 581,000 gallons, to its customers. This sale resulted in
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<PAGE>
$305,000 of operating income.
As mentioned previously, in October 1989, PSGS was issued a show cause
order by the NCUC for alleged safety violations. PSGS, in order to correct
these violations, increased its staff and used contractors to enhance and
expedite its maintenance and replacement programs. The operation in the other
jurisdictional areas of PSGS were reviewed and, where needed, additional costs
were incurred to enhance those operations also. During fiscal 1990 operating
and maintenance expenses increased approximately $778,000, of which $518,000
related to the North Carolina operations. North Carolina added approximately
15 employees in conjunction with work relating to the show cause order. These
employees were used predominately to maintain the integrity of the natural gas
system. These expenses are ongoing and will continue in future years. Approval
of a rate increase which was effective October 1991 allowed for the recovery
of these costs. In the interim, PSGS' earnings suffered.
On March 28, 1991 PSGS reached a settlement agreement with the NCUC
regarding each of the alleged safety violations. The agreement provided that
PSGS would submit a main replacement and cathodic protection plan, along with
periodic updates, to the NCUC. To date, PSGS has complied with all aspect of
the terms of the settlement agreement, including maintaining and updating its
replacement and protection plan.
Capital Resources and Liquidity
PSGS' operations are seasonal and this seasonality is reflected in the
cash flow. Cash generated during the heating season is used during the summer
months for completion of the annual construction program and to fill natural
gas inventory used during the winter. In January 1993, PSGS renegotiated its
revolving loan agreement with Commonwealth Bank. Under the renegotiated terms
the maximum amount available increased from $4 million to $7 million. Proceeds
may be utilized on a revolving basis for the first two years, at which time
the then outstanding balance would be converted into a term loan repayable in
equal monthly installments over the following ten years. Interest on amounts
outstanding under the loan agreement will float with the bank's prime rate
plus one-half of one percent for the first five years, at which time the rate
will be renegotiated. Proceeds from the loan will be used to support PSGS's
capital expenditures. PSGS continues to maintain $5.5 million in short-term
lines-of-credit with three banks on which amounts borrowed bear an interest
rate which approximates the bank's prime rate. At September 30, 1993, PSGS'
capital structure was made up of 49% equity and 51% long-term debt.
PSGS' capital expenditures were approximately $2.2 million in the
fiscal year ended September 30, 1993. These expenditures have remained
relatively stable over the past two years as our replacement program and
growth requirements continue. In 1993 approximately 44% of these expenditures
were used to support growth requirements, while another 30% was used for
replacement of mains and services.
PSGS' accounts receivable, net of the allowance for bad debt,
increased $208,000 or 11% over the prior year's balance. This increase tracks
the 11% increase in PSGS' operating revenue. Receivable balances in both
fiscal 1993 and 1992 represent approximately 6.7% of the total revenues for
the year. The allowance for unrecoverable receivables decreased slightly in
fiscal 1993. PSGS collection procedures are regulated by the various utility
commissions whose jurisdiction PSGS is under. Recently, PSGS has taken a more
aggressive approach in collecting balances due from slow paying customers. The
actual net write-offs for 1993 decreased $46,000 from those in 1992.
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The increase in the refundable income taxes was due to the loss for
tax purposes in 1993. The carry back of this loss to the prior tax year
resulted in the refund. The refundable taxes in 1992 were the result of tax
overpayments in 1992.
PSGS has purchase gas adjustment clauses filed with the various state
utility commissions which regulate its operations. These adjustment clauses
allow PSGS to recover gas costs on a dollar-for-dollar basis. Any over or
under collections of these costs are deferred into the deferred gas cost
adjustment account and either passed back to or collected from customers in
subsequent periods. This account balance changed from a net overcollection
(liability) in 1992 of $770,000 to a net undercollection (asset) in 1993 of
$911,000.
PSGS records refunds received from its pipeline supplier in a deferred
credit account. These refunds are passed back to PSGS customers by applying a
credit to the effective tariff rate. The decrease in the supplies refunds due
customers and other deferred credits is the result of the net pass back of
these refunds throughout the fiscal year.
Accounting Standards
FAS 106: In December 1990, the Financial Accounting Standards Board
issued Statement No. 106, "Accounting for Postretirement Benefits Other Than
Pensions." This statement requires companies to change from the cash basis of
accounting to accruing for these costs during an employees' active years of
service with PSGS.
PSGS provides health and life insurance benefits to its retirees and,
on October 1, 1993, switched to the accrual method. At January 1, 1993, the
accumulated postretirement benefit obligation was approximately $700,000, and
would result in approximately $100,000 in increased annual expense. PSGS plans
to defer this expense and obtain recovery through future rate proceedings.
Based on policy statements and discussions with the four state utility
commissions whose jurisdiction PSGS is under, PSGS expects to receive
favorable rate recovery of these costs.
FAS 109: In February 1992, the Financial Accounting Standards Board
issued SFAS No. 109, "Accounting for Income Taxes," which, among other things,
requires enterprises to account for deferred income taxes using currently
enacted rates. PSGS will adopt this new standard in fiscal 1994 and has
estimated that net deferred tax liabilities include approximately $400,000
which will be passed-back to customers through the rate making process. This
adjustment is not expected to have a material effect on net income.
Regulatory Matters
PSGS implemented base rate increases in several of its operating
divisions during the past eighteen months. The most recent increase was
effective for its Pennsylvania operations for service rendered January 1,
1993, and after. This increase culminated seven months of filings, data
responses, and hearings which began in May of 1992. The final rates were
designed to provide approximately $287,000 in additional annual operating
revenues for the Valley Cities Gas Service Division.
A base rate increase was also filed, approved, and implemented for the
Maryland operations during the past eighteen months. Effective June 15, 1992,
rates designed to produce approximately $118,000 in annual operating revenues
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<PAGE>
were placed into effect. These increased rates were filed pursuant to a
procedure providing for expedited rate relief if a company files according to
the identical methodology of its previous litigated rate case and files within
thirty-six months of its last request for base rate relief. This filing was
made during May of 1992 and acted upon within one month.
In October 1991, the NCUC approved an increase in base rates of
$370,000 annually. On May 14, 1993, another request for base rate relief was
submitted to the NCUC, seeking increased rates that would produce
approximately $390,000 in additional annual operating revenues and authority
to implement a weather normalization adjustment for the heat sensitive
residential and commercial markets. On December 17, 1993, the NCUC granted
approval to increase base rate revenues by $315,545. The approval was
effective for service rendered on and after the order date. NCUC also approved
PSGS' request to implement a weather normalization adjustment mechanism. This
mechanism allows PSGS to adjust customers' monthly bills to offset the effect
of any variance from normal weather, during the period November 1 through
March 31.
PSGS also received regulatory approval to begin billing 90% of the
take-or-pay costs incurred for its New York operations. This approval,
effective with June 1993 billing, culminates the necessary regulatory
authorizations for take-or-pay cost recovery in each of PSGS' four natural gas
operating divisions.
Tennessee Gas Pipeline Company ("Tennessee") received FERC approval to
implement the rates and tariff provisions necessary to comply with FERC's
restructuring Order 636 effective September 1, 1993. Transcontinental Gas
Pipeline Company ("Transco") filed its compliance tariffs on August 4, 1993,
with a proposed effective date of November 1, 1993. PSGS has closely followed
the proceedings and expects that the transition to the Order 636 environment
will be a smooth one. The elections required to convert from a "bundled" sales
service to "unbundled" sales and capacity related services were made
previously. Transco's service restructuring was basically completed in late
1990. Tennessee's restructuring was addressed through PSGS' "Cosmic
Settlement" elections made in the spring of 1992, with one exception.
Tennessee's Order 636 compliance abolishes Contract Demand Sales
Service. PSGS' management has elected to convert its current CD-4 sales
entitlement to firm transportation capacity upon 636 implementation. PSGS is
currently negotiating for natural gas supply to support this firm
transportation capacity. We expect to complete negotiations in the next
several weeks and expect an arrangement will be reached which will provide
long-term supply assurances at competitive prices.
PSGS' management believes it has effectively dealt with the
operational aspects of FERC Order 636 through its service elections discussed
in this report and in previous reports. The elections have been designed to
support PSGS' peak day, seasonal, and annual commitments to its customers.
These service elections have also been designed to minimize the potential cost
impact of new rate design mandates from the FERC. With Order 636
implementation the pipelines will convert from a Modified Fixed Variable
Pricing Method to the Straight Fixed Variable Pricing Scheme ("SFV"). Under
SFV methodology rates are billed, by the pipelines, almost entirely on demand
units in the form of a fixed monthly charge. Prior to 636 rates were billed
partially on demand units and partially on commodity purchases. The more one
used the more one paid. The majority of gas costs incurred upon 636
implementation will be fixed with only slight variations related to the amount
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of gas purchased. Therefore, it is more important than ever to operate at a
high load factor in order to reduce the average unit cost. PSGS' management
believes that it has prepared its service elections in a manner that will
provide adequate supplies at competitive prices to our customers for now and
in the future.
Certain Environmental Matters
PSGS' historical operations included the operation of coal
gasification sites, where through a series of processes gas was manufactured
from coal and oil. The United States Environmental Protection Agency (the
"EPA") and various state regulatory authorities have over the years been
investigating former coal gas manufacturing facilities generally because of
the potential for those operations to have generated hazardous
substance-containing waste materials and by-products. PSGS historically
operated ten such facilities, only three of which PSGS still owns. The other
seven were, over the years, sold and are currently owned and controlled by
other entities. Manufactured gas plant activities at PSGS' facilities were
discontinued in or about 1946, when a more cost-efficient alternative became
available - propane.
Four of the ten former sites are currently listed on the EPA's CERCLIS
List, where they eventually will be subjected to some level of investigation
and, if necessary, remediation by any one of the state regulatory authorities
in which they reside or the EPA. One of these sites, as a result of a
Preliminary Assessment completed by the North Carolina Department of
Environment, Health, and Natural Resources, Division of Solid Waste
Management, has been recommended for a Screening Site Investigation. The fact
that the sites appear on the CERCLIS List is not indicative of their status;
nor does it signify that the sites will be placed on the National Priorities
List of sites designated for environmental cleanup. PSGS is currently
participating in the formation of a state coalition whose purpose is the
establishment of a uniform program and framework for addressing manufactured
gas plant sites in North Carolina.
Nevertheless, the sites do represent a source of potential
environmental claims. While it is not possible at this time to estimate the
amount of liability, if any, that could result from these matters, PSGS will
continue to monitor developments and, if appropriate, record accruals when
required.
NUI BUSINESS
NUI and its subsidiaries are engaged primarily in the distribution of
natural gas in New Jersey and Florida. The principal executive offices of NUI
are located at 550 Route 202-206, Box 760, Bedminster, NJ 07921-0760;
telephone: (908) 781-0500.
NUI is an exempt public utility holding company under the PUHCA. NUI
was incorporated in New Jersey in 1969. NUI's principal operating subsidiary,
EGC, was organized in 1855. NUI currently serves approximately 320,000
customers in two states. The New Jersey Division does business as
Elizabethtown Gas Company and the Florida Division does business as City Gas
Company of Florida.
71
<PAGE>
PSGS BUSINESS
General
PSGS is engaged in the sale and distribution of natural gas to
residential, commercial and industrial customers within prescribed areas of
Maryland, New York, North Carolina and Pennsylvania. The principal executive
offices of PSGS are located at 102 Desmond Street, Sayre, PA 18840; telephone
(717) 888-6600.
PSGS was incorporated in Delaware on April 21, 1928 under the name
"Pennsylvania Gas Management Company," which name was later changed to
Pennsylvania & Southern Gas Company. PSGS currently serves approximately
22,439 customers in the States of Maryland, New York, North Carolina and
Pennsylvania through four (4) operating divisions. PSGS's three local
operating offices are located in Elkton, Maryland, Reidsville, North Carolina,
and Sayre, Pennsylvania. PSGS, through its operating divisions, is subject to
the comprehensive regulatory jurisdiction of the public utility commissions of
the States of Maryland, New York, North Carolina and Pennsylvania.
Territory and Customers Served
PSGS serves more than 22,400 customers, of which 12% are in Maryland,
6% are in New York, 63% are in North Carolina, and 19% are in Pennsylvania. Of
the total customers served, 86% are residential customers and 12% are
commercial customers.
The following table sets forth PSGS operating revenues for the fiscal
years indicated in the territories identified:
Operating Revenues
Fiscal Years Ended September
30,
1993 1992 1991
PSGS Total Operating Revenues (In
thousands) $30,681 $27,619 $27,064
Percentage of Operating Revenues
Generated in:
Maryland 13.0% 13.2% 10.2%
New York 6.0% 6.0% 5.9%
North Carolina 53.9% 55.5% 52.4%
Pennsylvania 27.1% 25.3% 31.5%
Percentage of Operating Revenues
Representing Sales to:
Residential Customers 33.5% 37.0% 33.0%
Commercial Customers 19.1% 21.8% 17.7%
PSGS sold or transported 5,922,000 Mcf of natural gas in fiscal 1989,
6,234,000 Mcf in fiscal 1990, 6,510,000 Mcf in fiscal 1991, 7,371,000 Mcf in
fiscal 1992 and 7,735,000 Mcf in fiscal 1993. An Mcf is a basis unit of
measurement for natural gas comprising 1,000 cubic feet of gas.
Maryland
In the State of Maryland, PSGS provides gas service to approximately
72
<PAGE>
2,626 customers in franchised territories in Cecil County. Maryland's eleven
square mile service territory has a total population of approximately 18,000.
In the State of Maryland the gas volumes sold or transported and
customers served were as follows:
Fiscal Years Ended
September 30,
1993 1992 1991
Gas Volumes Sold or Transported (In
thousands of Mcf):
Residential Customers 169 165 150
Commercial Customers 177 173 136
Industrial 238 216 187
--- --- ---
Total 584 554 473
Customers Served (Twelve month
average): === === ===
Residential Customers 2,374 2,322 2,281
Commercial Customers 234 229 229
Industrial 18 17 18
--- --- ---
Total 2,626 2,568 2,528
=== === ===
In 1958, the Public Service Commission of Maryland approved PSGS'
merger with the Elkton Gas Company (which was incorporated in Maryland in
1920) and authorized PSGS to distribute gas in portions of Cecil County,
including the Town of Elkton. In 1958 and in 1961, the Public Service
Commission of Maryland extended PSGS' service territory to include the third,
fourth and fifth election districts of Cecil County. The current service
territory is a contiguous region in the northeast corner of Cecil County
containing the entire Town of Elkton and extending to the Pennsylvania State
line to the north and the Delaware State line to the east.
PSGS' Elkton Gas Service Division purchases all of its gas
requirements from the Eastern Shore Natural Gas Company.
Waverly Gas Service
PSGS, through its Waverly Gas Service Division, distributes natural
gas in the Village of Waverly, New York and surroundings. It previously
existed as The Gas Light Company of Waverly, a wholly-owned subsidiary of
PSGS. By order of the Public Service Commission of the State of New York
issued on February 17, 1959, The Gas Light Company of Waverly was merged with
and into PSGS. The Waverly Gas Service Division is supplied with gas from the
Valley Cities Gas Service Divisional System, operating in Pennsylvania, as its
operations are supervised from the Sayre operating office. The Village of
Waverly is located approximately one mile north of Sayre, immediately across
the Pennsylvania/New York State border. The Waverly Gas Service Division
serves approximately 1,264 customers in New York.
73
<PAGE>
Fiscal Years Ended
September 30,
1993 1992 1991
Gas Sold or Transported (In
thousands of Mcf):
Residential Customers 133 127 114
Commercial Customers 74 78 68
Industrial 130 47 84
Transportation 3 74 25
--- --- ---
Total 340 326 291
=== === ===
Customers Served (Twelve month
average):
Residential Customers 1,119 1,105 1,087
Commercial Customers 136 133 125
Industrial and Transportation 9 9 9
--- --- ---
Total 1,264 1,247 1,221
=== === ===
North Carolina Gas Service Division
PSGS presently conducts its natural gas business in North Carolina
through its North Carolina Gas Service Division. The North Carolina Utilities
Commission has previously granted PSGS a Certificate of Public Convenience and
Necessity authorizing it to acquire certain gas franchises and properties in
the State of North Carolina. The North Carolina Gas Service Division serves
approximately 14,061 customers, including 2,366 propane customers located in
Rockingham and Stokes Counties, an area with a population of approximately
86,000, which area includes the communities of Reidsville, Eden, Madison and
Mayodan. Natural gas requirements are delivered by Transcontinental Gas
Pipeline Corporation.
74 <PAGE>
Fiscal Years Ended September
30,
1993 1992 1991
Gas Sold or Transported (In
thousands of Mcf):
Residential Customers 829 739 658
Commercial Customers 546 506 325
Industrial 1,922 1,910 1,590
Transportation 83 129 118
--- --- ---
Total 3,380 3,284 2,691
Propane (thousand gallons) 1,325 1,401 2,056
==== ==== ====
Customers Served (Twelve month
average):
Residential Customers 10,205 10,067 9,677
Commercial Customers 1,464 1,449 1,368
Industrial and Transportation 26 25 50
---- ---- ----
Total 11,695 11,541 11,095
Propane 2,366 2,410 2,429
===== ===== ====
The table above shows a reduction of twenty-five industrial customers
from 1991 to 1992. These customers were reclassified into the commercial
classification and do not reflect a loss of customers.
Valley Cities Gas Service Division
The PSGS division serving the Commonwealth of Pennsylvania is called
the Valley Cities Gas Service Division and provides natural gas service to
approximately 4,276 customers in the townships of Athens, Towanda, North
Towanda, Ulstor and in the boroughs of Towanda, Sayre, Athens and South
Waverly, all in Bradford County, Pennsylvania. This division previously
existed as the Valley Cities Gas Company, which was incorporated on March 10,
1944. By order of the Pennsylvania Public Utility Commission dated September
29, 1958, the acquisition of Valley Cities Gas Company by PSGS was approved.
The natural gas requirements for Valley Cities Gas Service Division are
delivered by Tennessee Gas Pipeline Company. This service area includes
approximately ten major industries in an area surrounded by dairy land.
Approximately 36,000 people live in this territory.
Fiscal Years Ended
September 30,
1993 1992 1991
Gas Sold or Transported (In
thousands of Mcf):
Residential Customers 419 394 352
Commercial Customers 228 218 222
Industrial 266 112 684
Transportation 2,517 2,483 1,796
----- ---- -----
75
<PAGE>
Total 3,430 3,207 3,054
==== ==== ====
Customers Served (Twelve month
average):
Residential Customers 3,677 3,533 3,358
Commercial Customers 575 553 522
Industrial and Transportation 24 24 23
---- ---- ----
Total 4,276 4,110 3,903
==== ==== ====
Gas Supply
In 1992, the FERC issued Order No. 636 that mandates the unbundling of
interstate pipeline sales and transportation and establishes certain open
access transportation regulations effective in 1993. Two of PSGS' three
principal pipeline suppliers have been operating as open access pipelines
under the FERC's Order 436. However, Eastern Shore Natural Gas Company has not
elected open access.
Tennessee received FERC approval to implement the rates and tariff
provisions necessary to comply with FERC's restructuring Order 636 effective
September 1, 1993. Transcontinental filed its compliance tariffs on August 4,
1993, with a proposed effective date of November 1, 1993. PSGS has closely
followed the proceedings and expects that the transition to the Order 636
environment will be a smooth one. The elections required to convert from a
"bundled" sales service to "unbundled" sales and capacity related services
were made previously. Transco's service restructuring was basically completed
in late 1990. Tennessee's restructuring was addressed through PSGS' "Cosmic
Settlement" elections made in the spring of 1992, with one exception.
Tennessee's Order 636 compliance abolishes Contract Demand Sales
Service. PSGS' management has elected to convert its current CD-4 sales
entitlement to firm transportation capacity upon 636 implementation. PSGS is
currently negotiating for natural gas supply to support this firm
transportation capacity. PSGS expects to complete negotiations in the next
several weeks and expect an arrangement will be reached which will provide
long-term supply assurances at competitive prices.
PSGS' management believes it has effectively dealt with the
operational aspects of FERC Order 636 through its service elections discussed
in this report and in previous reports. The elections have been designed to
support PSGS' peak day, seasonal, and annual commitments to its customers.
These service elections have also been designed to minimize the potential cost
impact of new rate design mandates from the FERC. With Order 636
implementation the pipelines will convert from a Modified Fixed-Variable
Pricing Method to the Straight Fixed Variable Pricing Scheme ("SFV"). Under
SFV methodology rates are billed, by the pipelines, almost entirely on demand
units in the form of a fixed monthly charge. Prior to 636 rates were billed
partially on demand units and partially on commodity purchases. The more one
used the more one paid. The majority of gas costs incurred upon 636
implementation will be fixed with only slight variations related to the amount
of gas purchased. Therefore, it is more important than ever to operate at a
high load factor in order to reduce the average unit cost. PSGS' management
believes that it has prepared its service elections in a manner that will
76
<PAGE>
provide adequate supplies at competitive prices to our customers for now and
in the future.
Capital Expenditures
Capital expenditures, which consist primarily of expenditures to
expand and upgrade PSGS's gas distribution systems, were $3,707,000 in fiscal
1991, $2,127,000 in fiscal 1992 and $2,172,000 in fiscal 1993. Approximately
$7,251,000 of these capital expenditures were for construction relating to new
customers and additional distribution, storage and other gas plant facilities.
PSGS's capital expenditures are expected to approximate $3,238,000 in fiscal
1994.
Seasonal Aspects
Sales of gas to some classes of customers are effected by variations
in demand due to changes in weather conditions, including normal seasonal
variations throughout the year. The demand for gas for heating purposes is
closely related to the severity of the winter heating season. Seasonal
variations effect short-term cash requirements.
Persons Employed
As of September 30, 1993, PSGS employed 145 persons. As of September
30, 1993, the International Brotherhood of Teamsters, Chauffeurs, Warehousemen
and Helpers (the "Teamsters") represented 19 employees of the Valley Cities
Gas Service Division and the International Brotherhood of Electrical Workers
(the "IBEW") represented 51 employees of the North Carolina Division. The
current labor contract with the Teamsters expires on October 1, 1996. It was
approved by the bargaining unit on October 4, 1993. The current labor contract
with the IBEW expires on August 30, 1995. It was approved by the bargaining
unit on September 1, 1992.
Competition
PSGS competes with distributions of other fuels and forms of energy,
including electricity, fuel oil and propane, in all portions of the territory
served. Electricity and oil are the primary competition to natural gas in the
residential and commercial markets where the primary uses of energy are for
space heating, water heating, cooking and clothes drying. In recent years,
natural gas has enjoyed a competitive price advantage over electricity and oil
for such purposes, which continues to allow PSGS to obtain a significant share
of the residential and commercial sectors of the new construction market.
In addition, open access to the interstate pipeline transmission
system allow certain industrial customers to purchase gas from alternative
sources for transportation through PSGS distribution systems and may allow
certain industrial customers to bypass PSGS' systems all together by
connecting directly to a gas pipeline. PSGS seeks to remain competitive in the
industrial markets through flexible rate and transportation tariffs.
Franchises
PSGS holds non-exclusive municipal franchises and other consents which
enable it to provide natural gas in the territories it serves. PSGS intends to
renew these franchises and consents as they expire.
Environmental
77
<PAGE>
See "PSGS Management's Discussion and Analysis of Results of
Operations and Financial Condition-Certain Environmental Matters."
Legal Proceeding
PSGS is involved in various claims and litigation incidental to its
business. In the opinion of management, none of these claims and litigation
will have a material adverse effect on PSGS' results of operations or its
financial condition.
LEGAL OPINIONS
The validity of the shares of NUI Common Stock to be issued in
connection with the PSGS Merger will be passed upon for NUI by Mary Patricia
Keefe, Esq., Union, New Jersey, General Counsel of EGC.
EXPERTS
The NUI audited Consolidated Financial Statements and audited Summary
Consolidated Financial Data incorporated by reference in this Proxy
Statement/Prospectus have been audited by Arthur Andersen & Co., independent
public accountants, as indicated in their report thereon and are incorporated
herein by reference in reliance upon the authority of said firm as experts in
giving said report.
The Consolidated Financial Statements of PSGS for each year in the
three year period ended September 30, 1993 included in this Proxy
Statement/Prospectus have been audited by Coopers & Lybrand, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
78 <PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 30, 1993 and
1992 F-3
Consolidated Statements of Income (Loss) for the Years Ended
September 30, 1993, 1992 and 1991 F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1993, 1992 and 1991 F-7
Consolidated Statements of Shareholders' Equity for the
Years Ended September 30, 1993, 1992 and 1991 F-9
Consolidated Statements of Capitalization as of September
30, 1993 and 1992 F-10
Notes to Consolidated Financial Statements F-11
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of the Pennsylvania & Southern Gas Company
Sayre, Pennsylvania
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of PENNSYLVANIA & SOUTHERN GAS
COMPANY AND SUBSIDIARY as of September 30, 1993 and 1992, and the related
consolidated statements of income (loss), shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Pennsylvania & Southern Gas Company and Subsidiary as of September 30, 1993
and 1992, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1993, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND
Syracuse, New York
November 22, 1993
F-2
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS 1993 1992
Utility plant, at original cost $29,329,000 $27,463,000
Less accumulated depreciation 8,896,000 8,185,000
------- --------
20,433,000 19,278,000
--------- -------
Non-utility property, at cost, less
accumulated
depreciation of $973,000 and $938,000, at 343,000 395,000
September 30, 1993 and 1992, respectively
------ ------
Current assets:
Cash and cash equivalents 84,000 346,000
Receivables, less allowances of $113,000
and $117,000
at September 30, 1993 and 1992,
respectively 2,064,000 1,856,000
Refundable federal and state income
taxes 608,000 308,000
Accrued utility revenues 118,000 110,000
Inventories 2,545,000 2,759,000
Deferred federal income taxes 37,000 275,000
Prepaid expenses and other deferred
charges 711,000 851,000
Deferred gas cost adjustments 520,000
------ -------
Total current assets 6,687,000 6,505,000
------- -------
Restricted cash deposits 486,000 489,000
Deferred gas cost adjustments and other
deferred charges 772,000 1,155,000
------ ------
$28,721,000 $27,822,000
========== ==========
F-3 <PAGE>
The accompanying notes are an integral part
of these financial statements.
F-4 <PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30,
CAPITALIZATION AND LIABILITIES 1993 1992
Capitalization (see accompanying
statement):
Shareholders' equity $ 9,076,000 $ 9,029,000
Long-term debt 9,530,000 8,572,000
-------- --------
18,606,000 17,601,000
-------- --------
Current liabilities:
Bank notes payable 2,475,000 1,825,000
Current portion of long-term debt
and sinking fund requirements 649,000 652,000
Accounts payable 2,682,000 2,269,000
Accrued expenses 1,230,000 1,164,000
Deferred gas cost adjustment 1,206,000
-------- --------
Total current liabilities 7,036,000 7,116,000
-------- ---------
Suppliers refunds due customers and other
deferred credits 857,000 1,160,000
Deferred federal income taxes 1,873,000 1,574,000
Unamortized investment tax credit 349,000 371,000
--------- --------
$28,721,000 $27,822,000
========= =========
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended September 30,
1993 1992 1991
Operating revenues:
Utility (natural gas) $29,445,000 $25,623,000 $23,690,000
Non-utility (propane gas) 1,236,000 1,996,000 3,374,000
--------- ---------- ----------
30,681,000 27,619,000 27,064,000
--------- ---------- ----------
Operating expenses:
Operations:
Natural gas 19,089,000 16,102,000 15,761,000
Propane gas 1,196,000 1,907,000 3,057,000
Other 5,333,000 5,130,000 4,987,000
Maintenance 627,000 594,000 617,000
Depreciation 995,000 871,000 725,000
General business taxes 1,428,000 1,369,000 1,334,000
Federal and state income taxes
(credit) 148,000 220,000 ( 149,000)
---------- --------- ----------
28,816,000 26,193,000 26,332,000
---------- ---------- ----------
Operating income 1,865,000 1,426,000 732,000
Merger expenses 343,000
Interest expense (net of interest
income for September
30, 1993, 1992, and 1991 of
$3,000, $4,000 and $7,000,
respectively) 1,111,000 969,000 960,000
---------- ---------- ----------
411,000 457,000 ( 228,000)
Gain on sale of certain propane
operations (net of
$375,000 of income tax) 596,000
---------- ---------- ---------
Net income (loss) $ 411,000 $ 1,053,000 ($ 228,000)
========== ========== ===========
F-6
<PAGE>
Net income (loss) per share of
common stock
$1.74
$4.47 ($0.97)
The accompanying notes are an integral part of these financial
statements.
F-7 <PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years Ended September 30,
1993 1992 1991
Cash flows from operating
activities:
Net income (loss) $ 411,000 $1,053,000 ($ 228,000)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Gain on sale
of propane
properties (1,026,000)
Depreciation 1,069,000 985,000 871,000
Amortization
of deferred
accounts 83,000 128,000 82,000
Changes in operating assets
and liabilities:
Accounts
receivable
and accrued
utility
revenues (216,000) 426,000 ( 617,000)
Inventories 214,000 ( 1,101,000) 428,000
Prepaid
expenses and
other
deferred
charges ( 77,000) ( 945,000) ( 628,000)
Accounts
payable and
accrued
expenses 479,000 326,000 422,000
State and
federal
income taxes( 300,000) ( 158,000) 272,000
Deferred
income taxes
and
investment
tax credit 515,000 ( 126,000) ( 49,000)
Suppliers
refunds and
other
deferred
credits ( 1,509,000) 1,619,000 32,000
--------- --------- --------
Net cash provided by
operating activities 669,000 1,181,000 585,000
--------- --------- -------
F-8 <PAGE>
Cash flows from investing
activities:
Construction expenditures,
net of retirements ( 2,172,000) ( 2,127,000) ( 3,707,000)
Proceeds from sale of
propane properties 1,500,000
--------- --------- ---------
Net cash used in investing
activities ( 2,172,000) ( 627,000) ( 3,707,000)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt 3,982,000 6,375,000 4,263,000
Repayments of long-term
debt ( 2,375,000) ( 4,395,000) ( 2,325,000)
Net proceeds (payments)
short-term debt 650,000 ( 1,591,000) 2,561,000
Sinking fund payments on
long-term debt ( 652,000) ( 652,000) ( 951,000)
Dividends paid to
stockholders ( 364,000) ( 189,000) ( 307,000)
------- ------- -------
Net cash provided by (used
in) financing activities 1,241,000 ( 452,000) 3,241,000
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents (262,000) 102,000 119,000
Cash and cash equivalents at
beginning of period 346,000 244,000 125,000
-------- -------- --------
Cash and cash equivalents at
end of period $ 84,000 $ 346,000 $ 244,000
======== ======== ========
Supplemental disclosure of
cash flow information:
Cash paid (received) during
the year for:
Interest $1,090,000 $ 973,000 $1,120,000
Income taxes (67,000) 887,000 25,000
The accompanying notes are an integral part of these financial
statements.
F-9
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Premium Total
Common on Common Capital Earnings Shareholde
Stock Stock Surplus Reinvested rs' Equity
Balance, September
30, 1990 $295,000 $640,000 $ 53,000 $7,712,000 $8,700,000
Net loss ($ 228,000)($ 228,000)
Cash dividends
($1.30 per share) ($ 307,000)($ 307,000)
-------- -------- -------- -------- -------
Balance, September
30, 1991 $295,000 $640,000 $ 53,000 $7,177,000 $8,165,000
Net income $1,053,000 $1,053,000
Cash dividends
($.80 per share) ($ 189,000)($ 189,000)
-------- -------- -------- -------- --------
Balance, September
30, 1992 $295,000 $640,000 $ 53,000 $8,041,000 $9,029,000
Net income 411,000 411,000
Cash dividends
($1.54 per share) ( 364,000) ( 364,000)
-------- -------- -------- -------- -------
Balance, September
30, 1993 $295,000 $640,000 $ 53,000 $8,088,000 $9,076,000
======== ======= ======== ======== =========
The accompanying notes are an integral part of these financial statements.
F-10 <PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
September 30,
1993 1992
Long-term debt:
First mortgage bonds:
8% Series due 1996 $ 450,000 $ 495,000
9-1/2% Series due 2000 4,200,000 4,800,000
Revolving loan 5,525,000 3,918,000
Mortgage notes payable 4,000 11,000
--------- ---------
10,179,000 9,224,000
Less: Current portion of long-term debt
and sinking
fund requirements on first mortgage bonds 649,000 652,000
--------- --------
Total 9,530,000 8,572,000
--------- ---------
Shareholders' equity:
Common stock-par value $1.25 per share,
authorized 300,000 shares, issued and
outstanding 235,857 shares 295,000 295,000
Premium on common stock 640,000 640,000
Capital surplus 53,000 53,000
Earnings reinvested in business
($7,171,000
not available for dividends or
acquisition
of common stock for all periods
presented) 8,088,000 8,041,000
-------- ---------
9,076,000 9,029,000
--------- ---------
Total Capitalization $18,606,000 $17,601,000
========= =========
Capitalization ratios:
Long-term debt 51% 49%
Shareholders' equity 49% 51%
---- ----
100% 100%
==== ====
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Rockingham
Exploration Company. Rockingham Exploration is in the process of
disposing of its assets. The effect of this transaction will not be
significant.
Accounting Records
The Company maintains its accounting records in conformity with the
uniform system of accounts prescribed by the Federal Energy Regulatory
Commission and the Public Service Commissions of the states of New
York, Pennsylvania, North Carolina and Maryland.
Regulatory Matters
The Company is deferring for accounting and rate-making purposes
differences between purchased gas costs and the settlement of such
costs which, through the application of annual purchased gas
adjustment clauses or similar tariff provisions, are expected to be
settled through changes in operating revenues in subsequent periods.
The Company has received refunds from its natural gas suppliers which
have been deferred pursuant to the various state regulatory
commissions' rules and regulations. In accordance with the
instructions of the state regulatory commission, the Company is
collecting or refunding such amounts to its affected customers. The
amounts required to be collected or refunded within one year are
included as current assets or liabilities.
Revenues
Operating revenues are recorded on the basis of service rendered and
include unbilled and accrued revenues through the end of the
accounting period.
Income Taxes
The Company files a consolidated federal income tax return with its
wholly owned subsidiary. Where permitted by the various state
regulatory commissions for rate-making purposes, the Company provides
deferred income taxes relating to differences in the timing of the
recognition of certain items of income and expense for book and tax
purposes.
Investment tax credits are deferred and amortized over the useful
service lives of the related assets. The Tax Reform Act of 1986
eliminated the investment tax credit.
F-12
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Restricted Cash Deposits
In accordance with certain regulatory requirements the company is
required to deposit certain funds received in interest-bearing
accounts with a corresponding amount included in other deferred
credits. These funds are restricted for uses prescribed by regulatory
authorities.
Inventories
Inventories are stated at the lower of cost or market based on average
cost (natural gas in storage and materials and supplies), last-in,
first-out cost (propane gas) and first-in, first-out cost
(appliances).
Plant, Property and Depreciation
The cost of new plant and property and expenditures for major renewals
and betterments are capitalized and depreciated on the straight-line
method over estimated service lives. The annual composite depreciation
rate is approximately three percent for utility plant. The estimated
service lives used range from 3 to 51.
When utility assets are retired or otherwise disposed of, the original
cost is eliminated from the accounts. In the case of retirements,
other than abnormal retirements, the difference between cost and
accumulated depreciation, as adjusted for the cost of removal, is
accounted for through the accumulated depreciation account.
Repairs of all property, plant and equipment as well as minor
replacements are charged to maintenance expense as incurred.
Net Income (Loss) Per Share of Common Stock
Net income (loss) per share of common stock is based on the weighted
average number of common shares outstanding (235,857 shares for all
periods presented).
F-13
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. INVENTORIES
Inventories consist of the following at September 30:
993 1992
Natural gas in storage $1,806,000 $2,079,000
Propane gas in storage 155,000 123,000
Materials and supplies 506,000 459,000
Gas appliances 78,000 98,000
--------- ---------
$2,545,000 $2,759,000
========= =========
3. EMPLOYEES' BENEFIT PLAN
The Company has a non-contributory defined benefit pension plan which
covers all full-time employees. The benefits are based on years of
service and the highest average compensation over sixty consecutive
months during the last ten years of employment. The Company's policy
is to fund the plan as required. Contributions are intended to provide
not only for benefits attributed to service to date but also for those
expected to be earned in the future.
Net periodic pension cost for the years ended September 30, included
the following components:
1993 1992 1991
Service cost-benefits earned
during the year $216,000 $217,000 $194,000
Interest cost on projected
benefit obligation 321,000 316,000 286,000
Return on plan assets ( 441,000) ( 426,000) (316,000)
Net amortization and
deferral ( 103,000) ( 96,000) ( 78,000)
-------- ------- -------
Net periodic pension cost ($ 7,000) $ 11,000 $ 86,000
======= ======= =======
F-14
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the Plan's funded status and amounts
recognized in the Company's balance sheet at September 30.
1993 1992
Actuarial present value of benefit
obligation:
Vested $3,342,000 $2,754,000
Non-vested 45,000 38,000
Accumulated benefit obligation $3,387,000 $2,792,000
Projected benefit obligation ($4,688,000)($3,865,000)
Plan assets at fair value 6,056,000 5,602,000
Plan assets in excess of projected
benefit obligation 1,368,000 1,737,000
Unrecognized net asset at October 1,
1987
being amortized over 20 years ( 1,151,000) (1,234,000)
Unrecognized prior service cost ( 206,000) ( 220,000)
Unrecognized net loss ( 428,000) ( 707,000)
-------- ---------
(Accrued) pension costs ($ 417,000)($ 424,000)
======== ========
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.5% and 5.5% and 8.5% and 5.5%
in 1993 and 1992, respectively. The expected long-term rate of return
on assets was 8% and 8.5% in 1993 and 1992, respectively.
The Company has an employer earnings and investment plan as allowed
under Section 401(k) of the Internal Revenue Code. Under this Plan,
each employee can defer up to 15% of compensation. The Company matches
50% of the deferral, not to exceed 2% of the employees' compensation.
The Company's matching contributions for 1993, 1992 and 1991 were
approximately $55,000, $62,000, and $64,000, respectively. In addition
to the matching contribution, the Company's Board of Directors
approved a further contribution, to be made annually, to the account
of each employee of the Company equal to 3% of the employees' salary
and wages for the year, totalling approximately $111,000 in fiscal
year 1993, $112,000 in fiscal year 1992 and $109,000 in fiscal year
1991.
F-15
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In December of 1990, the Financial Accounting Standards Board issued
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" which will require the Company to accrue the costs of
the retiree health and other retirement benefits during the working
careers of active employees effective for fiscal year 1994. The
Company currently provides retirees with certain life and health
insurance benefits which, on a "pay-as-you-go" basis amounted to
approximately $19,000, $17,000, and $16,000 in 1993, 1992, and 1991
respectively.
The Company will adopt the standard as of October 1, 1993 and expects
to amortize the transition obligation of approximately $700,000 over
approximately 22 years. The related impact on health care benefits
expense after adoption is expected to be in excess of the current
"pay-as-you-go" amount by approximately $100,000. In 1993, the
Emerging Issues Task Force (the "EITF") reached a consensus with
respect to accounting for postretirement benefits. Based upon
preliminary discussions with regulators, the Company expects to
recover costs within the guidelines of the EITF.
5. SHORT-TERM NOTES PAYABLE
The Company has available unsecured lines of credit aggregating
$5,500,000 at September 30, 1993. These lines are renegotiated
annually and may be withdrawn at the Banks' option and all outstanding
balances are due on demand. As of September 30, 1993 and 1992, there
was $2,475,000 and $1,825,000 outstanding, respectively, bearing
various interest rates which in aggregate approximate prime.
6. LONG-TERM DEBT
The first mortgage bonds consist of two separate series which are
collateralized by certain utility properties. Furthermore, the bond
indenture contains a number of restrictive covenants, including
limitations on both the amount of dividends paid and any additional
amounts of long-term debt issued by the Company.
In addition, the Company has a revolving loan agreement with a Bank
which makes a total of $7,000,000 available to the Company. At
September 30, 1993 there was approximately $5,525,000 outstanding
under this agreement. In January 1993, certain terms of the agreement
were renegotiated including an increase in amount available from
$4,000,000 at September 30, 1992 and a change in the minimum monthly
payment requirement from 1/36 to 1/120 of the outstanding principal
balance beginning in January 1995. Interest is payable monthly and
bears interest at prime plus 1/2% (6-1/2% at September 30, 1993),
through February 1998, which will be renegotiated for years
subsequent. The Company's primary use of these funds is to support
costs of capital replacement and expansion.
F-16
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Principal payments required on all long-term debt are as follows:
September 30,
1993
Due in One year $ 649,000
Two years 645,000
Three years 1,014,000
Four years 1,198,000
Five years 1,198,000
Thereafter 5,475,000
----------
$10,179,000
==========
7. LEASES
At September 30, 1993, minimum rent commitments under noncancellable
operating leases which relate principally to office space and computer
equipment are as follows:
1994 $ 183,000
1995 140,000
1996 86,000
1997 86,000
1998 86,000
--------
Total minimum lease payments $581,000
========
Rents charged to operations were $150,000, $143,000, and $123,000 in
fiscal 1993, 1992 and 1991, respectively.
8. CONSTRUCTION COSTS
The estimated cost of the 1994 capital project program is $3,238,000.
F-17
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES
The components of federal and state income taxes are as follows:
1993 1992 1991
Current ($367,000) $721,000 ($100,000)
Deferred 537,000 ( 98,000) ( 23,000)
Amortization of
investment tax credits ( 22,000) ( 28,000) ( 26,000)
------- ------- -------
$148,000 $595,000 ($149,000)
======= ======= =======
The sources of deferred federal income taxes are as follows:
1993 1992 1991
Depreciation $122,000 $115,000 $157,000
Deferred charges 572,000 (218,000) (123,000)
Pension plan 2,000 ( 3,000) (30,000)
Inventory
capitalization ( 87,000) 20,000 ( 12,000)
Accounts receivable ( 33,000) (1,000) ( 7,000)
Vacation ( 27,000) 2,000 5,000
Other (net) ( 12,000) ( 13,000) ( 13,000)
------- ------ -------
$537,000 ($98,000) ($23,000)
======= ======= =======
F-18
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's income tax expense differs from the amount which would
be provided by applying the federal statutory rate to income before
tax. The reasons for the difference (expressed as a percentage of
pre-tax income) are as follows:
1993 1992 1991
Federal statutory rate 34.0% 34.0% (34.0%)
Increase (decrease) in
tax rate resulting
from:
Amortization of
investment tax
credit ( 3.8) ( 1.7) ( 6.9)
State taxes, net
of Federal 3.1 5.4
Reversal of prior
years overaccruals (7.1)
Other items, net 0.3 ( 1.6) 1.4
---- ----- ----
Effective tax rate 26.5% 36.1% (39.5%)
===== ==== ====
In February 1992, the Financial Accounting Standards Board issued SFAS
No. 109, "Accounting for Income Taxes," which, among other things,
requires enterprises to account for deferred income taxes using
currently enacted rates. The Company will adopt this new standard in
fiscal 1994 and has estimated net deferred tax liabilities to include
approximately $400,000 which will be passed-back to customers through
the rate-making process. This adjustment is not expected to have a
material effect on net income.
10. TAKE OR PAY CHARGES
In 1993 the New York State Public Service Commission approved recovery
of 90% of certain take-or-pay charges, and in 1992 the Pennsylvania
Public Utilities Commission also approved 90% recovery of these
charges. The Company expensed approximately $15,000 and $128,000 in
1993 and 1992, respectively, representing the amount of costs which
were not recoverable.
11. SALE OF CERTAIN PROPANE OPERATIONS
In February 1992, the Company sold, for $1,657,000, two of their
F-19
<PAGE>
PENNSYLVANIA & SOUTHERN GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
propane operations which included equipment, inventories and accounts
receivable. As part of the sale and in consideration of not competing
with the buyer, the Company will also receive $20,000 for each of the
next five years. These amounts will be recorded as part of income in
the year received. The total gain on the sale was $971,000.
12. COMMITMENTS AND CONTINGENCIES
The Company's historical operations included the operation of coal
gasification sites, where through a series of processes gas was
manufactured from coal and oil. The U. S. Environmental Protection
Agency and various state regulatory authorities have over the years
been investigating former coal gas manufacturing facilities generally,
because of the potential for those operations to have generated
hazardous substance-containing waste materials and by products. The
Company historically operated ten such facilities, only three of which
the Company still owns. The other seven were, over the years, sold and
are currently owned and controlled by other entities. Manufactured gas
plant activities at the Company's facilities were discontinued in or
about 1946, when a more cost-efficient alternative became available -
propane.
Four of the ten former sites are currently listed on the United Stated
Environmental Protection Agency's CERCLIS List, where they eventually
will be subjected to some level of investigation by any one of the
state regulatory authorities in which they reside or the EPA. One of
these sites, as a result of a Preliminary Assessment completed by the
North Carolina Department of Environment, Health, and Natural
Resources, Division of Solid Waste Management, has been recommended
for a Screening Site Investigation. The fact that the sites appear on
the CERCLIS List is not indicative of their status; nor does it
signify that the sites will be placed on the National Priorities List
of sites designated for environmental cleanup. The Company is
currently participating in the formation of a state coalition whose
purpose is the establishment of a uniform program and framework for
addressing manufactured gas plant sites in North Carolina.
Nevertheless, the sites do represent a source of potential
environmental claims. While it is not possible at this time to
estimate the amount of liability, if any, that could result from these
matters, the Company will continue to monitor developments and, if
appropriate, record accruals when required.
13. PROPOSED MERGER
On July 27, 1993, the Board of Directors, subject to shareholder
approval, agreed to the merger of Pennsylvania & Southern Gas Company
with and into NUI Corporation pursuant to the terms and conditions of
an "Agreement and Plan of Merger" (the "Agreement"). Pursuant to the
"Agreement" each share of PSGS stock will be exchanged for shares of
NUI Corporation Common Stock based upon a formula contained therein.
F-20 <PAGE>
F-21
<PAGE>
ANNEX A
_________________________________________________________________
AGREEMENT AND PLAN OF MERGER
by and between
NUI CORPORATION
and
PENNSYLVANIA & SOUTHERN GAS COMPANY
Dated July 27, 1993
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
Parties and Recitals . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1
Definitions and Interpretation
Section 1.1 Definitions . . . . . . . . . . . . . . . . . 1
Section 1.2. Interpretation . . . . . . . . . . . . . . . 4
ARTICLE 2
Merger of the Company into the Purchaser
Section 2.1. The Merger . . . . . . . . . . . . . . . . . 4
Section 2.2. Effective Time of the Merger . . . . . . . . 4
Section 2.3. Effects of the Merger . . . . . . . . . . . . 5
Section 2.4. Closing . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
Effects of the Merger on Purchaser and
Company Common Stock; Exchange of Certificates
Section 3.1. Effect on Purchaser and Company Common Stock 5
Section 3.2. Dissenting Shares . . . . . . . . . . . . . . 6
Section 3.3. Stock Transfer Books . . . . . . . . . . . . 7
Section 3.4. Exchange of Shares of
Company Common Stock . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4
Representations and Warranties of the Purchaser
Section 4.1. Corporate Status . . . . . . . . . . . . . . 9
Section 4.2. Capitalization of the Purchaser . . . . . . . 9
Section 4.3. EGC Common Stock . . . . . . . . . . . . . . 9
Section 4.4. Authority; Binding Effect . . . . . . . . . . 9
Section 4.5. Consents . . . . . . . . . . . . . . . . . . 10
Section 4.6. Information Provided . . . . . . . . . . . . 10
Section 4.7. Absence of Material Adverse Effect . . . . . 11
Section 4.8. SEC Filings; Financial Statements . . . . . . 11
Section 4.9. Litigation . . . . . . . . . . . . . . . . . 11
Section 4.10. Tax Returns and Audits . . . . . . . . . . . 11
Section 4.11. Certain Agreements . . . . . . . . . . . . . 12
Section 4.12. PUHCA . . . . . . . . . . . . . . . . . . . . 12
Section 4.13. Labor Controversies . . . . . . . . . . . . . 12
Section 4.14. Insurance . . . . . . . . . . . . . . . . . . 12
Section 4.15. Brokers or Finders . . . . . . . . . . . . . 12
Section 4.16. Continuity of Business Enterprise;
A-i
<PAGE>
No Plan to Repurchase Stock . . . . . . . . . . . . . . . . 12
Section 4.17 Compliance Issues . . . . . . . . . . . . . . 13
Section 4.18. Exclusivity of Representations and Warranties 13
ARTICLE 5
Representations and Warranties of the Company
Section 5.1. Corporate Status . . . . . . . . . . . . . . 13
Section 5.2. Subsidiaries . . . . . . . . . . . . . . . . 13
Section 5.3. Capitalization of the Company . . . . . . . . 14
Section 5.4. Authority; Binding Effect . . . . . . . . . . 14
Section 5.5. Consents . . . . . . . . . . . . . . . . . . 15
Section 5.6. Financial Statements; Regulatory Filings and Other
Disclosure . . . 15
Section 5.7. Absence of Material Adverse Effect . . . . . 15
Section 5.8. Litigation . . . . . . . . . . . . . . . . . 15
Section 5.9. Employee Benefit Plans . . . . . . . . . . . 16
Section 5.10. Information Provided . . . . . . . . . . . . 17
Section 5.11. Brokers or Finders . . . . . . . . . . . . . 18
Section 5.12. Tax Returns and Audits . . . . . . . . . . . 18
Section 5.13. Certain Agreements . . . . . . . . . . . . . 19
Section 5.14. PUHCA . . . . . . . . . . . . . . . . . . . . 19
Section 5.15. Labor Controversies . . . . . . . . . . . . . 19
Section 5.16. Insurance . . . . . . . . . . . . . . . . . . 19
Section 5.17. Plant, Property, Equipment and Other Assets . 20
Section 5.18. Computer Software . . . . . . . . . . . . . . 20
Section 5.19. Defaults . . . . . . . . . . . . . . . . . . 20
Section 5.20. Absence of Certain Changes or Events . . . . 20
Section 5.21. Regulation as Utility . . . . . . . . . . . . 21
Section 5.22. Compliance with Applicable Laws . . . . . . . 21
Section 5.23. Undisclosed Liabilities . . . . . . . . . . . 21
Section 5.24. Transfer of Surviving Common Stock . . . . . 21
Section 5.25. Environmental Matters . . . . . . . . . . . . 21
Section 5.26. Operating Condition . . . . . . . . . . . . . 22
Section 5.27. Compliance Issues . . . . . . . . . . . . . . 22
Section 5.28. Exclusivity of Representations and Warranties 22
ARTICLE 6
Conduct of Business Pending the Merger
Section 6.1. General Conduct of Company Business . . . . . 23
Section 6.2. No Solicitation or Negotiation . . . . . . . 24
Section 6.3. Cash Dividends of the Purchaser . . . . . . . 25
ARTICLE 7
Additional Covenants
Section 7.1. Preparation of Registration Statement and Proxy
Statement . . . . . . . . . . . . . . . . . . 25
Section 7.2. Approval of Shareholders . . . . . . . . . . 25
Section 7.3. EGC Merger . . . . . . . . . . . . . . . . . 26
Section 7.4. Access and Due Diligence . . . . . . . . . . 26
Section 7.5. Employee Benefits, Management and
Employment Agreements . . . . . . . . . . . . . . . . . 26
Section 7.6. HSR Act . . . . . . . . . . . . . . . . . . . 27
A-ii <PAGE>
Section 7.7. Regulatory Approvals . . . . . . . . . . . . 27
Section 7.8. Additional Agreements . . . . . . . . . . . . 27
Section 7.9. Notification of Certain Matters . . . . . . . 27
Section 7.10. Confidentiality . . . . . . . . . . . . . . . 28
Section 7.11. Publicity . . . . . . . . . . . . . . . . . . 28
Section 7.12. Agreement to Defend . . . . . . . . . . . . . 28
Section 7.13. Expenses . . . . . . . . . . . . . . . . . . 28
Section 7.14. Letter of the Company's Accountants . . . . . 28
Section 7.15. Reservation of Shares; Listing of Surviving Common
Stock . . . . . . . . . . . . . . . . . . . . 29
Section 7.16. Blue Sky Permits . . . . . . . . . . . . . . 30
Section 7.17. Agreement by Affiliates . . . . . . . . . . . 30
Section 7.18. Shareholder Agreements . . . . . . . . . . . 30
ARTICLE 8
Conditions
Section 8.1. Conditions to Obligation of Each Party to Effect the
Merger . . . . . . . . . . . . . . . . . . . 30
Section 8.2. Additional Conditions to Obligations of the Company 31
Section 8.3. Additional Conditions to Obligations of the Purchaser 31
ARTICLE 9
Termination, Amendment and Waiver
Section 9.1. Termination . . . . . . . . . . . . . . . . . 33
Section 9.2. Procedure and Effect of Termination . . . . . 33
Section 9.3. Amendment . . . . . . . . . . . . . . . . . . 34
Section 9.4. Waiver . . . . . . . . . . . . . . . . . . . 34
ARTICLE 10
General Provisions
Section 10.1. Representations and Warranties . . . . . . . 34
Section 10.2. Notices . . . . . . . . . . . . . . . . . . . 34
Section 10.3. Headings . . . . . . . . . . . . . . . . . . 35
Section 10.4. Miscellaneous . . . . . . . . . . . . . . . . 35
Section 10.5. Third-Party Beneficiaries . . . . . . . . . . 36
Section 10.6. Partial Invalidity . . . . . . . . . . . . . 36
INDEX OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit A-1 Form of Opinion of Kaye, Scholer, Fierman, Hays & Handler
Exhibit A-2 Form of Opinion of Mary Patricia Keefe, Esq.
Exhibit A-3 Form of Opinion of Other Counsel
Exhibit B-1 Form of Opinion of Montgomery, McCracken, Walker & Rhoads
Exhibit B-2 Form of Opinion of Other Counsel
Exhibit B-3 Form of Opinion of Other Counsel
Exhibit B-4 Form of Opinion of Other Counsel
Exhibit B-5 Form of Opinion of Other Counsel
A-iii
<PAGE>
Purchaser Schedules
Schedule 4.3 Encumbrances
Schedule 4.4 Third Party Consents
Schedule 4.10 Tax Returns and Audits
Company Schedules
Schedule 5.2 Subsidiaries
Schedule 5.4 Third Party Consents
Schedule 5.8 Litigation
Schedule 5.9 Benefit Plans
Schedule 5.12 Tax Returns and Audits
Schedule 5.13 Certain Agreements
Schedule 5.17 Plant, Property, Equipment and Other Assets
Schedule 5.18 Computer Software
Schedule 5.22 Compliance with Applicable Laws
Schedule 5.25 Environmental Matters
Schedule 6.1 Conduct of Business
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated July 27, 1993,
by and between NUI CORPORATION, a New Jersey corporation (the "Purchaser"),
and PENNSYLVANIA & SOUTHERN GAS COMPANY, a Delaware corporation (the
"Company").
WHEREAS, the respective Boards of Directors of the Purchaser and the
Company have approved the acquisition of the Company and its subsidiaries by
the Purchaser;
WHEREAS, in furtherance of such acquisition, the respective Boards of
Directors of the Purchaser and the Company have determined that it is
advisable to merge the Company with and into the Purchaser as the surviving
corporation, and have approved such merger pursuant and subject to the terms
and conditions of this Agreement, with the result that each outstanding share
of Company Common Stock (as hereinafter defined), not owned directly or
indirectly by the Purchaser, shall be converted into the right to receive
shares of Surviving Common Stock (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1. Definitions. Unless the context otherwise requires, the terms
defined in this Section 1.1 and in the preamble to this Agreement shall have
the meanings herein and therein specified for all purposes of this Agreement.
"Affiliate" of a specified Person shall mean any Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the Person specified.
"Agreement" shall have the meaning set forth in the first paragraph of
this Agreement.
"Antitrust Division" shall mean the federal Antitrust Division of the
Department of Justice.
"Average Market Price" shall have the meaning set forth in Section
3.1(c).
"Board" shall mean the Board of Directors of the Company, the
Purchaser or the Surviving Corporation, as the context requires.
"Certificate" or "Certificates" shall mean each certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock.
"Closing" shall have the meaning set forth in Section 2.4.
"Closing Date" shall have the meaning set forth in Section 2.4.
A-1
<PAGE>
"Code" shall mean the federal Internal Revenue Code of 1986, as
amended.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Company Common Stock" shall mean the common stock, par value of $1.25
per share, of the Company.
"Company Plans" shall have the meaning set forth in Section 5.9(a).
"Company Reports" shall have the meaning set forth in Section 5.6.
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"Dissenting Shares" and "Dissenting Shareholder" shall have the
respective meanings set forth in Section 3.2(a).
"Effective Time" shall have the meaning set forth in Section 2.2.
"EGC" shall mean Elizabethtown Gas Company, a New Jersey corporation
and a wholly-owned subsidiary of the Purchaser.
"EGC Common Stock" shall mean the common stock, no par value, of EGC.
"EGC Merger" shall have the meaning set forth in Section 2.1.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the federal Securities Exchange Act of 1934.
"Exchange Agent" shall mean that bank or trust company authorized by
the Purchaser to receive the shares of Surviving Common Stock to be issued in
the Merger pursuant to Section 3.4(a).
"FERC" shall mean the Federal Energy Regulatory Commission.
"FTC" shall mean the Federal Trade Commission.
"Governmental Entity" shall mean any United States federal, state or
local government (including the District of Columbia), governmental or
regulatory authority, governmental or regulatory body, governmental or
regulatory agency or any court or other judicial authority.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"ISRA" shall mean the New Jersey Industrial Site Recovery Act.
"Letter of Intent" shall mean the Letter of Intent, dated June 24,
1993, between the Company and the Purchaser.
"Licensed Software" shall have the meaning set forth in Section 5.18.
"Material Adverse Effect" with respect to a Person shall mean a
material adverse effect on the business, financial (or other) condition,
A-2
<PAGE>
results of operations or prospects of such Person.
"Merger" shall have the meaning set forth in Section 2.1.
"Merger Consideration" shall have the meaning set forth in Section
3.1(c).
"NJBCA" shall mean the New Jersey Business Corporation Act.
"NJPUL" shall mean the New Jersey Public Utility Law.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officer" and "Officers" shall have the respective meanings set forth
in Section 7.5(d).
"Owned Software" shall have the meaning set forth in Section 5.18.
"Person" shall mean any individual, corporation, association, company,
partnership, joint venture, joint-stock company, trust, unincorporated
organization, Governmental Entity or other entity.
"Plans" shall mean any bonus, deferred compensation, pension,
profit-sharing, retirement, insurance, stock purchase, stock option, or other
fringe benefit plan, arrangement, understanding or practice, or any other
employee benefit plan (as defined in section 3(3) of ERISA), whether formal or
informal.
"Proxy Statement" shall have the meaning set forth in Section 5.10.
"Public Utility Laws" shall mean the Pennsylvania, North Carolina,
Maryland and New York public utility laws applicable to the transactions
contemplated hereby.
"PUHCA" shall mean the federal Public Utility Holding Company Act of
1935.
"Purchaser" shall have the meaning set forth in the first paragraph of
this Agreement.
"Purchaser Common Stock" shall mean the common stock, no par value, of
the Purchaser.
"Purchaser Reports" shall have the meaning set forth in Section 4.8.
"Registration Statement" shall have the meaning set forth in Section
5.10.
"SEC" shall mean the federal Securities and Exchange Commission.
"Securities Act" shall mean the federal Securities Act of 1933.
"Shareholders Meeting" shall have the meaning set forth in Section
7.2.
"Subsidiary" of any corporation, partnership or other entity (each, a
"Parent") shall mean any other corporation, partnership or other entity in
which the Parent, one or more Subsidiaries of the Parent or the Parent and one
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or more other Subsidiaries of the Parent own capital stock or other indicia of
ownership representing fifty percent or more of the capital stock or other
indicia of ownership of such corporation, partnership or other entity.
"Surviving Common Stock" shall mean the common stock, no par value, of
the Surviving Corporation.
"Surviving Corporation" shall have the meaning set forth in Section
2.1.
"Tax" shall include all federal, state, local and foreign net income,
gross income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, stamp, occupation,
property, custom duty and other taxes, governmental charges or like
assessments or fees of any kind whatsoever, together with interest and any
penalty, addition to tax or additional amount imposed thereon of any nature
whatsoever.
"Third-Party Beneficiary" shall have the meaning set forth in Section
10.5.
1.2. Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation". Whenever the words "transactions contemplated hereby"
are used in this Agreement, they shall be deemed to include the EGC Merger.
Whenever the words "to the best knowledge" are used in this Agreement, they
shall mean (a) in the case of the Company, the best knowledge of the Executive
Committee of the Company's Board and the officers of the Company identified in
paragraphs (c) and (d) of Section 7.5 and (b) in the case of the Purchaser,
the best knowledge of the Executive Committee of the Purchaser's Board and the
President and any Vice President of the Purchaser. Where the context so
requires, the masculine gender shall be construed to include the female and
the neuter gender, and the singular shall be construed to include the plural
and the plural the singular.
ARTICLE 2
MERGER OF THE COMPANY INTO THE PURCHASER
2.1. The Merger. At the Effective Time, subject to the terms and
conditions of this Agreement and in accordance with the DGCL and the NJBCA,
the Company shall be merged with and into the Purchaser (the "Merger"), the
separate existence of the Company (except as may be continued by operation of
law) shall cease and the Purchaser shall continue as the surviving corporation
(the "Surviving Corporation"). At the Effective Time or immediately thereafter
on the day of the Effective Time, EGC shall be merged with and into the
Surviving Corporation (the "EGC Merger"). The Merger shall have the effects
set forth herein and the effects set forth in the applicable provisions of the
DGCL and the NJBCA.
2.2. Effective Time of the Merger. At the Closing or as soon as
practical thereafter, the parties shall cause the Merger to be consummated by
filing with the Secretary of State of the State of Delaware, a certificate of
merger relating to the Merger, in such form as required by, and executed in
accordance with, the DGCL, and by filing with the Secretary of State of the
State of New Jersey a certificate of merger relating to the Merger, in such
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form as required by, and executed in accordance with, the NJBCA. The time of
the later of such filings or the other time, if any, set forth in the
certificates of merger is referred to herein as the "Effective Time".
2.3. Effects of the Merger. (a) At the Effective Time, the separate
existence of the Company shall cease and the Company shall be merged with and
into the Purchaser as the Surviving Corporation. At the Effective Time or
immediately thereafter, EGC shall be merged with and into the Surviving
Corporation.
(b) At the Effective Time, the Articles of Incorporation and By-Laws
of the Purchaser as in effect immediately prior to the Effective Time of the
Merger shall be the Articles of Incorporation and By-Laws of the Surviving
Corporation until further amended thereafter in accordance with applicable
law.
(c) At the Effective Time, the Board of the Purchaser shall
constitute the Board of the Surviving Corporation and the officers of the
Purchaser shall constitute the officers of the Surviving Corporation.
(d) From and after the Effective Time, the Merger shall have all the
effects provided by applicable law.
(e) At the effective time of the EGC Merger, (i) the Articles of
Incorporation and By-Laws of the Surviving Corporation as in effect
immediately prior to the EGC Merger shall be the Articles of Incorporation and
By-Laws of the surviving corporation of the EGC Merger until further amended
thereafter in accordance with applicable law, (ii) the Board of the Surviving
Corporation shall constitute the Board of the surviving corporation of the EGC
Merger and (iii) the officers of the Surviving Corporation shall constitute
the officers of the surviving corporation of the EGC Merger.
2.4. Closing. The Company and the Purchaser shall communicate and
consult with each other with respect to the fulfillment of the various
conditions to their obligations under this Agreement. The exchange of the
certificates, opinions and other documents contemplated in connection with the
consummation of the Merger (the "Closing") shall take place at the offices of
the Purchaser, on (a) the fifth business day after which all of the conditions
to the Closing have been satisfied or waived or (b) such other place or date
as may be agreed upon by the parties. The date on which the Closing occurs is
referred to herein as the "Closing Date". In the event that at the Closing no
party exercises any right it may have to terminate this Agreement and no
condition to the obligations of the parties exists that has not been satisfied
or waived, the parties shall (i) deliver to each other the certificates,
opinions and other documents required to be delivered under Article 8 and
(ii) at the Closing or as soon thereafter as possible, consummate the Merger
by filing the documents contemplated by Section 2.2.
ARTICLE 3
EFFECTS OF THE MERGER ON PURCHASER AND COMPANY COMMON STOCK;
EXCHANGE OF CERTIFICATES
3.1. Effect on Purchaser and Company Common Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the
Company or the Purchaser or the holder of any of the following securities:
(a) Each share of Purchaser Common Stock issued and outstanding
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immediately prior to the Effective Time shall remain unchanged.
(b) Each share of Company Common Stock which immediately prior to the
Effective Time is owned directly or indirectly in the treasury of the Company,
by any direct or indirect Subsidiary of the Company or by the Purchaser or any
direct or indirect Subsidiary of the Purchaser shall be cancelled and retired,
and no payment shall be made with respect thereto.
(c) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company Common
Stock to be cancelled pursuant to Section 3.1(b) and Dissenting Shares) shall
be converted into the right to receive the number of shares of Surviving
Common Stock, or fraction thereof rounded to the nearest .0001 of a share of
Surviving Common Stock, equal to the number determined by dividing (i) $71.50
by (ii) the arithmetic average of the daily closing price per share of
Purchaser Common Stock for the twenty trading days immediately prior to the
Closing Date as reported on the composite tape of the NYSE (the "Average
Market Price"); provided, that if the applicable number of shares of
Surviving Common Stock to be exchanged for each share of Company Common Stock
in the Merger is equal to or greater than 3.0 shares, the number of shares of
Surviving Common Stock exchanged for each share of Company Common Stock in the
Merger shall be equal to 3.0 shares, provided, further, that if the applicable
number of shares of Surviving Common Stock to be exchanged for each share of
Company Common Stock in the Merger is equal to or less than 2.4 shares, the
number of shares of Surviving Common Stock exchanged for each share of Company
Common Stock in the Merger shall be equal to 2.4 shares (the "Merger
Consideration"). In the event that during the period commencing on the date of
this Agreement and ending on the Closing Date, the Purchaser takes any of the
following actions: (i) pays a dividend or makes a distribution on Purchaser
Common Stock, in each case, in shares of Purchaser Common Stock; (ii)
subdivides the outstanding shares of Purchaser Common Stock into a greater
number of shares, or (iii) combines the outstanding shares of Purchaser Common
Stock into a smaller number of shares, the maximum and minimum number of
shares of Purchaser Common Stock issuable as Merger Consideration, as set
forth in the first and second provisos, respectively, of the immediately
preceding sentence of this Section 3.1(c), shall on the effective date of such
action, each be adjusted by multiplying such number by a fraction (A) the
numerator of which shall be the number of shares of Purchaser Common Stock
outstanding immediately following such action and (B) the denominator of which
shall be the number of shares of Purchaser Common Stock outstanding
immediately prior to such action.
3.2. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement other than Section 3.2(b) to the contrary, any shares ("Dissenting
Shares") of Company Common Stock held by a holder who has demanded and
perfected his or her right to receive payment for the fair value of his or her
shares in accordance with Section 262 of the DGCL (a "Dissenting
Shareholder"), and as of the Effective Time has not effectively withdrawn or
lost his or her right to receive payment for the fair value of his or her
shares, shall not be converted into or represent a right to receive the Merger
Consideration as otherwise provided in this Article 3, but the holder thereof
shall only be entitled to such rights as are granted by Section 262 of the
DGCL.
(b) Notwithstanding the provisions of Section 3.2(a), if any holder
of shares of Company Common Stock who demands the right to receive payment for
the fair value of his or her shares under the DGCL shall effectively withdraw
or lose (through failure to perfect or otherwise) his or her right to receive
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payment for the fair value of his or her shares of Company Common Stock, then
as of the Effective Time or the occurrence of such event, whichever last
occurs, such holder's shares of Company Common Stock shall automatically be
converted into and represent only the right to receive the Merger
Consideration as otherwise provided in this Article 3.
3.3. Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the Merger Consideration as provided in this Article 3 (unless such
Certificates represent Dissenting Shares).
3.4. Exchange of Shares of Company Common Stock. (a) At the
Effective Time, the Surviving Corporation shall cause to be deposited with the
Exchange Agent that number of shares of Surviving Common Stock to be issued in
the Merger as contemplated by Section 3.1(c). The Exchange Agent shall agree
to hold such shares in trust and deliver such shares as contemplated by
Section 3.1 and upon such additional terms as may be agreed upon by the
Exchange Agent, the Company and the Purchaser prior to the Effective Time.
(b) As promptly as practicable after the Effective Time, the
Surviving Corporation shall mail or cause the Exchange Agent to mail to each
holder of outstanding Company Common Stock of record as of the Effective Time
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the shares of Company Common Stock
shall pass, only upon proper delivery of the Certificates representing such
shares of Company Common Stock to the Exchange Agent and shall be in such form
and have such other provisions as the Purchaser and the Company may reasonably
specify) and (ii) instructions for use in effecting the exchange of the
Certificates for payment therefor as hereinabove provided. Upon surrender to
the Exchange Agent of a Certificate, together with such letter of transmittal
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor certificates registered in the name of such holder
representing the number of whole shares of Surviving Common Stock into which
any shares of Company Common Stock previously represented by the surrendered
Certificate shall have been converted at the Effective Time (plus a check
payable to such holder representing the payment of cash in lieu of fractional
shares of Surviving Common Stock determined as set forth in Section 3.4(e)).
Until surrendered as contemplated by the preceding sentence, each Certificate
(other than Certificates representing shares of Company Common Stock cancelled
pursuant to Section 3.1(b) and Dissenting Shares) that immediately prior to
the Effective Time shall have represented any shares of Company Common Stock
shall be deemed at and after the Effective Time to represent only the right to
receive upon such surrender, the certificates of Surviving Common Stock
contemplated by the preceding sentence, and such Certificate shall then be
cancelled. No interest will be paid or accrued on the cash payable, if any,
upon the surrender of the Certificate.
(c) If any certificates representing shares of Surviving Common Stock
is to be paid to or issued in a name other than the Person in whose name the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the Person requesting such payment shall
(i) pay transfer or other Taxes required by reason of the issuance of a
certificate representing shares of Surviving Common Stock in any name to a
Person other than the registered holder of the Certificate surrendered or
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(ii) establish to the satisfaction of the Surviving Corporation that such Tax
has been paid or is not applicable.
(d) Any instruments remaining with the Exchange Agent eighteen months
following the Effective Time shall be returned to the Surviving Corporation,
after which time former shareholders of the Company, subject to applicable
law, shall look only to the Surviving Corporation for payment of the Merger
Consideration due hereunder, without interest thereon.
(e) No certificates or scrip representing fractional shares of
Surviving Common Stock shall be issued upon the surrender for exchange of
Certificates. No dividend or distribution of the Surviving Corporation shall
relate to any fractional share and such fractional share interests shall not
entitle the owner thereof to vote or to any rights of a shareholder of the
Surviving Corporation. In lieu of any fractional share of Surviving Common
Stock, there shall be paid to each holder of shares of Company Common Stock
entitled to a fractional share of Surviving Common Stock an amount of cash,
without interest, determined by multiplying such fraction by the Average
Market Price. No such payment shall be made to the holder of any unsurrendered
Certificates until such Certificates shall be surrendered as provided herein.
(f) No dividends or other distributions declared after the Effective
Time with respect to Surviving Common Stock and payable to the holders of
record thereof after the Effective Time shall be paid to the holder of any
unsurrendered Certificates with respect to which the shares of Surviving
Common Stock shall have been issued in the Merger until such Certificates
shall be surrendered as provided herein, but (i) upon such surrender there
shall be paid to the shareholder in whose name certificates representing
Surviving Common Stock shall be issued the amount of dividends theretofore
paid with respect to such whole shares of Surviving Common Stock as of any
record date subsequent to the Effective Time and (ii) at the appropriate
payment date, or as soon as practicable thereafter, there shall be paid to
such shareholder the amount of dividends with a record date on or after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Surviving Common Stock,
subject in any case to any applicable escheat laws. No interest shall be
payable with respect to the payment of such dividends on surrender of
outstanding Certificates.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed, the Surviving Corporation
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration deliverable in respect thereof in accordance with this
Article 3. When authorizing such issuance of the Merger Consideration in
exchange therefor, the Board of the Surviving Corporation may, in its
reasonable discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give the
Surviving Corporation a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the Certificate alleged to have been
lost, stolen or destroyed.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
4.1. Corporate Status. Each of the Purchaser and EGC is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New Jersey and has the corporate power and authority to carry on its
business as now being conducted. Each of the Purchaser and EGC is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the properties owned, leased or operated, or the
businesses conducted, by it require such qualification, except for such
failures to be qualified or to be in good standing, if any, which when taken
together with all such other failures of the Purchaser and EGC have not had
and, so far as can be reasonably foreseen at this time, will not have a
Material Adverse Effect on the Purchaser and its Subsidiaries taken as a
whole. The Purchaser has previously delivered to the Company complete and
correct copies of its Articles of Incorporation, as amended, and By-Laws, as
amended.
4.2. Capitalization of the Purchaser. The authorized capital stock of
the Purchaser consists of 15,000,000 shares of Purchaser Common Stock and
5,000,000 shares of preferred stock. As of June 30, 1993, (a) 8,167,525 shares
of Purchaser Common Stock were issued and outstanding, (b) 49,539 shares of
Purchaser Common Stock were held in the treasury of the Purchaser or owned by
any Subsidiary of the Purchaser and (c) 266,674 shares of Purchaser common
stock were reserved for issuance pursuant to Purchaser's employee benefit
plans (including stock option plans) and the Purchaser's dividend reinvestment
and stock purchase plan. There are no issued or outstanding shares of
preferred stock of the Purchaser. All outstanding shares of Purchaser Common
Stock are validly issued, fully paid and nonassessable. The shares of
Surviving Common Stock to be issued in the Merger pursuant to Article 3 will,
at the Effective Time, be duly authorized, and when issued pursuant to this
Agreement, will be validly issued, fully paid and nonassessable and will not
have been issued in violation of any preemptive rights. Except for this
Agreement and as disclosed in this Section 4.2, there are no outstanding
subscriptions, securities, options, warrants, rights or other agreements or
commitments to which the Purchaser or any Subsidiary is a party that (i) calls
for the issuance, sale or disposition of any shares of capital stock of the
Purchaser or any Subsidiary or any securities convertible into, or other
rights to acquire, any shares of capital stock of the Purchaser or any
Subsidiary, other than the obligations and commitments of any Subsidiary to
issue shares of its capital stock to the Purchaser, or (ii) relates to the
voting of such capital stock, securities or rights.
4.3. EGC Common Stock. All of the outstanding shares of EGC Common
Stock are owned by the Purchaser free and clear of all liens, claims,
agreements or encumbrances except as set forth on Schedule 4.3 hereto.
4.4. Authority; Binding Effect. The Purchaser has the corporate power
to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Purchaser and EGC (except
on the date hereof, for any corporate action required under the NJBCA in
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connection with the EGC Merger). Assuming the filings, consents and approvals
contemplated by this Agreement are obtained or made, neither the Purchaser nor
EGC is subject to or obligated under any provision of (a) its Articles of
Incorporation, as amended, or its By-Laws, as amended, (b) except as set forth
on Schedule 4.4 hereto, any contract, agreement, license, franchise, permit or
other instrument or (c) any law, statute, ordinance, rule, regulation, order,
judgment, decree or injunction, which would be breached or violated by the
Purchaser's execution, delivery and performance of this Agreement or the
performance of the transactions contemplated hereby other than, with respect
to the foregoing clauses (b) and (c), such breaches and violations which in
the aggregate (i) will not have a Material Adverse Effect on the Purchaser and
its Subsidiaries taken as a whole or will be cured, waived or terminated prior
to the Effective Time and (ii) will not impair the ability of the Purchaser or
EGC to perform its obligations hereunder and under the other instruments and
documents required or contemplated by this Agreement. This Agreement has been
duly executed and delivered by the Purchaser and constitutes the valid and
binding agreement of the Purchaser enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable laws
relating to bankruptcy, insolvency, reorganization or affecting creditors'
rights generally and except to the extent that injunctive or other equitable
relief is within the discretion of a court.
4.5. Consents. Other than in connection or in compliance with (a) the
HSR Act, (b) the filing with the SEC of (i) the Registration Statement and
(ii) reports under the Exchange Act, (c) filings under state securities laws,
(d) the filing of a certificate of merger with the Secretary of State of the
State of Delaware, the filing of certificates of merger with the Secretary of
State of the State of New Jersey and appropriate documents with the relevant
authorities of other states in which the Company, the Purchaser or EGC is
qualified to do business, (e) the DGCL, (f) the Public Utility Laws, (g) the
Delaware anti-takeover laws applicable to the Merger, (h) the NJBCA, (i) the
NJPUL, (j) the PUHCA, (k) ISRA, (l) environmental laws of the States of North
Carolina, Pennsylvania, Maryland and New York, (m) statutes and regulations
administered by FERC and (n) the transfer of EGC's franchises and the
Company's franchises to the Purchaser, no consent, license, permit, approval,
order or authorization of, or filing with, any Governmental Entity is required
to be obtained or made by the Purchaser or any Subsidiary, in connection with
the execution, delivery or performance by the Purchaser and EGC of this
Agreement and the instruments and documents required to be executed by them
pursuant hereto or the consummation by Purchaser and EGC of the transactions
contemplated hereby, other than those which the failure to obtain or make
would not have a Material Adverse Effect on the Purchaser and its Subsidiaries
taken as a whole.
4.6. Information Provided. None of the information supplied by the
Purchaser or any of its Subsidiaries, included or incorporated by reference in
the Registration Statement or the Proxy Statement will, (a) at the date the
Registration Statement or any post-effective amendment thereof becomes
effective, (b) at the date the Proxy Statement is mailed to the shareholders
of the Company, (c) at the date of the Shareholders Meeting of the Company and
(d) at all other times subsequent to such effectiveness, mailings or meetings
up to and including the Effective Time, contain any untrue statement of any
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
4.7. Absence of Material Adverse Effect. Except as disclosed in the
Purchaser Reports, or except as contemplated by this Agreement, since
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September 30, 1992, there has not been any Material Adverse Effect on the
Purchaser and its Subsidiaries taken as a whole.
4.8. SEC Filings; Financial Statements. The Purchaser has heretofore
delivered to the Company, and made available to the Company the Exhibits to,
(a) the Purchaser's Annual Reports on Form 10-K for the fiscal years ended
September 30, 1992, 1991 and 1990, (b) the Purchaser's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1993 and December 31, 1992 and (c)
each prospectus, definitive proxy statement, report and other filing filed by
the Purchaser with the SEC since September 30, 1992 and prior to the date
hereof (collectively, the "Purchaser Reports") pursuant to the Securities Act
or the Exchange Act. Since September 30, 1992, the Purchaser has filed with
the SEC all reports and registration statements and all other filings required
to be filed by it with the SEC pursuant to the Securities Act and the Exchange
Act. As of their respective dates, the Purchaser Reports did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited and unaudited consolidated financial statements of the
Purchaser and its consolidated Subsidiaries, included in the Purchaser Reports
have been prepared in conformity with generally accepted accounting principles
in all material respects and fairly present, in all material respects, the
consolidated financial position of the Purchaser and its consolidated
Subsidiaries as of the dates thereof and the results of their operations and
their cash flows for each of the periods then ended of the Purchaser and its
consolidated Subsidiaries subject where appropriate to normal year end
adjustments.
4.9. Litigation. As of the date hereof, except as described in the
Purchaser Reports, (a) there is no action, suit, proceeding or, to the best
knowledge of the Purchaser, investigation pending and to the best knowledge of
the Purchaser, there is no action, suit, proceeding or investigation
threatened against or affecting the Purchaser or any Subsidiary of the
Purchaser, or any of their respective properties before any Governmental
Entity, which, individually or in the aggregate, if adversely determined,
would result in any Material Adverse Effect on the Purchaser and its
Subsidiaries taken as a whole and (b) neither the Purchaser nor any Subsidiary
of the Purchaser is subject to any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator which has a Material Adverse Effect
on the Purchaser and its Subsidiaries taken as a whole.
4.10. Tax Returns and Audits. Each of the Purchaser and its
Subsidiaries has duly filed all federal income tax returns required to be
filed by it and has duly filed all other federal, state, local and foreign Tax
returns and reports required to be filed by it, except where the failure so to
file such other federal, state, local and foreign Tax returns and reports
would not have a Material Adverse Effect on the Purchaser and its Subsidiaries
taken as a whole, and has duly paid or made adequate provision on its books in
accordance with generally accepted accounting principles for the payment of
all Taxes which have been incurred or are due and payable, except where the
failure so to pay would not have a Material Adverse Effect on the Purchaser
and its Subsidiaries taken as a whole. As of the date of this Agreement and
except as disclosed in the Purchaser Reports or Schedule 4.10 hereto, (a)
there are no pending audits, examinations or proposed audits or examinations
of any Tax returns filed by the Purchaser or any of its Subsidiaries except
where the outcome of such audits or examinations would not have a Material
Adverse Effect on the Purchaser and its Subsidiaries taken as a whole and (b)
neither the Purchaser nor any of its Subsidiaries have given or been requested
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to give waivers or extensions of any statute of limitations relating to the
payment of Taxes for which the Purchaser or any of its Subsidiaries may be
liable. As of the date of this Agreement, the consolidated federal income tax
returns of the Purchaser and its Subsidiaries have been audited by the
Internal Revenue Service (or the appropriate statute of limitations has
expired) for all fiscal years through and including September 30, 1986. All
deficiencies asserted or proposed as a result of any examinations or audits of
any Tax returns have been paid or adequately provided for on the books of the
Purchaser or one of its Subsidiaries in accordance with generally accepted
accounting principles or will not have a Material Adverse Effect on the
Purchaser and its Subsidiaries taken as a whole.
4.11. Certain Agreements. Except as disclosed in the Purchaser
Reports, as of the date of this Agreement, neither the Purchaser nor any
Subsidiary, is a party to any oral or written contract, agreement,
understanding or commitment (except those entered into in the ordinary course
of business) having a material effect on the Purchaser and its Subsidiaries
taken as a whole.
4.12. PUHCA. The Purchaser is exempt from all provisions of the
PUHCA, other than Section 9(a)(2) thereof.
4.13. Labor Controversies. There are no controversies which would
have a Material Adverse Effect on the Purchaser and its Subsidiaries, taken as
a whole, pending or, to the best knowledge of the Purchaser, threatened
between the Purchaser or any of its Subsidiaries, and any representatives of
any of their employees and, to the best knowledge of the Purchaser, there are
no material organizational efforts presently being made involving any of the
presently unorganized employees of the Purchaser or any of its Subsidiaries.
Each of the Purchaser and its Subsidiaries, has, to the best knowledge of the
Purchaser, complied in all material respects with all laws relating to the
employment of labor, including any provisions thereof relating to wages,
hours, collective bargaining and the payment or withholding of social security
and similar Taxes, and no Person has, to the best knowledge of the Purchaser,
asserted that the Purchaser or its Subsidiaries is liable in any material
amount for any arrears of wages or any Taxes or penalties for failure to
comply with any of the foregoing.
4.14. Insurance. The Purchaser and its Subsidiaries, have maintained,
and are now maintaining with what they reasonably believe are financially
responsible insurance companies, insurance on their tangible assets and their
business in such amounts and against such risks and losses as is customary for
companies engaged in the industries in which the Purchaser and its
Subsidiaries, conduct their businesses.
4.15. Brokers or Finders. No broker, finder or investment banker is
entitled to any brokerage, finder's fee or other commission or fee in
connection with the transactions contemplated hereby based on arrangements
made by or on behalf of the Purchaser or any Subsidiary of the Purchaser.
4.16. Continuity of Business Enterprise; No Plan to Repurchase
Stock. The Purchaser presently plans and intends for the Surviving Corporation
either (i) to continue the Company's historic business after the Merger or
(ii) to use a significant portion of the Company's historic business assets in
a business. There is no present plan or intention on the part of the Purchaser
or the Surviving Corporation to redeem or repurchase the Surviving Common
Stock to be issued to the Company's shareholders in connection with the
Merger.
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4.17. Compliance Issues. There are no suits, claims or proceedings
before any Governmental Entity, past or on-going which taken individually or
in the aggregate would be grounds for a Governmental Entity to refuse, deny or
materially delay the issuance or approval of any license, permit, consent or
other authorization necessary to consummate the Merger.
4.18. Exclusivity of Representations and Warranties. Except for the
representations and warranties contained in this Article 4, the Purchaser
makes no other representations or warranties, express or implied, and the
Purchaser hereby disclaims any such representations or warranties, whether by
the Purchaser, any Subsidiary of the Purchaser, or any of their respective
officers, directors, employees, agents or representatives, or any other
Person, with respect to this Agreement and the transactions contemplated
hereby, notwithstanding the delivery or disclosure to the Company or any
Subsidiary of the Company or any of their respective directors, officers,
employees, agents or representatives, or any other Person, of any
documentation or other information by the Purchaser, any Subsidiary of the
Purchaser, or any of their respective directors, officers, employees, agents
or representatives, or any other Person, with respect to any one or more of
the foregoing.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
5.1. Corporate Status. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to carry on its
businesses as they are now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the properties owned, leased or operated, or the businesses
conducted, by it require such qualification, except for such failures to be
qualified or to be in good standing which when taken together with all such
other failures of the Company and its Subsidiaries have not had and, so far as
can reasonably be foreseen at this time, will not have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole. The Company has
previously delivered to the Purchaser complete and correct copies of its
Articles of Incorporation, as amended, and By-Laws, as amended.
5.2. Subsidiaries. Each Subsidiary of the Company is listed on
Schedule 5.2 hereto. Each Subsidiary of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power to carry on its
businesses as they are now being conducted. Each Subsidiary of the Company is
duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by it require such qualification, except for such
failures to be qualified or to be in good standing which when taken together
with all such other failures of the Company and its Subsidiaries have not had
and, so far as can reasonably be foreseen at this time, will not have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
All of the outstanding shares of the capital stock of each of the Subsidiaries
of the Company have been validly issued, and are fully paid and nonassessable.
All of the outstanding shares of common stock of each of the Subsidiaries of
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the Company are owned by the Company, directly or indirectly through one or
more other Subsidiaries, free and clear of all liens, pledges, claims and
other encumbrances.
5.3. Capitalization of the Company. The authorized capital stock of
the Company consists of 300,000 shares of Company Common Stock. As of June 30,
1993, (a) 235,857 shares of Company Common Stock were issued and outstanding
and (b) no shares of Company Common Stock were held in the treasury of the
Company or owned by any Subsidiary of the Company. As of such date no other
shares of Company Common Stock were reserved for any other Plan of the Company
or any of its Subsidiaries or any other shareholder or employee benefit plan
(including stock option plans). There are no issued or outstanding preferred
stock, bonds, debentures, notes or other indebtedness or other securities
having the right to vote on any matters, including the Merger, on which the
Company's shareholders may vote in connection with the Merger. All outstanding
shares of Company Common Stock are validly issued, fully paid and
nonassessable. Except for this Agreement, there are no outstanding
subscriptions, securities, options, warrants, rights or other agreements,
understandings or commitments to which the Company or any Subsidiary is a
party that (i) calls for the issuance, sale or disposition of any shares of
capital stock of the Company or any Subsidiary or any securities convertible
into, or other rights to acquire, any shares of capital stock of the Company
or any Subsidiary, or (ii) relates to the voting of such capital stock,
securities or rights.
5.4. Authority; Binding Effect. The Company has the corporate power
to execute and deliver this Agreement and, subject to approval of this
Agreement and the Merger by the shareholders of the Company, to perform its
obligations hereunder. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company (except, on the date hereof, for the approval of this Agreement by the
shareholders of the Company). Assuming the filings, consents and approvals
contemplated by this Agreement are obtained or made, neither the Company nor
any of its Subsidiaries is subject to or obligated under any provision of (a)
its Articles of Incorporation (or comparable charter documents) or By-Laws,
(b) except as set forth on Schedule 5.4 hereto, any contract, agreement,
license, franchise, permit or other instrument or (c) any law, statute,
ordinance, rule, regulation, order, judgment, decree or injunction, which
would be breached or violated by the Company's execution, delivery and
performance of this Agreement or the performance of the transactions
contemplated hereby, other than, with respect to the foregoing clauses (b) and
(c), such breaches and violations which in the aggregate (i) will not have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole
or will be cured, waived or terminated prior to the Effective Time and (ii)
will not impair the ability of the Company to perform its obligations
hereunder and under the other instruments and documents required or
contemplated by this Agreement. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable laws relating to
bankruptcy, insolvency, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief
is within the discretion of a court.
5.5. Consents. Other than in connection or in compliance with (a) the
HSR Act, (b) the filing with the SEC of the Registration Statement,
(c) filings under state securities laws, (d) the filing of a certificate of
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merger with the Secretary of State of the State of Delaware, the filing of
certificates of merger with the Secretary of State of the State of New Jersey
and appropriate documents with the relevant authorities of other states in
which the Company, the Purchaser or EGC is qualified to do business, (e) the
DGCL, (f) the Public Utility Laws, (g) the Delaware anti-takeover laws
applicable to the Merger, (h) the NJBCA, (i) the NJPUL, (j) the PUHCA, (k)
ISRA, (l) environmental laws of the States of North Carolina, Pennsylvania,
Maryland and New York, (m) statutes and regulations administered by FERC and
(n) the transfer of the Company's franchises to the Purchaser, no consent,
license, permit, approval, order or authorization of, or filing with, any
Governmental Entity is required to be obtained or made by the Company or any
Subsidiary in connection with the execution, delivery or performance by the
Company of this Agreement and the instruments and documents required to be
executed by it pursuant hereto or the consummation by the Company and its
Subsidiaries of the transactions contemplated hereby, other than those which
the failure to obtain or make would not have a Material Adverse Effect on the
Company and the Subsidiaries of the Company taken as a whole.
5.6. Financial Statements; Regulatory Filings and Other Disclosure.
The Company has heretofore delivered to the Purchaser (a) the audited
consolidated financial statements of the Company and its consolidated
Subsidiaries at and for each of the years ended September 30, 1992, 1991 and
1990, (b) the unaudited consolidated financial statements of the Company and
its consolidated Subsidiaries for the quarters ended December 31, 1992 and
March 31, 1993, (c) the Company's and each of its Subsidiaries Annual Reports
to its shareholders for the fiscal years ended September 30, 1992, 1991 and
1990, (d) copies of all materials distributed to the shareholders of the
Company since September 30, 1992 and (e) filings by the Company or any of its
Subsidiaries with state regulatory authorities since September 30, 1989 (items
(a) through (e) collectively to be known as, the "Company Reports"). As of
their respective dates, the Company Reports did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The audited
and unaudited consolidated financial statements of the Company and its
consolidated Subsidiaries included in the Company Reports have been prepared
in conformity with generally accepted accounting principles, in all material
respects, and fairly present, in all material respects, the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the results of their operations and their cash flows for
each of the periods then ended of the Company and its consolidated
Subsidiaries subject where appropriate to normal year end adjustments.
5.7. Absence of Material Adverse Effect. Since September 30, 1992,
there has not been any Material Adverse Effect on the Company and the
Subsidiaries of the Company taken as a whole.
5.8. Litigation. As of the date hereof, except as set forth on
Schedule 5.8 hereto, (a) there is no action, suit, proceeding or, to the best
knowledge of the Company, investigation pending and, to the best knowledge of
the Company, there is no action, suit, proceeding or investigation threatened
against or affecting the Company or any of its Subsidiaries, or any of their
respective properties before any Governmental Entity, which, individually or
in the aggregate, if adversely determined, would result in any Material
Adverse Effect on the Company and its Subsidiaries taken as a whole and (b)
neither the Company nor any of its Subsidiaries is subject to any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
which has a Material Adverse Effect on the Company and the Subsidiaries of the
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Company taken as a whole.
5.9. Employee Benefit Plans. (a) Except as set forth on Schedule 5.9
hereto, neither the Company nor any of its Subsidiaries, maintains or
contributes to any Plan, whether formal or informal, and there are no
agreements, understandings or commitments to create any such Plan or to modify
or change any existing Plan of the Company or any of its Subsidiaries
(collectively, "Company Plans"), except as disclosed to Purchaser in writing
prior to the date hereof. None of the Company Plans is a funded "welfare
benefit plan" within the meaning of Section 419 of the Code or a "multiple
employer plan" within the meaning of the Code or ERISA. Except as set forth on
Schedule 5.9 hereto, the Company does not now, and has not for the five
calendar years preceding the date hereof contributed to, a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA.
(b) The Company has heretofore delivered to the Purchaser true,
correct and complete copies of (i) all documents which comprise the most
current version of each of the Company Plans, including any related trust
agreements, insurance contracts and drafts of proposed amendments, (ii) the
three most recent Annual Reports (Form 5500 Series) and accompanying schedules
as filed for each of the Company Plans for which such a report is required,
(iii) the most current Summary Plan Description, if available (and any summary
of material modifications) for each Company Plan, (iv) the three most recent
audited financial statements for each of the Company Plans for which such a
statement is required or was prepared, (v) the three most recent actuarial
reports for each of the Company Plans for which such a report is required or
was prepared and (vi) the most recent determination, if any, issued by the
Internal Revenue Service with respect to each Company Plan's qualified status
under Section 401(a) of the Code. Since the date of the documents delivered,
there has not been any material change in the assets and liabilities of any of
the Company Plans or any change in their terms and operations which could
reasonably be expected to affect or alter the tax status or materially affect
the cost of maintaining such Company Plan.
(c) Except as heretofore disclosed to the Purchaser's counsel, the
Company and its Subsidiaries have each performed and complied in all material
respects with all of their obligations under and with respect to the Company
Plans and each of the Company Plans has, at all times, in form and operation
complied in all material respects with its terms, and, where applicable, the
requirements of ERISA and the Code, and has not incurred any federal income or
excise tax liability.
(d) Except as heretofore disclosed to the Purchaser's counsel, each
Company Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) has received a determination from the Internal Revenue
Service that it is qualified pursuant to Section 401(a) of the Code and
nothing has occurred since the date of any such determination to cause the
loss of such qualification.
(e) None of the Company Plans has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
and there is no unpaid contribution due prior to the date hereof with respect
to any such Company Plan that is required to have been made under the terms of
such Company Plan, Section 412 of the Code or Part 3 of Subtitle B of Title I
of ERISA. No "reportable event" (as defined in Section 4043(b) of ERISA) has
occurred with respect to any Company Plan. The actuarial present value (based
on the actuarial assumptions used in the most recent actuarial valuation) of
vested and nonvested "benefit liabilities," (as defined in Section 4001(a)(16)
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of ERISA) of each Company Plan that is subject to Title IV of ERISA,
determined as of the most recent valuation date for each such Company Plan,
using the actuarial method and assumptions used in the most recent actuarial
valuation, did not exceed the aggregate fair market value of the assets of
such Company Plan on such date, and no event has occurred since such date that
would materially increase or decrease the value of such assets or liabilities.
(f) Neither the Company nor any of its Subsidiaries has any
obligation to provide health or other non-pension related benefits to former
employees, except as specifically required by law or as set forth on Schedule
5.9 hereto. The Company has satisfied all requirements imposed upon it to
provide "continuous coverage" to such employees pursuant to the Consolidated
Omnibus Budget Reconciliation Act.
(g) Neither the Company nor any of its Subsidiaries nor any other
"disqualified person" or "party in interest" (as defined in Section 4975 of
the Code and Section 3(14) of ERISA, respectively) has engaged in any
"prohibited transaction" (as defined in Section 4975 of the Code or Section
406 of ERISA) with respect to any Company Plan, nor have there been any
fiduciary violations under ERISA which could subject any such Company Plan (or
its related trust), or the Company or any of its Subsidiaries (or any officer,
director, employee, agent or representative thereof) to the penalty or Tax
under Section 502(i) of ERISA or Sections 4971 and 4975 of the Code.
(h) As of the date of this Agreement (i) no filing, application or
other matter with respect to any of the Company Plans is pending with the
Internal Revenue Service, Pension Benefit Guaranty Corporation, United States
Department of Labor or any other Governmental Entity and (ii) there is no
action, suit or claim pending, other than routine claims for benefits, against
or in any manner relating to any Company Plan.
(i) Neither the Company nor any of its Subsidiaries has incurred any
liability or taken any action or has any knowledge of any action or event that
could cause either of them to incur any liability under Section 412 of the
Code or Title IV of ERISA with respect to any "single-employer plan" (as
defined in Section 4001(a)(15) of ERISA).
(j) Except as set forth in Section 7.5, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will, (i) entitle any current or former employee of the
Company or any of its Subsidiaries to severance pay, unemployment compensation
or any similar payment, (ii) accelerate the time of payment or vesting or
increase the amount of any compensation due to any such employee or former
employee, or (iii) directly or indirectly result in any payment made or to be
made to or on behalf of any Person to constitute a "parachute payment" within
the meaning of Section 280G of the Code.
5.10. Information Provided. None of the information supplied by the
Company or any of its Subsidiaries included or incorporated by reference in
the Registration Statement on Form S-4 (or such other form as shall be
applicable to the registration of Purchaser Common Stock to be issued in
connection with the Merger) to be filed by the Purchaser with the SEC under
the Securities Act in order to register thereunder the shares of Purchaser
Common Stock to be issued in connection with the Merger, including any
amendments thereof (the "Registration Statement"), or the Proxy Statement
contained therein to be used by the Company in soliciting proxies of its
shareholders with respect to the Merger, including any amendments thereof or
supplements thereto (the "Proxy Statement"), will, (i) at the date the
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Registration Statement or any post-effective amendment thereof becomes
effective, (ii) at the date the Proxy Statement is mailed to the shareholders
of the Company, (iii) at the date of the Shareholders Meeting of the Company
and (iv) at all other times subsequent to such effectiveness, mailings or
meeting up to and including the Effective Time, contain any untrue statement
of any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
5.11. Brokers or Finders. No broker, finder or investment banker is
entitled to any brokerage, finder's fee or other commission or fee in
connection with the Merger based upon arrangements made by or on behalf of the
Company, except for a fee payable to Berwind Financial Group, Inc. pursuant to
an agreement which has been delivered to the Purchaser prior to the date of
this Agreement.
5.12. Tax Returns and Audits. Each of the Company and its
Subsidiaries has duly filed all federal income tax returns required to be
filed by it and has duly filed all other federal, state, local and foreign Tax
returns and reports required to be filed by it, except where the failure so to
file such other federal, state, local and foreign Tax returns and reports
would not have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole, and has duly paid or made adequate provision on its books in
accordance with generally accepted accounting principles for the payment of
all Taxes which have been incurred or are due and payable, except where the
failure so to pay would not have a Material Adverse Effect on the Company and
its Subsidiaries taken as a whole. Except as set forth on Schedule 5.12
hereto, (a) there are no pending audits, examinations or proposed audits or
examinations of any Tax returns filed by the Company or any of its
Subsidiaries except where the outcome of such audits or examinations would not
have a Material Adverse Effect on the Company and its Subsidiaries taken as a
whole and (b) neither the Company nor any of its Subsidiaries have given or
been requested to give waivers or extensions of any statute of limitations
relating to the payment of Taxes for which the Company or any of its
Subsidiaries may be liable. As of the date of this Agreement, the consolidated
federal income tax returns of the Company and its Subsidiaries have been
audited by the Internal Revenue Service (or the appropriate statute of
limitations has expired) for all fiscal years through and including September
30, 1989. All deficiencies asserted or proposed as a result of any
examinations or audits of any Tax returns have been paid or adequately
provided for on the books of the Company or one of its Subsidiaries in
accordance with generally accepted accounting principles or will not have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
Except as set forth on Schedule 5.12 hereto, neither the Company nor any of
its Subsidiaries (i) is a party to any agreement providing for the allocation,
payment or sharing of Taxes among the Company, its Subsidiaries or any third
parties, (ii) has any net operating loss carryovers, net capital loss
carryovers or any other items the use of which, by deduction or credit or
otherwise, would or may be limited by Section 382 of the Code, (iii) has filed
any consent to the application of Section 341(f) of the Code with respect to
any of its property, (iv) has an application pending with respect to any Tax
requesting permission for a change in accounting method, (v) is required to
make any adjustments to income pursuant to Section 481 of the Code or (vi)
owns or leases any real property or otherwise holds any interest in real
property that would or may subject the parties hereto or the Surviving
Corporation to a transfer or gains tax as a result of the Merger.
5.13. Certain Agreements. Except as disclosed on Schedule 5.13
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hereto, as of the date of this Agreement, none of the Company or any of its
Subsidiaries is a party to any oral or written (a) employment, severance or
collective bargaining agreement or consulting agreement not terminable on 60
days or less notice, (b) agreement, understanding or commitment with any
executive officer or other employee of the Company or any of its Subsidiaries,
(i) the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company or any of
its Subsidiaries of the nature of the transactions contemplated hereby or
(ii) providing severance benefits or other benefits after the termination of
employment of such executive officer or employee regardless of the reason for
such termination of employment, (c) agreement, plan, arrangement,
understanding or commitment under which any Person may receive payments
subject to the Tax imposed by Section 4999 of the Code, (d) agreement, plan,
understanding or commitment, including any stock option plan, incentive
compensation plan, "phantom stock" plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of the transactions contemplated hereby, or the value of any of
the benefits of which will be calculated on the basis of the transactions
contemplated hereby, (e) agreement, trust, escrow account or bond to secure or
provide for the payment of any amounts to any officers, employees or directors
of the Company or any of its Subsidiaries, (f) franchise agreements or other
authority of any Person authorizing the Company or any of its Subsidiaries to
operate as a public utility or a public service company, (g) contracts for the
purchase, sale or transportation of gas or (h) any (i) agreement, contract,
indenture or other instrument, understanding or commitment relating to the
borrowing of money or the guarantee of any obligation for the borrowing of
money, in each case in excess of $15,000 or (ii) other agreement, contract,
understanding or commitment having or reasonably foreseeable as having in the
future a Material Adverse Effect on the Company and its Subsidiaries taken as
a whole.
5.14. PUHCA. The Company is not subject to the provisions of the
PUHCA.
5.15. Labor Controversies. There are no controversies which would
have a Material Adverse Effect on the Company and its Subsidiaries taken as a
whole, pending or, to the best knowledge of the Company, threatened between
the Company or any of its Subsidiaries and any employees or any
representatives of any of their employees and, to the best knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or any of
its Subsidiaries. Each of the Company and its Subsidiaries has, to the best
knowledge of the Company, complied in all material respects with all laws
relating to the employment of labor, including any provisions thereof relating
to wages, hours, collective bargaining and the payment or withholding of
social security and similar Taxes, and no Person has, to the best knowledge of
the Company, asserted that the Company or any of its Subsidiaries is liable in
any material amount for any arrears of wages or any Taxes or penalties for
failure to comply with any of the foregoing.
5.16. Insurance. The Company and its Subsidiaries have each
maintained, and are now maintaining with what they reasonably believe are
financially responsible insurance companies, insurance on their tangible
assets and their businesses in such amounts and against such risks and losses
as is customary for companies engaged in the industries in which the Company
and its Subsidiaries conduct their businesses. All claims known to the Company
or any of its Subsidiaries which the Company or such Subsidiary is obligated,
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under the terms of any insurance contract or otherwise, to report to one or
more insurers have been duly and timely reported.
5.17. Plant, Property, Equipment and Other Assets. Schedule 5.17
hereto lists any real and personal property which has a replacement value of
$25,000 or more owned or leased by the Company or any of its Subsidiaries.
Each of the Company and its Subsidiaries has good, clear and marketable or
insurable title to all the properties and assets listed on Schedule 5.17
hereto or acquired after the date hereof free and clear of all claims, liens,
pledges, charges, security interests or other encumbrances of any nature
whatsoever except (a) statutory liens securing payments not yet due and
(b) such imperfections or irregularities of title, claims, liens, pledges,
charges, security interests or other encumbrances as do not materially affect
the use of the properties or assets subject thereto or affected thereby or
otherwise materially impair business operations at such properties, or as do
not materially impair the marketability thereof. The Company or one of its
Subsidiaries is the lessee of all leases listed on Schedule 5.17 hereto or
acquired after the date hereof and is in possession of the properties
purported to be leased thereunder and each such lease is valid without default
thereunder by the lessee or, to the best knowledge of the Company, the lessor.
5.18. Computer Software. Schedule 5.18 hereto lists all computer
software programs used by the Company or any of its Subsidiaries other than
any such programs the unavailability for use of which by the Company or such
Subsidiary would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. Schedule 5.18 hereto sets forth whether each
computer software program listed thereon is owned by the Company or such
Subsidiary (the "Owned Software"), or licensed by the Company or such
Subsidiary from a third party (the "Licensed Software"). The Owned Software is
owned by the Company or such Subsidiary free and clear of any claim, lien,
pledge, charge, security interest or other encumbrance of any nature. The
Licensed Software is used pursuant to certain agreements, true and correct
copies of which have been provided to the Purchaser prior to the execution of
this Agreement. There are no infringement suits, actions or proceedings
pending or, to the best knowledge of the Company, threatened against the
Company or any of its Subsidiaries with respect to any of the Owned Software.
5.19. Defaults. The Company and its Subsidiaries are not in default
under or in violation of any provision of their respective Articles of
Incorporation or By-laws or any franchise, indenture, mortgage, deed of trust,
loan agreement, or any other agreement, understanding or commitment of any
kind to which any of them is a party or by which any of them is bound or to
which any of their properties is subject which default, or defaults in the
aggregate, has or could have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole.
5.20. Absence of Certain Changes or Events. Since the date of the
most recent audited financial statements included in the Company Reports, the
Company and its Subsidiaries have conducted their respective businesses only
in the ordinary course, and there has not been: (a) any damage, destruction
or loss, whether covered by insurance or not, that has or could have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole;
(b) any material adverse change in or affecting the businesses, properties,
financial position or results of operations of the Company or any of its
Subsidiaries which could have a Material Adverse Effect upon the Company and
its Subsidiaries taken as a whole; (c) any change in the capital stock or any
increase in the long-term debt of the Company or any of its Subsidiaries or
(d) any action that, after the execution of this Agreement, is prohibited by
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Section 6.1.
5.21. Regulation as Utility. The Company and its Subsidiaries operate
and are regulated as a public utility only in the States of Pennsylvania, New
York, Maryland and North Carolina. The Company is also subject to regulation
by the Federal Energy Regulatory Commission. Except as stated in this Section
5.21, neither the Company nor its Subsidiaries are subject to regulation as a
public utility or public service company (or similar designation) by any
jurisdiction.
5.22. Compliance with Applicable Laws. Except as set forth in
Schedule 5.22 hereto, the businesses of the Company and its Subsidiaries are
not being conducted in violation of any law, statute, ordinance, rule,
regulation, judgment, decree, order or injunction of any Governmental Entity,
except for possible violations which individually or in the aggregate do not,
and, insofar as reasonably can be foreseen, in the future will not have
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
No investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the best knowledge of the
Company, threatened, nor has any Governmental Entity indicated an intention to
conduct the same, other than those the outcome of which will not have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
5.23. Undisclosed Liabilities. The Company and its Subsidiaries have
no obligations or liabilities of any nature, whether absolute, accrued,
contingent or otherwise, of a nature required by generally accepted accounting
principles to be recognized or disclosed in consolidated financial statements
of the Company and its Subsidiaries, which are not reflected in the Company
Reports.
5.24. Transfer of Surviving Common Stock. To the best knowledge of
the Company, there is no present intention on the part of any shareholder of
the Company who holds 1% or more of the Company Common Stock, to sell,
transfer or otherwise dispose of the shares of Surviving Common Stock to be
received by such shareholder as Merger Consideration.
5.25. Environmental Matters. Except as set forth in Schedule 5.25
hereto, (a) neither the Company nor any of its Subsidiaries has disposed of or
arranged for the disposal of any hazardous substances, other than in
conformity with applicable laws and regulations, except to the extent that
such disposals do not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole; (b) to the best knowledge of the Company,
neither the Company nor any of its Subsidiaries has been designated a
potentially liable party for remedial action or response costs nor is under
investigation or review by any Governmental Entity in connection with any
facility, location, site or other property under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Federal Resource Conservation and Recovery Act, as amended, the Toxic
Substance Control Act, the Clean Water Act, the Clean Air Act or comparable
state statutes, except to the extent that any such designation does not have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole;
(c) to the best knowledge of the Company, the Company and its Subsidiaries'
use, generation, processing, production, storage and disposal of hazardous
substances is and has been in conformity with applicable laws and regulations;
(d) to the best knowledge of the Company, no property currently or previously
owned, leased or operated by the Company or any of its Subsidiaries has been
used for the treatment, storage or disposal of hazardous substances, or as a
landfill or other waste disposal site, except to the extent that such use does
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not have a Material Adverse Effect on the Company and its Subsidiaries taken
as a whole; (e) to the best knowledge of the Company, underground storage
tanks are not and have not been located on or under any property owned, leased
or operated by the Company or any of its Subsidiaries, except to the extent
that such storage tanks do not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole; and (f) to the best knowledge of the
Company, there are no hazardous substances that may pose any material risk to
safety, health or the environment on, under or about any property currently or
previously owned, leased or operated by the Company or any of its
Subsidiaries. For the purposes of this Section 5.25, "hazardous substances"
shall mean those substances defined or listed by the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Federal Resource Conservation and Recovery Act, as amended, the Toxic Control
Substance Act, the Clean Water Act, the Clean Air Act or comparable state
statutes, and regulations thereunder.
5.26. Operating Condition. The Company and its Subsidiaries each
(and, upon consummation of the Merger and receipt of the consents, licenses,
permits, approvals, orders and authorizations contemplated by Section 5.5, the
Surviving Corporation and its Subsidiaries will) own or lease all assets, real
and personal, and hold all permits, franchises, licenses and other approvals
or authorizations necessary to carry on the business and operations of each of
the Company and its Subsidiaries in substantially the same manner as such
business and operations are carried on currently other than those assets,
permits, franchises, licenses and other approvals or authorizations the
failure of which to so own, lease or hold would not have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole.
5.27. Compliance Issues. There are no suits, claims or
proceedings before any Governmental Entity, past or on-going, which taken
individually or in the aggregate would be grounds for a Governmental Entity to
refuse, deny or materially delay the issuance or approval of any consent,
license, permit, order or other authorization necessary to consummate the
Merger.
5.28. Exclusivity of Representations and Warranties. Except for the
representations and warranties contained in this Article 5, the Company makes
no other representations or warranties, express or implied, and the Company
hereby disclaims any such representations or warranties, whether by the
Company, any Subsidiary of the Company or any of their respective officers,
directors, employees, agents or representatives, or any other Person, with
respect to this Agreement and the transactions contemplated hereby,
notwithstanding the delivery or disclosure to the Purchaser or any of its
directors, officers, employees, agents or representatives, or any other
Person, of any documentation or other information by the Company, any
Subsidiary of the Company or any of their respective directors, officers,
employees, agents or representatives, or any other Person, with respect to any
one or more of the foregoing.
ARTICLE 6
CONDUCT OF BUSINESS PENDING THE MERGER
6.1. General Conduct of Company Business. Except as expressly set
forth in this Agreement, during the period from the date of this Agreement to
the Effective Time, the Company and each of its Subsidiaries will conduct its
operations in the ordinary and usual course of business and consistent with
past practice, and the Company and each of its Subsidiaries will use its best
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efforts to preserve intact its business organizations, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with customers, suppliers, distributors and others having
business relationships with it. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, none of the Company nor any of its Subsidiaries will,
without the prior written consent of the Purchaser:
(a) Amend its Articles of Incorporation (or comparable charter
documents) or By-Laws;
(b) Issue, sell, transfer, distribute, pledge or otherwise encumber
or dispose of any shares of capital stock, any options, warrants or rights of
any kind to acquire any shares of capital stock or any securities which are
convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries;
(c) (i) Split, combine, recapitalize or reclassify any shares of its
capital stock, (ii) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any shares of its capital stock or (iii) redeem or otherwise
acquire any shares of the capital stock of the Company or any of its
Subsidiaries, except (i) any Subsidiary of the Company may declare and pay
dividends to the Company or any other Subsidiary of the Company and (ii) the
Company may declare and pay to holders of shares of Company Common Stock
regular quarterly dividends of not more than $0.44 per share on its customary
quarterly dividend declaration and payment dates;
(d) (i) except as set forth on Schedule 6.1 hereto, adopt, enter into
or amend any bonus, profit sharing, compensation, stock option, warrant,
pension, retirement, deferred compensation, employment, consulting,
indemnification, severance, termination or other employee benefit plan,
agreement, trust fund or arrangement for the benefit or welfare of any
officer, director or employee or (ii) agree to any increase in the
compensation (including bonuses) payable or to become payable to any officer,
director or employee;
(e) purchase or otherwise acquire by merger, consolidation,
acquisition of securities or assets or otherwise, (i) any corporation,
partnership, association or other business entity, organization or division
thereof or (ii) any assets or properties which, in the case of either clause
(i) or clause (ii), would be material, in the aggregate, to the Company and
its Subsidiaries taken as a whole;
(f) sell, lease, mortgage, pledge, grant a security interest in or
lien on, or otherwise dispose of or encumber any of its assets or properties
which are material, in the aggregate, to the Company and its Subsidiaries
taken as a whole;
(g) settle or compromise any litigation or regulatory proceeding
involving the payment or expenditure of, or an agreement, understanding or
commitment to pay over time, an amount in cash, notes or other property, over
any amount paid by insurance, in excess of $10,000;
(h) except for (i) short-term indebtedness incurred in the ordinary
course of business consistent with past practices and (ii) bank line of credit
borrowings that shall not exceed $12,500,000 at any time, incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
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sell any debt securities or guarantee any debt securities of others;
(i) enter into any agreement, understanding or commitment which has a
term of more than one year, unless such agreement, understanding or commitment
may be terminated by the Company and, after the Effective Time of the Merger,
the Surviving Corporation at any time upon no more than thirty (30) days
notice without any penalty or payment of any kind; or
(j) Agree, whether in writing or otherwise, to do any of the
foregoing.
6.2. No Solicitation or Negotiation. (a) From the date hereof until
this Agreement shall have been terminated in accordance with its terms,
neither the Company nor any Affiliate of the Company, nor any officer,
director, employee, shareholder, representative or agent of the Company or any
Affiliate of the Company, shall, directly or indirectly, solicit or initiate
or participate in any way in discussions or negotiations with, or provide any
information or assistance to, or enter into an agreement or understanding with
any Person or group of Persons (other than the Purchaser) concerning any
acquisition, merger, consolidation, liquidation, dissolution, disposition or
other transaction that would result in the transfer to any such Person or
group of Persons (other than in the ordinary course of business) of all or any
substantial part of the business or assets of, or all or any substantial
equity interest in, the Company or any of its subsidiaries. The Company shall
provide prompt notice to the Purchaser of any such discussions or
negotiations.
(b) If at any time from the date hereof and prior to the termination
of this Agreement, any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) other than the Purchaser shall have (i)
commenced a tender offer for 30% or more of the outstanding shares of the
Company Common Stock, the acceptance of which has been recommended by the
Board of the Company, or (ii) entered into an agreement, understanding for, or
effected, a merger or other business combination with the Company, the
acquisition of 30% or more of the outstanding shares of the Company Common
Stock or the acquisition of all or any substantial part of the business or
assets of the Company, then, at the Purchaser's request, the Company shall (A)
pay to the Purchaser (immediately upon submission by the Purchaser of an
invoice therefor) in New York Clearing House funds by certified or official
bank check payable to the order of the Purchaser the sum of $500,000 plus all
of the actual expenses of the Purchaser and its Subsidiaries (including legal
fees and expenses) incurred in connection with the negotiation, preparation,
execution and delivery of the Letter of Intent, the negotiation, preparation,
execution and delivery of this Agreement, and any other actions taken in
connection with the transactions contemplated hereby, including due diligence
and actions relating to regulatory and other approvals and (B) pay to the
Purchaser, not later than the consummation of such tender offer or the closing
of such merger, business combination or any such acquisition, as the case may
be, in New York Clearing House funds by certified or official bank check
payable to the order of the Purchaser the sum of $500,000.
(c) The Company acknowledges that the agreements contained in the
immediately preceding paragraph are an integral part of the transactions
contemplated hereby, and that, without these agreements, the Purchaser would
not have executed this Agreement; accordingly, if the Company fails to pay
promptly the amounts set forth in the immediately preceding paragraph when
due, the Company shall in addition thereto pay to the Purchaser all costs and
expenses (including fees and disbursements of counsel) incurred in collecting
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such amounts (or any unpaid portion thereof) from the date such payment was
required to be made until the date such payment is received by Purchaser at
the prime rate as in effect from time to time during such period of Citibank,
N.A.
6.3. Cash Dividends of the Purchaser. Prior to the Effective Time,
the Purchaser will not, without the prior written consent of the Company,
declare, set aside or pay any cash dividend in respect of any shares of
Purchaser Common Stock, except that the Purchaser may declare and pay to
holders of shares of Purchaser Common Stock regular quarterly dividends of not
more than $0.50 per share on its customary quarterly dividend declaration and
payment dates.
ARTICLE 7
ADDITIONAL COVENANTS
7.1. Preparation of Registration Statement and Proxy Statement. As
promptly as practicable after the date of this Agreement, the Purchaser and
the Company shall prepare the Proxy Statement. The Purchaser shall prepare and
file the Registration Statement with the SEC, and shall use its reasonable
best efforts to respond to any comments of the SEC and to cause the
Registration Statement to be declared effective. The Purchaser shall notify
the Company promptly of the receipt of any comments from the SEC or its staff
and of any request by the SEC or its staff for amendments of or supplements to
the Registration Statement or the Proxy Statement or for additional
information. The Purchaser and the Company will supply each other with copies
of all correspondence between the Purchaser and the Company or any of their
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Registration Statement, the Proxy Statement or the
transactions contemplated hereby. If at any time prior to the Effective Time
any event shall occur that should be set forth in an amendment of or a
supplement to the Registration Statement or the Proxy Statement, the Purchaser
and the Company will prepare promptly and the Purchaser will file such an
amendment or supplement with the SEC. The Company will not mail the Proxy
Statement, or any amendment thereof or supplement thereto, to its shareholders
unless it has first obtained the consent of the Purchaser to such mailing.
7.2. Approval of Shareholders. The Company, acting through its Board,
shall, in accordance with applicable law: (a) duly call, give notice of,
convene and hold an annual or special meeting of its shareholders (the
"Shareholders Meeting") as promptly as practicable but in no event later than
December 15, 1993, for the purpose of, among other things, considering and
taking action upon this Agreement and the Merger; (b) include in the Proxy
Statement the recommendation of its Board that shareholders vote in favor of
the approval and adoption of this Agreement and the Merger and (c) use its
reasonable best efforts to obtain the necessary approval of this Agreement and
the Merger by its shareholders. The Purchaser agrees that, at the Shareholders
Meeting, any shares of Company Common Stock then owned by the Purchaser and
any Subsidiary or Affiliate of the Purchaser will be voted in favor of
adoption and approval of this Agreement and the Merger.
7.3. EGC Merger. The Purchaser will take all required corporate
action and the Purchaser and the Company will use their respective reasonable
best efforts to obtain all required consents and approval so that on the day
of the Effective Time at or after the time of consummation of the Merger, EGC
will be merged with and into the Surviving Corporation pursuant to the NJBCA
in a transaction which will constitute a complete liquidation under Section
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332 of the Code. The Surviving Corporation shall be the surviving corporation
in the EGC Merger. Upon the effectiveness of the EGC Merger, all outstanding
shares of the EGC Common Stock shall be cancelled.
7.4. Access and Due Diligence. Each of the Purchaser and the Company
will afford the other and its representatives reasonable access to all books,
records, contracts, facilities and personnel of the Purchaser and its
Subsidiaries or the Company and its Subsidiaries, as the case may be, so that
the other may conduct a due diligence investigation, including: analysis and
review of financial statements and projections, mortgages and indentures,
contracts and agreements, accounting methods, auditors' work papers, assets,
liabilities, operations, business plans and prospects.
7.5. Employee Benefits, Management and Employment Agreements. (a)
For at least five years after the Effective Time, the Surviving Corporation
shall (i) maintain the Company's Retirement Plan and Employee Savings Plan as
presently in effect or provide benefits comparable in type and amount to
participants in such Plans, and (ii) provide benefits to each officer and
other employee of the Company and its Subsidiaries for so long as such officer
or other employee is employed during such period by the Surviving Corporation
which, in the aggregate, are at least comparable to those currently provided
by the Company and its Subsidiaries.
(b) For at least three years after the Effective Time, the Company
will retain its independent identity as a division of the Surviving
Corporation with its own division board of directors.
(c) At or prior to the Effective Time, the Purchaser shall enter into
an employment agreement with Lyle C. Motley, Jr., President and Chief
Executive Officer of the Company. Pursuant to such employment agreement, the
Surviving Corporation shall agree to employ Mr. Motley for a period of three
years, commencing on the Closing Date on the basis of Mr. Motley's title,
duties and salary structure as of June 23, 1993. Such employment agreement
shall provide that in the event that (i) Mr. Motley terminates his employment
because the Surviving Corporation requests Mr. Motley to relocate or Mr.
Motley's title or duties are downgraded from his title or duties on June 23,
1993 or (ii) the Surviving Corporation terminates Mr. Motley's employment
without cause, the Surviving Corporation shall pay to Mr. Motley the salary
payments payable to Mr. Motley under the terms of such employment agreement
from the date of such termination through the remainder of such three-year
period.
(d) At or prior to the Effective Time, the Purchaser shall enter into
employment agreements with (i) James W. Carl, Vice President of the Company,
(ii) James K. Turpin, Vice President of the Company, (iii) Bernard L. Smith,
Treasurer and Assistant Secretary of the Company, and (iv) Donna S. Scrivens,
Secretary of the Company (individually, an "Officer" and collectively, the
"Officers"). Pursuant to such employment agreements, the Surviving Corporation
shall agree to employ the Officers for a period of two years, commencing on
the Closing Date on the basis of the Officers' respective titles, duties and
salary structure as of June 23, 1993. Each such employment agreement shall
provide that in the event the Surviving Corporation terminates the Officer's
employment without cause, the Surviving Corporation shall pay to such Officer
the salary payments payable to such Officer under the terms of such employment
agreement from the date of such termination through the remainder of
such two-year period. Each such employment agreement shall further provide
that in the event that the Officer terminates his or her employment because
the Surviving Corporation requests the Officer to relocate or the Officer's
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title or duties are downgraded from such Officer's title or duties on June 23,
1993, the Surviving Corporation shall pay to such Officer an amount equal to
the greater of (A) the salary payments payable to such Officer under the terms
of such employment agreement for a period of one year following the date of
such termination and (B) one month's salary (at the then current salary) for
each year such Officer was employed by the Surviving Corporation (including
employment by the Company prior to the Closing Date); provided, however, that
in no event shall such payment exceed the salary payments payable to such
Officer under the terms of such employment agreement from the date of such
termination through the remainder of such two-year period.
(e) In the event the Surviving Corporation terminates without cause
the employment of any other employee of the Company during the first year
following the Closing Date, the Surviving Corporation shall pay to such
employee an amount equal to one week's salary (at the then current salary) for
each year such employee was employed by the Surviving Corporation (including
employment by the Company prior to the Closing Date).
7.6. HSR Act. The Company and the Purchaser shall, as soon as
practicable after the date of this Agreement, file Notification and Report
Forms under the HSR Act with the FTC and the Antitrust Division and shall use
their respective reasonable best efforts to respond as promptly as practicable
to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation.
7.7. Regulatory Approvals. As soon as practicable after the date
hereof, the Company and the Purchaser will cooperate in the preparation and
filing of all materials necessary and desirable to obtain the approval of the
transactions contemplated hereby or the disclaimer of jurisdiction with
respect thereto by any regulatory body that has jurisdiction over the
transactions contemplated hereby.
7.8. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective on or
prior to December 31, 1993 the transactions contemplated hereby, including
using its reasonable best efforts to obtain all necessary waivers, consents
and approvals and effect all necessary registrations and filings, and make all
submissions of information requested by Governmental Entities. If at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all such necessary or desirable action.
7.9. Notification of Certain Matters. The Company shall give prompt
notice to the Purchaser, and the Purchaser shall give prompt notice to the
Company, of (a) any information that indicates that any representation or
warranty contained herein was not true and correct in any material respect as
of the date hereof or will not be true and correct in any material respect as
of the Effective Time and (b) the occurrence of any event which will result,
or has a reasonable prospect of resulting, in the failure to satisfy a
condition specified in Sections 8.1, 8.2 or 8.3, as the case may be.
7.10. Confidentiality. All information provided to the Purchaser and
its Subsidiaries, or their Affiliates, representatives or agents by or on
behalf of the Company or its Subsidiaries or their Affiliates, representatives
or agents concerning the Company and its Subsidiaries shall be governed by the
Confidentiality Letter, dated February 17, 1993, from the Purchaser to the
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Company. All information provided to the Company and its Subsidiaries or their
Affiliates, representatives or agents by or on behalf of the Purchaser or its
Subsidiaries, or their Affiliates, representatives or agents concerning the
Purchaser and its Subsidiaries shall be governed by the Confidentiality
Letter, dated July 7, 1993, from the Company to the Purchaser.
7.11. Publicity. So long as this Agreement is in effect, no party
hereto will issue any press release or make any other public announcement
relating to this Agreement or the transactions contemplated hereby without the
prior consent of the other, except that any party hereto may make any
disclosure required to be made by it under applicable law (including the
federal securities laws) if it determines in good faith that it is appropriate
to do so and gives prior notice to the other party hereto, using its best
efforts, given any time constraints, to reach the other party hereto and
discuss such disclosure with the other party.
7.12. Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any Governmental Entity or other Person
is commenced which questions the validity or legality of this Agreement or any
of the transactions contemplated hereby or seeks damages in connection
therewith, the parties agree to cooperate and use their best efforts to defend
against such claim, action, suit, investigation or other proceeding and, if an
injunction or other order of the type referred to in Section 8.1(c) is issued
with respect to or in any such action, suit or other proceeding, to use their
best efforts to have such injunction or other order lifted.
7.13. Expenses. Subject to the provisions of Section 6.2, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses, including legal and auditing
fees, the fees of their respective brokers, finders or investment bankers and
printing expenses.
7.14. Letter of the Company's Accountants. The Company shall cause to
be delivered to the Purchaser a letter of the Company's independent auditors,
dated a date within two business days before the date as of which the
Registration Statement becomes effective and addressed to the Purchaser, in
form and substance reasonably satisfactory to the Purchaser, to the effect
that:
(a) they are public accountants, independent with respect to the
Company and its Subsidiaries within the meaning of the Securities Act and the
Exchange Act and the applicable published rules and regulations thereunder;
(b) the financial statements of the Company audited by them and
included or incorporated by reference in the Registration Statement comply as
to form in all material respects with the applicable accounting requirements
of the Securities Act and the Exchange Act and of the published rules and
regulations thereunder; and
(c) at the request of the Company, they have carried out procedures
to a specified date not more than five business days prior to the date as of
when the Registration Statement becomes effective, which do not constitute an
audit in accordance with generally accepted auditing standards, of the
financial statements of the Company and its consolidated Subsidiaries as
follows: (i) read the unaudited financial statements of the Company and its
consolidated Subsidiaries included or incorporated by reference in the
Registration Statement, (ii) read the unaudited financial statements of the
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Company and its consolidated Subsidiaries for the period from the date of the
most recent financial statements included or incorporated by reference in the
Registration Statement through the date of the latest available interim
financial statements, (iii) read the minutes of the meetings of shareholders
and the Board of the Company and any committee thereof, and its consolidated
Subsidiaries from the date of the most recent financial statements of the
Company included or incorporated by reference in the Registration Statement to
such date not more than five business days prior to the date as of when the
Registration Statement becomes effective and (iv) consulted with certain
officers of the Company responsible for financial and accounting matters as to
whether any of the changes or decreases referred to below has occurred, and,
based on such procedures, nothing has come to their attention which would
cause them to believe that (A) any unaudited financial statements of the
Company and its consolidated Subsidiaries included or incorporated by
reference in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act or the Exchange Act and of the published rules and regulations
thereunder; (B) such unaudited financial statements are not fairly presented
in all material respects in conformity with generally accepted accounting
principles (except as permitted by Form 10-Q of the SEC); (C) as of such date
not more than five business days prior to the date as of when the Registration
Statement becomes effective, there was, except as set forth in such letter,
any (I) change in the capital stock, treasury stock or long-term debt of the
Company or its Subsidiaries or (II) any decrease in capital in excess of par
value, retained earnings, consolidated net assets, net current assets or
investments of the Company in each case as compared with the amounts shown in
the most recent balance sheet of the Company included or incorporated by
reference in the Registration Statement or (D) for the period from the date of
the most recent balance sheet of the Company included or incorporated by
reference in the Registration Statement to the end of the month immediately
preceding the date as of when the Registration Statement becomes effective,
unless the Registration Statement becomes effective within the first ten
calendar days of a month, in which case, to the end of the next to last
calendar month prior to the calendar month in which the Registration Statement
became effective, there were, except as set forth in such letter, any
decreases, as compared with the corresponding period in the preceding year, in
consolidated revenues or in the total or per share amounts of income before
extraordinary items, income before income taxes or net income of the Company.
7.15. Reservation of Shares; Listing of Surviving Common Stock. Prior
to the Closing the Purchaser shall reserve for issuance, out of its authorized
but unissued Purchaser Common Stock, such number of shares of Purchaser Common
Stock (which shall become Surviving Common Stock at the Effective Time) as may
be issuable upon consummation of the Merger. The Purchaser will cause to be
prepared and submitted to the NYSE a listing application covering the shares
of Surviving Common Stock issuable in connection with the Merger and will use
its reasonable best efforts to obtain, prior to the Effective Time, approval
for the listing of such shares of Surviving Common Stock upon official notice
of issuance.
7.16. Blue Sky Permits. The Purchaser will use its reasonable best
efforts to obtain, prior to the effective date of the Registration Statement,
all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the Merger and the issuance of the Merger Consideration,
provided that neither the Purchaser nor the Surviving Corporation shall be
required to qualify as a foreign corporation or to consent to the service of
process under the laws of any state except Pennsylvania, Maryland, New York
and North Carolina.
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7.17. Agreement by Affiliates. The Company will cause to be delivered
to the Purchaser, at or prior to the Effective Time, a written agreement, in
form and substance reasonably satisfactory to the Purchaser, from any Person
that counsel for the Company may deem to be an "affiliate" of the Company
within the meaning of such term as used in Rule 145 under the Securities Act,
to the effect that no disposition of Surviving Common Stock received in the
Merger will be made by such Persons except within the limits and in accordance
with the applicable provisions of said Rule 145, as amended from time to time,
or except in a transaction which, in the opinion of counsel reasonably
satisfactory to the Surviving Corporation, is exempt from registration under
the Securities Act.
7.18. Shareholder Agreements. The Company will cause to be
delivered to the Purchaser, on or prior to the date of filing of the
Registration Statement with the SEC, a written agreement, in form and
substance reasonably satisfactory to the Purchaser, from shareholders of the
Company who, immediately prior to the date of filing of the Registration
Statement with the SEC, hold in the aggregate not less than 50% of the
outstanding shares of Company Common Stock, pursuant to which such
shareholders shall agree for a period of one year from the Closing Date not to
sell, transfer or otherwise voluntarily dispose of an aggregate number of
shares of Surviving Common Stock received by such shareholders in the Merger
which have a value (determined using the Average Market Price) equal to not
less than 50% of the aggregate Merger Consideration (assuming for purposes of
this Section that there will be no Dissenting Shareholders).
ARTICLE 8
CONDITIONS
8.1. Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Merger shall have been duly approved and
adopted by the requisite vote of the shareholders of the Company in accordance
with applicable law;
(b) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;
(c) No law, statute, ordinance, rule, regulation, judgment, decree,
order or injunction shall have been promulgated, enacted, entered or enforced
by any Governmental Entity which restricts or prohibits the consummation of
the Merger and, in any such case, remains in full force and effect on the
Closing Date.
(d) The Registration Statement shall have become effective and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC; and
(e) The NYSE shall have approved the listing, upon official notice of
issuance, of the shares of Surviving Common Stock issuable upon consummation
of the Merger.
8.2. Additional Conditions to Obligations of the Company. The
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obligations of the Company to effect the Merger are also subject to the
following conditions unless waived by the Company:
(a) The representations and warranties of the Purchaser contained in
this Agreement shall be true in all material respects as of the date hereof
and (having been deemed to have been made again at and as of the Closing Date)
shall be true in all material respects as of the Closing Date (except for such
changes therein permitted by this Agreement). The obligations of the Purchaser
under this Agreement required to be performed by it at or prior to the Closing
Date shall have been duly performed and complied with in all material respects
as of the Closing Date. At the Closing Date, the Company shall have received a
certificate, dated the Closing Date and duly executed by the President or any
Executive Vice President of the Purchaser, to the effect that the conditions
set forth in this Section 8.2(a) have been satisfied;
(b) All permits, authorizations, consents and approvals of any
Governmental Entity required to be obtained by the Company, any of its
Subsidiaries, the Purchaser or any of its Subsidiaries as a condition to the
lawful consummation of the Merger which in the aggregate if not obtained,
would have a Material Adverse Effect on the Purchaser and its Subsidiaries,
taken as a whole, shall have been obtained;
(c) The Company shall have received opinions from Kaye, Scholer,
Fierman, Hays & Handler, Mary Patricia Keefe, Esq., counsel to the Purchaser,
and such other counsel reasonably satisfactory to the Company, dated the
Closing Date substantially in the respective forms of Exhibits A-1, A-2 and
A-3 hereto. In rendering such opinions, such counsel may rely, to the extent
such counsel deems such reliance necessary or appropriate, upon the opinions
of other counsel, in form and substance reasonably satisfactory to the
Company, and as to matters of fact upon certificates of government officials
and of any officials of the Purchaser or its Subsidiaries and upon such other
documents as such counsel deems appropriate, provided that the extent of such
reliance is set forth in such opinion; and
(d) No law, statute, ordinance, rule, regulation, judgment, decree,
order or injunction shall have been promulgated, enacted, entered or enforced
by any Governmental Entity which would have a Material Adverse Effect on the
Purchaser and its Subsidiaries taken as a whole and, in any such case, remains
in full force and effect.
8.3. Additional Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to effect the Merger are also subject to the
following conditions unless waived by the Purchaser:
(a) The representations and warranties of the Company contained in
this Agreement shall be true in all material respects as of the date hereof
and (having been deemed to have been made again at and as of the Closing Date)
shall be true in all material respects as of the Closing Date (except for such
changes therein permitted by this Agreement). The obligations of the Company
under this Agreement required to be performed by the Company at or prior to
the Closing Date shall have been duly performed and complied with in all
material respects as of the Closing Date. At the Closing Date, the Purchaser
shall have received a certificate, dated the Closing Date and duly executed by
the President or any Vice President of the Company, to the effect that the
conditions set forth in this Section 8.3(a) have been satisfied;
(b) (i) All permits, authorizations, consents and approvals of any
Governmental Entity required to be obtained by the Company, any of its
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Subsidiaries, the Purchaser or any of its Subsidiaries as a condition to the
lawful consummation of the transactions contemplated hereby shall have been
obtained and (ii) all consents and approvals of each Person whose consent or
approval is required pursuant to any agreement or instrument prior to the
consummation of the transactions contemplated hereby shall have been obtained,
except with respect to the foregoing clauses (i) and (ii), such permits,
authorizations, consents and approvals which in the aggregate, if not made or
obtained, would not have a Material Adverse Effect on the Purchaser and its
Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken as
a whole;
(c) The Purchaser shall have received opinions from Montgomery,
McCracken, Walker & Rhoads, counsel to the Company, and such other counsel
reasonably satisfactory to the Purchaser, each dated the Closing Date,
substantially in the respective forms of Exhibits B-1 through B-5. In
rendering such opinions, such counsel may rely, to the extent such counsel
deems such reliance necessary or appropriate, upon the opinions of other
counsel, in form and substance reasonably satisfactory to the Purchaser, and,
as to matters of fact, upon certificates of government officials and of any
officials of the Company or its Subsidiaries and such other documents as such
counsel may deem appropriate, provided that the extent of such reliance is set
forth in such opinion;
(d) The Purchaser shall have received a letter of the Company's
independent auditors in form and substance reasonably satisfactory to the
Purchaser making the statements required by Section 7.14 on the basis of
procedures set forth therein carried out by them not more than five business
days prior to the Closing Date;
(e) Holders of less than 5% of the shares of the Company Common Stock
shall have exercised their right to dissent and seek appraisal of such shares
pursuant to the DGCL; and
(f) No law, statute, ordinance, rule, regulation, judgment, decree,
order or injunction shall have been promulgated, enacted, entered or enforced
by any Governmental Entity which would have a Material Adverse Effect on (i)
the Company and its Subsidiaries taken as a whole or (ii) upon consummation of
the Merger and the EGC Merger, on the Surviving Corporation and its
Subsidiaries taken as a whole and, in any such case, remains in full force and
effect on the Closing Date.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination. This Agreement may be terminated at any time prior
to the Effective Time in accordance with Section 9.2, whether prior to or
after approval by the shareholders of the Company:
(a) By mutual consent of the Purchaser and the Company;
(b) By either the Purchaser or the Company if a permanent injunction
is entered, enforced or deemed applicable to the Merger which prohibits the
consummation of the Merger and all appeals of such injunction shall have been
taken and shall have been unsuccessful;
(c) By the Purchaser if a permanent injunction is entered, enforced
or deemed applicable to the EGC Merger which prohibits the consummation of the
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EGC Merger and all appeals of such injunction shall have been taken and shall
have been unsuccessful;
(d) By either the Purchaser or the Company if at the Shareholders
Meeting (including any adjournment or postponement thereof) called pursuant to
Section 7.2 or any successor meeting called for the same purpose, the
requisite affirmative approval of the shareholders of the Company shall not
have been obtained;
(e) By either the Purchaser or the Company if any Governmental
Entity, the consent of which is a condition to the obligations of the parties
hereto to consummate the Merger shall have determined not to grant its consent
and all appeals of such determination shall have been taken and shall have
been unsuccessful;
(f) By the Purchaser if any Governmental Entity, the consent of which
is a condition to the obligations of the Surviving Corporation or EGC to
consummate the EGC Merger shall have determined not to grant its consent and
all appeals of such determination shall have been taken and shall have been
unsuccessful; or
(g) By either the Purchaser or the Company if, without fault of such
terminating party, the Merger has not been consummated by May 2, 1994.
9.2. Procedure and Effect of Termination. In the event of termination
of this Agreement as provided in Section 9.1, notice thereof shall be promptly
given by the terminating party to the other parties and thereafter this
Agreement shall be of no further force or effect and there shall be no
liability on the part of any party with respect thereto except (a) the
provisions of this Section 9.2, Sections 7.10, 7.12 and 7.13, clause (c) of
Section 10.4 and paragraphs (b) and (c) of Section 6.2 shall survive any such
termination; provided, however, that, unless the Purchaser and the Company
otherwise agree, paragraphs (b) and (c) of Section 6.2 shall not survive a
termination pursuant to Section 9.1(a) if (i) the Company has provided written
notice to the Purchaser, prior to any agreement to terminate this Agreement
pursuant to Section 9.1(a), of any event for which notice is required pursuant
to Section 6.2(a) and any payment obligation pursuant to Section 6.2(b), (ii)
the Company has made any and all payments to the Purchaser required pursuant
to Section 6.2(b) to be made prior to the date of such termination and (iii)
the Company (A) has made any and all payments to the Purchaser required
pursuant to Section 6.2(b) to be made subsequent to the date of such
termination or (B) has otherwise entered into a written agreement with the
Purchaser with respect to the payments referred to in the immediately
preceding clause (A) and (b) nothing herein will relieve any party from
liability for any willful breach of the covenants and agreements or fraudulent
making of any representation or warranty contained herein.
9.3. Amendment. This Agreement may not be amended except by an
instrument in writing executed on behalf of each of the parties; provided,
however, that after the approval of the Merger by the shareholders of the
Company, no amendments may be made which would alter or change (a) the amount
or kind of shares, securities, cash, property and/or rights to be received in
exchange for or on conversion of all or any of the shares of the Company
Common Stock upon consummation of the Merger, (b) any term of the articles of
incorporation of the Purchaser or (c) any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the holders of
any shares of the Company Common Stock.
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<PAGE>
9.4. Waiver. At any time prior to the Effective Time, the Purchaser,
on the one hand, or the Company, on the other hand, may, only by an instrument
in writing executed on its behalf, (a) extend the time for the performance of
any of the obligations or other acts of the Company or the Purchaser,
respectively, or (b) waive compliance with any of the agreements, or breach of
any of the representations or warranties, of the Company or the Purchaser,
respectively, or, to the extent legally permitted, with any conditions to its
own obligations. Any such extension or waiver shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure of any party
to perform its obligation under this Agreement.
ARTICLE 10
GENERAL PROVISIONS
10.1. Representations and Warranties. The respective representations
and warranties of the parties contained in this Agreement shall not be deemed
waived or otherwise affected by any investigation made by any party. Each and
every such representation and warranty shall expire at, and be terminated and
extinguished with, the Effective Time and thereafter no party, or any officer,
director or employee thereof or of the Surviving Corporation, shall have any
liability whatsoever with respect to any such representation or warranty.
Notwithstanding anything contained in this Agreement to the contrary, the
agreements and covenants contained in Article 3 and Sections 7.3, 7.5, 7.8
(the last sentence only), 7.13, clause (c) of Section 10.4, and Sections 10.5
and 10.6 shall survive (and not be affected in any respect by) the Effective
Time. This Section 10.1 shall have no effect upon any other obligation of any
party to be performed before or after the Effective Time.
10.2. Notices. All notices and other communications hereunder shall
be given by telephone or facsimile transmission and immediately confirmed in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or by a nationally
recognized overnight delivery service to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice; provided that notices of a change of address shall be effective only
upon receipt thereof):
(a) If to the Purchaser:
NUI Corporation
550 Route 202-206
P.O. Box 760
Bedminster, New Jersey 07921
(908) 781-0500
Facsimile: (908) 781-0718
Attn: President
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<PAGE>
With a copy to:
Gary Apfel, Esq.
Kaye, Scholer, Fierman, Hays & Handler
1999 Avenue of the Stars
16th Floor
Los Angeles, California 90067
(310) 788-1040
Facsimile: (310) 788-1202
(b) If to the Company:
Pennsylvania & Southern Gas Company
102 Desmond Street
Sayre, Pennsylvania 18840-2093
(717) 888-6600
Facsimile: (717) 888-0396
Attn: President
With a copy to:
Kathleen O'Brien, Esq.
Montgomery, McCracken, Walker & Rhoads
Three Parkway
20th Floor
Philadelphia, Pennsylvania 19102
(215) 665-7200
Facsimile: (215) 636-9373
10.3. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.4. Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and oral
(including the Letter of Intent), between the parties with respect to the
subject matter hereof; (b) shall not be assigned by operation of law or
otherwise; and (c) shall be governed by the internal laws of the State of New
Jersey (regardless of the laws that might otherwise govern under applicable
principles of conflicts of law) as to all matters, including as to validity,
performance, interpretation, effect and remedies except that the provisions of
this Agreement relating to the Merger shall also be governed by Delaware law.
This Agreement may be executed in two or more counterparts which together
shall constitute a single agreement. Any information disclosed on any Schedule
hereto shall be deemed fully disclosed for the purposes of all Schedules
hereto.
10.5. Third-Party Beneficiaries. This Agreement (including the
documents and instruments referred to herein) is not intended to confer upon
any other Person any rights or remedies hereunder except that the parties
hereto agree and acknowledge that the agreements and covenants contained in
Section 7.5, are intended for the direct and irrevocable benefit of each and
every employee and officer of the Company and its Subsidiaries (each such
Person a "Third-Party Beneficiary"), and that each such Third-Party
Beneficiary, although not a party to this Agreement, shall be and is a direct
and irrevocable third-party beneficiary of such agreements and covenants and
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<PAGE>
shall have the right to enforce such agreements and covenants against the
Surviving Corporation in all respects fully and to the same extent as if such
Third-Party Beneficiary were a party hereto.
10.6. Partial Invalidity. Any term or provision of this Agreement
that is invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity,
illegality, or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
A-36
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
ATTEST: NUI CORPORATION
By: /s/ Joseph P. Coughlin By: /s/ John Kean
Name: Joseph P. Coughlin Name: John Kean
Title: Secretary Title: President
ATTEST: PENNSYLVANIA & SOUTHERN
GAS COMPANY
By: /s/ Donna K. Scrivens By: /s/ Lyle C. Motley, Jr.
Name: Donna K. Scrivens Name: Lyle C. Motley, Jr.
Title: Secretary Title: President and CEO
A-37
<PAGE>
ANNEX B
January 10, 1994
Board of Directors
Pennsylvania & Southern
Ladies and Gentlemen:
You have requested the opinion of Berwind Financial Group, Inc. ("Berwind")
as to the fairness, from a financial point of view, to the shareholders of
Pennsylvania & Southern Gas Company ("PSGS") of the financial terms of the
proposed transaction whereby PSGS will be merged (the "Merger") with and into
NUI Corporation ("NUI"). The terms of the Merger are set forth in the
Agreement and Plan of Merger, dated July 27, 1993, by and between NUI and PSGS
(the "Merger Agreement") and provide that each outstanding share of PSGS
Common Stock, $1.25 par value per share, other than shares owned by dissenting
stockholders, will be converted into 2.4 to 3.0 shares of NUI Common Stock, no
par value ("NUI Common Stock"), subject to adjustment based upon the
arithmetic average of the daily closing price per share of NUI Common Stock
for the twenty trading days immediately prior to consummation of the Merger as
detailed in the Merger Agreement.
Berwind, as part of its investment banking business, regularly is engaged
in the valuation of assets, securities and companies in various types of asset
and security transactions, including the valuation of assets, securities and
companies in mergers, acquisitions, divestitures and leveraged buyouts and in
the determination of adequate consideration in such transactions.
In accordance with the terms of our engagement letter dated May 3, 1993, we
submit this letter which sets forth our opinion and summarizes the procedures
used in arriving at that opinion.
A. Documentation and Information Examined
As background for our analysis of the proposed transaction, we reviewed the
history, current operations and future prospects of PSGS with certain of PSGS'
management, in addition to reviewing the history, current operations and
future prospects of NUI with certain members of NUI management. Our financial
analysis is based upon, but not limited to, the review of PSGS audited
financial statements, internal worksheets, and internal operating reports.
Specifically, the following were among the documents and information we
examined during the course of our analysis:
1. PSGS and NUI audited financial statements for the fiscal years
1988 through 1993 and quarterly reports to shareholders dated
December 31, 1992, March 31, 1993, and June 30, 1993.
2. PSGS and NUI managements' projected financial summaries for
B-1
<PAGE>
Board of Directors
January 10, 1994
Page 2
the fiscal years ended September 30, 1994 through 1996.
3. PSGS and NUI budgets for the fiscal year ended September 30,
1993.
4. Schedules of receivables aging, payables aging and bad debt
experience for PSGS and NUI.
5. Schedules of PSGS and NUI's largest customers and suppliers.
6. PSGS and NUI organization charts.
7. PSGS and NUI Schedule of pending litigation.
8. Historical and present stock market performances of NUI and
PSGS.
B. Persons Interviewed
During the course of our analysis, we conducted meetings and interviews
with persons who, in our judgement, were capable of providing us with
information necessary to complete the assignment. These interviews and
meetings included, but were not limited to, Lyle Motley, Jr., and Bernard
Smith of PSGS and Frank Bahniuk, Glyn Hazeldon, Robert P. Kenney, Jack Langer,
Rand W. Smith, and Richard Wall of NUI and/or its subsidiaries.
C. Facilities Visited
As part of the development of information and our opinion, we visited PSGS
facilities located in Sayre, Pennsylvania as well as NUI's facilities in
Bedminster, New Jersey and its subsidiaries in Elizabethtown, New Jersey and
Hialeah, Florida.
D. Factors Considered
In arriving at our opinion, we considered the following factors, among
others, which we deemed relevant.
1. The history and management of PSGS and NUI.
2. The nature of and businesses operated by PSGS and NUI and the
future prospects for each.
3. The historical and current operating results of PSGS and NUI
and the factors affecting these results.
4. The historical and current financial conditions of PSGS and
NUI.
5. The historical and current book value of PSGS and NUI's assets
and liabilities.
6. Projected financial, including cashflow, results of PSGS and
B-2
<PAGE>
Board of Directors
January 10, 1994
Page 3
NUI prepared by their respective managements.
7. Available information on "comparable" publicly traded
companies which were not, in our opinion, directly comparable.
8. Available information on so called "comparable" merger and
acquisition transactions which were not, in our opinion,
directly comparable.
9. Conditions in the general economy and the industries in which
PSGS and NUI operate.
10. The financial terms and conditions of the proposed
transaction.
In addition, Berwind conducted other such financial analyses, studies and
investigations as we deemed appropriate.
E. Access to Information and Personnel
During our analysis, we received access to all materials and personnel
which we deemed necessary and adequate for the purpose of formulating the
opinion expressed in this letter, and no limitations were placed upon our
investigations.
F. Assumptions and Limitations
Our opinion is subject to the following assumptions and limitations.
1. We express no opinion as to the tax consequences, if any, to
PSGS, NUI and their shareholders.
2. We have made no independent verification of the financial and
operating data contained in PSGS or NUI's internal and audited
financial statements and other data provided to us by PSGS and
NUI management, and have accepted the information as
presented. In addition, since Berwind is not qualified as an
expert in detecting the presence of potentially hazardous
materials, we have relied upon PSGS and NUI managements'
representations that reserves have been established for all
known and quantifiable environmental problems. Accordingly, as
of the date of this opinion, since any impact relating to
additional environmental problems has not been determined, we
have not considered the potential impact in our analysis. Our
analysis assumed current reserves adequately protect
shareholders from the impact of known and quantifiable
environmental problems.
3. Our opinion is based upon market, economic, financial and
other conditions as they exist and can be evaluated as of the
date of this letter and speaks to no other time period.
4. We assume that the proposed transaction is, in all respects,
B-3
<PAGE>
Board of Directors
January 10, 1994
Page 4
lawful under applicable corporate law.
5. We have assumed and relied upon the accuracy and completeness
of the information provided to Berwind by PSGS and NUI
management without independent investigation. With respect to
financial projections, we have assumed, for purposes of our
opinion, that they have been reasonably prepared by PSGS' and
NUI's managements on bases reflecting the best currently
available estimates and judgements of the future financial
performance of the companies.
G. Conclusion
In preparing our opinion, we have relied upon the completeness and accuracy
of the information and data furnished to us by PSGS and NUI as of the date
hereof. We have not independently verified such data nor data obtained from
regularly published sources. In addition, we have not considered the impact of
environmental problems, except as noted in Section F. In the event that an
additional environmental problem arises, or the known environmental problems
result in costs in excess of current estimates, this opinion may require
modification depending upon the magnitude of such problem.
We are not aware of any present or contemplated relationship between
Berwind and PSGS that, in our opinion, would affect our ability to render a
fair and independent opinion in this matter. Our opinion pertains only to the
financial consideration of the proposed transaction and does not constitute a
recommendation to PSGS shareholders as to how such shareholders should vote on
the Merger Agreement.
Based upon the foregoing analysis and review, other matters we considered
relevant, our general knowledge and experience in the valuation of companies,
and subject to the assumptions and limitations detailed above, we believe that
the proposed transaction between PSGS and NUI is fair from a financial point
of view to PSGS as of the date of this letter.
Respectfully submitted,
Berwind Financial Group, Inc.
B-4
<PAGE>
ANNEX C
Section 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to the
provisions of subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with the provisions of subsection
(d) of this Section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to Section 228 of this
Chapter shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a non-stock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a non-stock corporation.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to sections 251, 252, 254, 257, 258, 263
and 264 of this Chapter;
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock
which, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of section 251 of this Chapter.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to sections 251, 252, 254, 257, 258, 263 and 264 of this Chapter to accept for
such stock anything except: (a) Shares of stock of the corporation surviving
or resulting from such merger or consolidation; (b) Shares of stock of any
other corporation which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more
than 2,000 stockholders; (c) Cash in lieu of fractional shares of the
corporations described in the foregoing subparagraphs a. and b. of this
paragraph; or (d) Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
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rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall deliver to
the corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with the provisions of this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger of
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
section 228 or section 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or consolidation
or within 10 days thereafter, shall notify each of the stockholders entitled
to appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand in
writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
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the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsection (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such share. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office
of the Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have demanded
payment of their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
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to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and in
the case of holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock. The Court's
decree may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a corporation of
this State or of any other state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as
provided in subsection (d) of this section shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting corporation.
(Last amended by Chapter 61, Laws of 1933, effective 7-1-93.)
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