<PAGE>
Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment N0. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission only
(as permitted by Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-11 (c) or 240.14a-12
--------------
IWC Resources Corporation
(Name of Registrant as Specified In Its Charter)
-----------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transactions applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee Paid: N/A
[X] Fee Paid Previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
February 21, 1997
LOGO
Dear Fellow Shareholder:
You are cordially invited to attend the special meeting of shareholders (the
"Special Meeting") of IWC Resources Corporation ("IWC"), which will be held on
March 25, 1997 at 10:00 a.m., Eastern Standard Time, at the University Place
Conference Center and Hotel, 850 West Michigan Street, Room 137, Indianapolis,
Indiana.
At the Special Meeting, holders of common shares, without par value, of IWC
("IWC Common Shares") will be asked to consider and vote upon a proposal to
approve an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
December 19, 1996, by and among NIPSCO Industries, Inc. ("Industries"),
Speedway Acquisition Corp., a wholly-owned subsidiary of Industries
("Acquisition"), and IWC, and to approve the merger of IWC with and into
Acquisition pursuant to the Merger Agreement (the "Merger"). A copy of the
Merger Agreement appears as Annex A to the accompanying Proxy
Statement/Prospectus.
In the Merger, IWC will become a wholly-owned subsidiary of Industries, and
each outstanding IWC Common Share will be converted into (i) a fraction of a
common share, without par value, of Industries ("Industries Common Shares")
having a value of $32.00 (based upon the Industries Share Price determined as
described in the accompanying Proxy Statement/Prospectus) or (ii) at the
election of the holder, the right to receive $32.00 in cash, without interest,
subject to certain limitations outlined in the accompanying Proxy
Statement/Prospectus. IWC shareholders will receive cash in lieu of any
fractional shares of Industries Common Shares to which they otherwise would
have been entitled.
The Merger Agreement contains a number of conditions and other terms, which
are summarized, along with certain financial and other information, in the
accompanying Proxy Statement/Prospectus. You should read carefully the
accompanying Notice of Special Meeting of Shareholders and the Proxy
Statement/Prospectus for details of the Merger and additional related
information.
THE BOARD OF DIRECTORS OF IWC HAS DETERMINED THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF IWC AND ITS SHAREHOLDERS. ACCORDINGLY, THE IWC BOARD
OF DIRECTORS HAS APPROVED THE TERMS OF THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT THE IWC SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
The affirmative vote of the holders of a majority of the outstanding IWC
Common Shares is necessary to approve the Merger Agreement and the Merger.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-paid WHITE envelope. If you attend the Special Meeting, you may vote
in person if you wish, even though you previously have returned your proxy
card. Your prompt cooperation will be greatly appreciated.
In addition, if you wish to receive cash for all or any portion of your IWC
Common Shares, please complete the enclosed Form of Election and return it,
together with your stock certificates, in the enclosed BLUE envelope.
Please do not send your stock certificates with the proxy card. If the
Merger Agreement and the Merger are approved by the IWC shareholders and the
Merger is consummated, IWC shareholders who have not submitted their stock
certificates with a Form of Election will receive a transmittal form and
instructions for the surrender and exchange of their shares.
Thank you for your cooperation.
Sincerely,
LOGO
James T. Morris
Chairman
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY.
LOGO
<PAGE>
IWC RESOURCES CORPORATION
1220 WATERWAY BOULEVARD
INDIANAPOLIS, INDIANA 46206
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 25, 1997
February 21, 1997
TO THE SHAREHOLDERS OF IWC RESOURCES CORPORATION:
A special meeting of the shareholders (the "Special Meeting") of IWC
Resources Corporation, an Indiana corporation ("IWC"), will be held at the
University Place Conference Center and Hotel, 850 West Michigan Street, Room
137, Indianapolis, Indiana, on March 25, 1997 at 10:00 a.m., Eastern Standard
Time, for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and
Plan of Merger (the "Merger Agreement"), dated as of December 19, 1996, by
and among NIPSCO Industries, Inc., an Indiana corporation ("Industries"),
Speedway Acquisition Corp., an Indiana corporation and a wholly-owned
subsidiary of Industries ("Acquisition"), and IWC, and to approve the
merger of IWC with and into Acquisition as contemplated by the Merger
Agreement (the "Merger"). In the Merger, IWC will become a wholly-owned
subsidiary of Industries, and each outstanding common share, without par
value, of IWC ("IWC Common Shares") will be converted into (i) a fraction
of a common share, without par value, of Industries ("Industries Common
Shares") having a value of $32.00 (based upon the Industries Share Price
determined as described in the accompanying Proxy Statement/Prospectus), or
(ii) at the election of the holder, the right to receive $32.00 in cash,
without interest, subject to certain limitations outlined in the
accompanying Proxy Statement/Prospectus. IWC Shareholders will receive cash
in lieu of any fractional shares of Industries Common Shares to which they
otherwise would have been entitled. THE MERGER IS MORE COMPLETELY DESCRIBED
IN THE MERGER AGREEMENT INCLUDED AS ANNEX A TO THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Only holders of record of IWC Common Shares at the close of business on
February 13, 1997, the record date for the Special Meeting, are entitled to
notice of, and to vote at, the Special Meeting and any adjournments or
postponements thereof.
The affirmative vote of the holders of a majority of the outstanding IWC
Common Shares is necessary to approve the Merger Agreement and the Merger.
Holders of IWC Common Shares who wish to receive cash in the Merger should
complete the enclosed Form of Election and return it, together with their
stock certificates, in the enclosed BLUE envelope.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING SO
THAT A QUORUM WILL BE ASSURED. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID WHITE ENVELOPE. PLEASE DO NOT SEND ANY
STOCK CERTIFICATES OR THE FORM OF ELECTION WITH YOUR PROXY. YOUR PROXY MAY BE
REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND RETURNING A LATER DATED
PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH THE SECRETARY OF IWC A
WRITTEN REVOCATION BEARING A LATER DATE OR BY ATTENDING AND VOTING AT THE
SPECIAL MEETING.
By Order of the Board of Directors,
LOGO
John M. Davis, Secretary
<PAGE>
IWC RESOURCES CORPORATION
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 25, 1997
---------------
NIPSCO INDUSTRIES, INC.
PROSPECTUS
---------------
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of common shares, without par value ("IWC Common
Shares"), of IWC Resources Corporation, an Indiana corporation ("IWC"), in
connection with the solicitation of proxies by the Board of Directors of IWC
for use at a special meeting of shareholders of IWC to be held at the
University Place Conference Center and Hotel, 850 West Michigan Street, Room
137, Indianapolis, Indiana, on March 25, 1997, at 10:00 a.m., Eastern Standard
Time, and at any and all adjournments or postponements thereof (the "Special
Meeting").
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of IWC with and into Speedway Acquisition Corp., an Indiana
corporation ("Acquisition") and a wholly-owned subsidiary of NIPSCO
Industries, Inc., an Indiana corporation ("Industries"), pursuant to an
Agreement and Plan of Merger, dated as of December 19, 1996, by and among
Industries, Acquisition and IWC. In the Merger, each outstanding IWC Common
Share will be converted into (i) a fraction of a common share, without par
value, of Industries (including the associated preferred share purchase
rights, "Industries Common Shares") having a value of $32.00 (based on the
average of the closing prices of the Industries Common Shares on the New York
Stock Exchange, Inc. (the "NYSE") Composite Transactions Reporting System, as
reported in The Wall Street Journal, for the 20 trading days immediately
preceding the second trading day prior to the time that the Merger becomes
effective (the "Industries Share Price")) or (ii) at the election of the
holder, the right to receive $32.00 in cash, without interest, subject to
certain limitations as described in this Proxy Statement/Prospectus.
Consummation of the Merger is subject to various conditions, including the
approval by the holders of a majority of the outstanding IWC Common Shares at
the Special Meeting. See "THE MERGER."
This Proxy Statement/Prospectus also constitutes the Prospectus of
Industries with respect to the Industries Common Shares to be issued in
connection with the Merger. Industries Common Shares are traded on the NYSE
under the symbol "NI." On February 18, 1997, the closing sales price for
Industries Common Shares as reported on the NYSE Composite Tape was $39 5/8
per share.
All information contained in this Proxy Statement/Prospectus with respect to
IWC has been provided by IWC. All information contained in this Proxy
Statement/Prospectus with respect to Industries and Acquisition has been
provided by Industries.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of IWC on or about February 21, 1997. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise. See "THE SPECIAL MEETING."
---------------
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
The date of this Proxy Statement/Prospectus is February 21, 1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE 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 PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO
OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION, IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR
DISTRIBUTION OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN THE AFFAIRS OF INDUSTRIES OR IWC SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Industries and IWC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Copies of such reports,
proxy statements and other information can be obtained at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's Regional Offices located at 7 World Trade Center, New York, New York
10048 and at the Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. The SEC maintains a web site on the World Wide Web that contains
reports, proxy statements and other information regarding issuers that file
electronically with the SEC. The address of such site is "http://www.sec.gov."
In addition, such reports, proxy statements and other information concerning
Industries can be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Industries has filed a Registration Statement on Form S-4 (together with all
amendments and exhibits, the "Registration Statement") with the SEC pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), covering up
to 8,000,000 Industries Common Shares to be issued in connection with the
Merger Agreement. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. For
further information, reference is hereby made to the Registration Statement,
copies of which are available from the Public Reference Section of the SEC at
prescribed rates as described above. Statements contained herein concerning
the provisions of documents filed with, or incorporated by reference in, the
Registration Statement as exhibits are necessarily summaries of such
provisions and documents, and each such statement is qualified in its entirety
by reference to the copy of the applicable document filed with the SEC.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS THERETO UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON ORAL OR
WRITTEN REQUEST OF ANY PERSON, INCLUDING A BENEFICIAL OWNER, TO WHOM A COPY OF
THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED. REQUESTS FOR DOCUMENTS
RELATING TO INDUSTRIES SHOULD BE DIRECTED TO NINA M. RAUSCH, SECRETARY, NIPSCO
INDUSTRIES, INC., 5265 HOHMAN AVENUE, HAMMOND, INDIANA 46320, TELEPHONE NUMBER
(219) 853-5199. REQUESTS FOR DOCUMENTS RELATING TO IWC SHOULD BE DIRECTED TO
THE SHAREHOLDER RELATIONS DEPARTMENT, IWC RESOURCES CORPORATION, 1220 WATERWAY
BOULEVARD, P.O. BOX 1220, INDIANAPOLIS, INDIANA 46206, TELEPHONE NUMBER (317)
639-1501. IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY SUCH
REQUEST SHOULD BE MADE BY MARCH 17, 1997.
The following documents previously filed with the SEC by Industries (File
No. 001-9779) and IWC (File No. 000-15420) are incorporated herein by
reference:
(a) Industries' Annual Report on Form 10-K for the year ended December
31, 1995;
(b) Industries' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996, and September 30, 1996;
(c) Industries' Current Report on Form 8-K dated February 14, 1997;
(d) The description of Industries' common shares, without par value, and
associated preferred share purchase rights, contained in Industries'
registration statement on Form 8-B filed pursuant to Section 12 of the
Exchange Act and any amendments and reports filed for the purpose of
updating that description;
(e) IWC's Annual Report on Form 10-K for the year ended December 31,
1995;
(f) IWC's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996, and September 30, 1996; and
(g) IWC's Current Report on Form 8-K dated February 18, 1997.
All documents subsequently filed by Industries or IWC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the termination of the offering of the
Industries Common Shares shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference in this Proxy Statement/Prospectus
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 3
SUMMARY................................................................... 5
THE SPECIAL MEETING....................................................... 14
General................................................................. 14
Purpose of the Special Meeting.......................................... 14
Record Date; Quorum..................................................... 14
Vote Required; Shares Entitled to Vote.................................. 14
Voting of Proxies....................................................... 15
Revocation of Proxies................................................... 15
Solicitation of Proxies................................................. 15
THE MERGER................................................................ 16
Overview of the Merger.................................................. 16
Background of the Merger................................................ 16
IWC's Reasons for the Merger; Recommendation of the IWC Board of
Directors.............................................................. 18
Opinion of Goldman Sachs................................................ 18
Industries' Reasons for the Merger...................................... 22
Opinion of Barr Devlin.................................................. 23
Cash Elections; Allocation and Proration................................ 26
Cash Election Procedure................................................. 27
No Dissenters' Rights................................................... 28
Exchange of Stock Certificates.......................................... 28
No Fractional Shares.................................................... 28
IWC Dividends Prior to the Effective Time of the Merger................. 28
Impact of Stock Splits, Etc............................................. 28
Operation of IWC after the Merger....................................... 29
Regulatory Matters...................................................... 29
Stock Exchange Listings................................................. 29
Conditions to the Merger................................................ 29
Other Acquisition Proposals............................................. 30
Termination; Termination Fees........................................... 30
Expenses................................................................ 31
Amendment, Extension and Waiver......................................... 31
Interests of Certain Persons............................................ 32
Effective Time of the Merger............................................ 34
Certain Federal Income Tax Consequences................................. 34
Accounting Treatment.................................................... 36
Resales of Industries Common Shares Issued in the Merger; Affiliates.... 36
SHAREHOLDERS OF IWC....................................................... 37
COMPARATIVE SHAREHOLDER RIGHTS............................................ 38
Common and Preferred Shares............................................. 38
General Voting Rights................................................... 38
Voting on Transactions with Interested Shareholders..................... 38
Board of Directors...................................................... 39
Special Meetings of Shareholders........................................ 39
Amendment of Articles................................................... 40
Amendment of By-Laws.................................................... 40
Share Purchase Rights Plans............................................. 40
LEGAL OPINION............................................................. 41
EXPERTS................................................................... 41
ANNEXES
ANNEX A: Agreement and Plan of Merger
ANNEX B: Opinion of Goldman, Sachs & Co.
ANNEX C: Opinion of Barr Devlin & Co. Incorporated
</TABLE>
4
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. This summary does not contain a complete statement
of such information or all of the material features of the Merger and is
qualified in its entirety by reference to, and should be read in conjunction
with, the detailed information contained or incorporated by reference in this
Proxy Statement/Prospectus, including the Annexes hereto. Certain capitalized
terms used in this summary are defined elsewhere in this Proxy
Statement/Prospectus.
PARTIES TO THE MERGER
IWC Resources Corporation. IWC, an Indiana corporation, is a holding company
which owns and operates seven subsidiaries, including two regulated water
utility companies, Indianapolis Water Company and Harbor Water Corporation
(together, the "Water Companies"), which supply water for residential,
commercial and industrial uses, and fire protection service, in Indianapolis,
Indiana, and surrounding areas. The territory served by the Water Companies
covers an area of approximately 309 square miles which includes areas in
Marion, Hancock, Hamilton, Hendricks, Boone and Morgan counties in central
Indiana. At December 31, 1996, the Water Companies were providing service to
approximately 240,000 customers.
In addition to the Water Companies, IWC has five other wholly-owned
subsidiaries: SM&P Utility Resources, Inc. ("SM&P"), Miller Pipeline
Corporation ("MPC"), Waterway Holdings, Inc. ("WHI"), Utility Data Corporation
("UDC") and IWC Services, Inc. ("IWC Services"). SM&P performs underground
utility locating and marking services in Indiana and other states. MPC's
primary function is the installation of underground pipelines for natural gas
utilities. In addition, MPC sells products and services related to
infrastructure preservation and replacement. IWC, principally through WHI, owns
real estate that it expects to sell or develop in the future. UDC provides
customer relations, customer billing and other data processing services for the
Water Companies and other water and sewer utilities. IWC Services provides
laboratory water testing services, principally for water utilities. IWC,
through IWC Services, is the majority (52%) partner in the White River
Environmental Partnership ("WREP"), which entered into a five-year contract,
effective January 1994, to operate and maintain two advanced wastewater
treatment facilities for the City of Indianapolis. WREP is actively seeking new
markets and opportunities for contract management services pursuant to expanded
governmental privatization efforts.
The principal executive offices of IWC are located at 1220 Waterway
Boulevard, P.O. Box 1220, Indianapolis, Indiana 46206, and its telephone number
is (317) 639-1501.
NIPSCO Industries, Inc. Industries is an Indiana corporation, incorporated on
September 22, 1987, which serves as the holding company for a number of
subsidiaries, including four regulated companies: Northern Indiana Public
Service Company ("Northern Indiana"), Kokomo Gas and Fuel Company ("Kokomo
Gas"), Northern Indiana Fuel and Light Company, Inc. ("NIFL") and Crossroads
Pipeline Company ("Crossroads"). Industries' major non-utility subsidiaries
include NIPSCO Development Company, Inc. ("Development"), NIPSCO Energy
Services, Inc. ("Services"), Primary Energy, Inc. ("Primary") and NIPSCO
Capital Markets, Inc. ("Capital Markets").
Northern Indiana, Industries' largest and dominant subsidiary, is a public
utility operating company engaged in supplying natural gas and electric energy
to the public. It operates in 30 counties in the northern part of Indiana,
serving an area of about 12,000 square miles with a population of approximately
2,188,000. Northern Indiana serves approximately 653,100 customers with gas and
approximately 411,500 with electricity. Kokomo Gas is a public utility
operating company engaged in supplying natural gas to the public. It operates
in the City of Kokomo, Indiana, and the surrounding area in six counties having
a population of approximately 100,000 and serves approximately 32,900
customers. The Kokomo Gas service territory is contiguous to Northern Indiana's
gas service territory. NIFL is a public utility operating company engaged in
supplying natural gas to
5
<PAGE>
the public. Headquartered in Auburn, Indiana, it operates in five counties in
the northeast corner of the state having a population of approximately 66,700
and serves approximately 32,400 customers. The NIFL service territory is
contiguous to Northern Indiana's gas service territory. Crossroads is a natural
gas pipeline that was certificated by the Federal Energy Regulatory Commission
as an interstate pipeline in May 1995. Development makes various investments,
including real estate and venture capital investments. Services coordinates the
energy-related diversification ventures of Industries. Primary arranges energy-
related projects with large industrial customers. Capital Markets handles
financing for ventures of Industries and its subsidiaries other than Northern
Indiana.
The principal executive offices of Industries are located at 5265 Hohman
Avenue, Hammond, Indiana 46320, and its telephone number is (219) 853-5200.
Acquisition. Acquisition is an Indiana corporation recently organized by
Industries solely for the purpose of effecting the Merger. It has no material
assets and has not engaged in any activities except in connection with the
Merger. Upon consummation of the Merger, Acquisition, as the surviving
corporation, will change its name to "IWC Resources Corporation."
THE SPECIAL MEETING
The Special Meeting of IWC shareholders has been called to consider and vote
upon the approval of the Merger Agreement and the Merger and will be held on
March 25, 1997 at 10:00 a.m., Eastern Standard Time, at the University Place
Conference Center and Hotel, 850 West Michigan Street, Room 137, Indianapolis,
Indiana. Holders of record of IWC Common Shares at the close of business on
February 13, 1997 (the "Record Date") will be entitled to notice of and to vote
at the Special Meeting. The presence, in person or by proxy, at the Special
Meeting of the holders of a majority of the IWC Common Shares outstanding and
entitled to vote at the Special Meeting is necessary to constitute a quorum.
See "THE SPECIAL MEETING--Record Date; Quorum."
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL
Approval of the Merger Agreement and the Merger requires the affirmative vote
of the holders of a majority of the outstanding IWC Common Shares. On the
Record Date, there were outstanding 9,080,793 IWC Common Shares. Each IWC
Common Share outstanding on the Record Date will be entitled to cast one vote
with respect to the Merger at the Special Meeting. See "THE SPECIAL MEETING--
Record Date; Quorum"; "--Vote Required; Shares Entitled to Vote."
RECOMMENDATION OF THE IWC BOARD OF DIRECTORS
The Board of Directors of IWC believes that the terms of the Merger Agreement
and the Merger are fair to and in the best interests of the IWC shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS OF IWC HAS UNANIMOUSLY ADOPTED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE IWC SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER. The circumstances surrounding
and the reasons for the Board of Directors' recommendation, as well as the
factors considered by the Board of Directors in making such recommendation, are
discussed further under "THE MERGER--Background of the Merger"; "--IWC's
Reasons for the Merger; Recommendation of the IWC Board of Directors." Three
members of the Board of Directors of IWC will receive certain payments in
connection with the change in control of IWC and will enter into employment
agreements with the Surviving Corporation. See "THE MERGER--Interests of
Certain Persons."
OPINION OF GOLDMAN SACHS
On December 19, 1996, Goldman, Sachs & Co. ("Goldman Sachs") delivered its
oral and written opinions to the Board of Directors of IWC to the effect that,
as of such date and based upon and subject to the factors and assumptions set
forth therein, the Stock Consideration and the Cash Consideration (each as
defined in Goldman Sachs' opinion attached hereto as Annex B) to be received by
the holders of IWC Common Shares pursuant to the Merger Agreement were each
fair to the holders of IWC Common Shares receiving either such
6
<PAGE>
Consideration. Goldman Sachs subsequently confirmed its December 19, 1996
opinion by delivery of its written opinion, dated February 19, 1997. See "THE
MERGER--Opinion of Goldman Sachs."
The full text of the written opinion of Goldman Sachs, dated February 19,
1997, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Annex B to
this Proxy Statement/Prospectus and is incorporated herein by reference.
SHAREHOLDERS OF IWC ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY.
THE MERGER
General. The Merger Agreement provides that, subject to the approval of the
holders of IWC Common Shares and satisfaction or waiver of certain other
conditions, IWC will be merged with and into Acquisition, which will be the
surviving corporation (the "Surviving Corporation"), and the Surviving
Corporation will be a wholly-owned subsidiary of Industries. At the effective
time of the Merger (the "Effective Time"), each outstanding IWC Common Share
will be converted into (i) a fraction (rounded to the nearest ten-thousandth of
a share) of an Industries Common Share determined by dividing $32.00 by the
Industries Share Price (the "Exchange Ratio") or, (ii) at the election of the
holder, the right to receive $32.00 in cash, without interest, subject to
certain limitations described below. The "Industries Share Price" means the
average of the closing prices of the Industries Common Shares on the NYSE
Composite Transactions Reporting System, as reported in The Wall Street
Journal, for the 20 trading days immediately preceding the second trading day
prior to the Effective Time. See "THE MERGER--Overview of the Merger."
Cash Elections; Allocation and Proration. Each record holder of IWC Common
Shares may elect to receive cash for all or any portion of such holder's IWC
Common Shares (a "Cash Election"); however, the aggregate number of IWC Common
Shares that will be converted into the right to receive cash in the Merger (the
"Cash Election Maximum") may not exceed 4,940,700 IWC Common Shares. If the
aggregate number of IWC Common Shares covered by valid Cash Elections (the
"Cash Election Shares") exceeds the Cash Election Maximum, each Cash Election
Share will be converted into (i) the right to receive cash, without interest,
in an amount equal to the product of (a) $32.00 multiplied by (b) a fraction,
the numerator of which will be the Cash Election Maximum and the denominator of
which will be the total number of Cash Election Shares (the "Cash Fraction")
and (ii) a fraction of an Industries Common Share equal to the product of (a)
the Exchange Ratio multiplied by (b) a fraction equal to one minus the Cash
Fraction. The Cash Election Maximum is subject to further adjustment as
discussed under "THE MERGER--Cash Elections; Allocation and Proration."
Promptly after the Effective Time, the Exchange Agent will calculate the
aggregate number of Cash Election Shares. If the aggregate number of Cash
Election Shares does not exceed the Cash Election Maximum, all Cash Election
Shares will be converted into the right to receive cash. However, if the
aggregate number of Cash Election Shares exceeds the Cash Election Maximum,
then the Cash Election Shares will be converted on a pro rata basis into a
combination of cash and Industries Common Shares as described above. AS A
RESULT OF ANY SUCH PRORATION, A HOLDER OF IWC COMMON SHARES MAKING A CASH
ELECTION MAY NOT RECEIVE CASH IN THE AMOUNT THAT SUCH HOLDER ELECTED. A HOLDER
OF IWC COMMON SHARES MAKING A CASH ELECTION WILL NOT BE ABLE TO ALTER ANY SUCH
PRORATION. See "THE MERGER--Cash Elections; Allocation and Proration."
Cash Election Procedure. A holder of IWC Common Shares who wishes to receive
cash instead of Industries Common Shares for all or any portion of such
holder's IWC Common Shares may make a Cash Election by completing the enclosed
Form of Election and returning it in the enclosed BLUE envelope to Harris Trust
Company of New York (the "Exchange Agent") so that it is received no later than
5:00 p.m., New York City time, on March 24, 1997 (the "Election Deadline"). The
failure of a holder of IWC Common Shares to complete properly and return a Form
of Election prior to the Election Deadline, and to comply with the election
procedures disclosed in this Proxy Statement/Prospectus and the Form of
Election (including the instructions thereto), will result in all of such
holder's IWC Common Shares being automatically converted into Industries Common
Shares pursuant to the Merger Agreement. See "THE MERGER--Cash Election
Procedure."
7
<PAGE>
No Fractional Shares. No fractional Industries Common Shares will be issued
pursuant to the Merger. IWC shareholders will receive cash in lieu of any
fractional shares resulting from the conversion of IWC Common Shares into
Industries Common Shares based on the Industries Share Price. See "THE MERGER--
No Fractional Shares."
NO DISSENTERS' RIGHTS
Under the Indiana Business Corporation Law, holders of IWC Common Shares do
not have dissenters' rights in connection with the Merger. See "THE MERGER--No
Dissenters' Rights."
IWC DIVIDENDS PRIOR TO THE EFFECTIVE TIME OF THE MERGER
IWC will be entitled to declare and pay quarterly dividends at the rate of
$.36 per share in accordance with its past practice until the Effective Time.
On January 16, 1997, the Board of Directors of IWC declared a cash dividend of
$.36 per share on the IWC Common Shares. The dividend will be paid on March 1,
1997, to shareholders of record on February 10, 1997. See "THE MERGER--IWC
Dividends Prior to the Effective Time of the Merger."
REGULATORY MATTERS
Consummation of the Merger is subject to the notification and reporting
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"). Under Indiana law, no approval is needed from the Indiana Utility
Regulatory Commission. See "THE MERGER--Regulatory Matters."
CONDITIONS TO THE MERGER
The obligations of Industries and IWC to consummate the Merger are subject to
the satisfaction or waiver of a number of conditions specified in the Merger
Agreement, including, among other things: (i) the approval of the Merger
Agreement by IWC shareholders; (ii) receipt of all required governmental and
regulatory consents and approvals; (iii) the absence of any order or injunction
that would restrain, enjoin or prohibit the consummation of the Merger; (iv)
receipt by each of Industries and IWC of tax opinions from their respective tax
counsel; (v) the cancellation of existing executive employment agreements
between IWC and certain IWC executives; (vi) execution of employment agreements
between the Surviving Corporation and certain IWC executives; and (vii) the
redemption of IWC's preferred share purchase rights. See "THE MERGER--
Conditions to the Merger."
OTHER ACQUISITION PROPOSALS
In the Merger Agreement, IWC has agreed not to solicit, initiate or encourage
the submission of, or participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may be reasonably expected to lead to, any bona fide proposal
with respect to a merger, consolidation, share exchange or similar transaction
involving IWC or any of its subsidiaries, any purchase of all or any
significant portion of the assets or shares of IWC or any of its subsidiaries
or any other business combination involving IWC or any of its subsidiaries (an
"Acquisition Proposal"). However, the Merger Agreement does not prohibit IWC
from furnishing information to, or entering into discussions or negotiations
with, any person or entity that makes an unsolicited Acquisition Proposal, to
the extent that (i) the Board of Directors of IWC makes a good faith
determination based upon the advice of outside counsel that such action is
necessary for the Board of Directors of IWC to comply with its fiduciary duties
to shareholders under applicable law, (ii) IWC provides reasonable notice to
Industries that it is taking such action and (iii) such person or entity enters
into a confidentiality agreement with IWC as provided in the Merger Agreement.
See "THE MERGER--Other Acquisition Proposals."
8
<PAGE>
TERMINATION; TERMINATION FEES
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual consent of IWC and Industries or by either party if (i) the
shareholders of IWC fail to approve the Merger Agreement, (ii) the Merger is
not completed by May 31, 1997, (iii) the Merger is enjoined by court order,
(iv) the Board of Directors of IWC concludes that, in order to comply with its
fiduciary duties to shareholders, it is necessary to pursue an Acquisition
Proposal, or (v) the other party breaches in any material respect any of its
covenants or representations and warranties under the Merger Agreement and
fails to cure such breach.
The Merger Agreement provides that, if the Merger Agreement is terminated by
Industries or IWC because the Board of Directors of IWC concludes that, in
order to comply with its fiduciary duties to shareholders under applicable law,
it is necessary to modify or withdraw its approval or recommendation of the
Merger Agreement, approve or recommend an unsolicited Acquisition Proposal or
enter into an agreement with respect to such Acquisition Proposal, IWC will pay
Industries $1,000,000 as liquidated damages within 30 days of the date of such
termination and will pay Industries an additional $9,000,000 as liquidated
damages upon the earlier of consummation of the transactions contemplated by
the Acquisition Proposal or five months from the date of such termination;
provided that IWC will not be obligated to pay the additional $9,000,000 if,
within such five-month period, the transactions contemplated by the Acquisition
Proposal are abandoned or otherwise terminated and either (i) the Merger
Agreement is reinstated by mutual agreement of Industries and IWC or (ii)
Industries rejects a firm written offer from IWC to reinstate the Merger
Agreement and consummate the transactions contemplated thereby. The Merger
Agreement further provides that, if the Merger Agreement is terminated by
either Industries or IWC as a result of a material breach by the other of any
representation, warranty or obligation thereunder, the breaching party will pay
$10,000,000 to the nonbreaching party as liquidated damages. See "THE MERGER--
Termination; Termination Fees."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of IWC have interests in the
transactions contemplated by the Merger Agreement that are in addition to the
interests of shareholders of IWC generally, including the following:
Change in Control Obligations and New Employment Agreements. In connection
with the Merger, five senior executives of IWC, three of whom are also
directors of IWC, will agree to the cancellation of their existing executive
employment agreements with IWC and their restricted shares granted pursuant to
IWC's Restricted Stock Plan in consideration for new employment agreements with
the Surviving Corporation. Under the new employment agreements, each executive
will be entitled to receive: (i) a base salary at the executive's 1997 base
salary; (ii) a completion bonus following completion of the Merger; (iii)
annual deferred compensation in an amount equal to the annual contribution
Industries would have made to its defined benefit pension plan for that year if
the executive had been a participant in the plan; (iv) an annual incentive
bonus based on Industries' performance; (v) in the case of three of the
executives, an acquisition incentive bonus and an incentive bonus based on
IWC's performance; (vi) payments relating to an agreement not to compete with
Industries or its subsidiaries after termination of employment; and (vii)
participation in employee welfare benefit plans made available generally to
senior executives of the Surviving Corporation. In addition, to the extent that
any payments under the new employment agreements are subject to an excise tax
under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Surviving Corporation will reimburse the executives for the amount
of such excise tax up to an aggregate of $6,000,000.
Special Bonus Payments. In December 1996, the Compensation Committee of the
IWC Board of Directors awarded special bonuses to four senior executives of
IWC, three of whom are also directors of IWC. The bonuses were paid to the
executives to reward them for their efforts in negotiating the Merger
Agreement.
Election to Industries' Board. The Merger Agreement provides that Industries
will use its best efforts to cause its Articles of Incorporation to be amended
at its 1997 annual meeting of shareholders to increase the authorized number of
directors so as to permit the appointment of one director of IWC to be mutually
determined by Industries and IWC to serve as a director of Industries.
Industries and IWC have selected James T. Morris to serve as this director.
9
<PAGE>
IWC Directors. After the Merger, it is expected that the current members of
IWC's Board of Directors will serve as directors of the Surviving Corporation,
other than current directors of IWC who are also directors of another electric
or gas utility company. It is further expected that the compensation of those
continuing directors will remain substantially unchanged. Directors of IWC
(other than directors who are employees of IWC) receive a quarterly retainer of
$2,500 and an additional $1,000 for each Board of Directors meeting attended.
Directors also receive additional amounts for serving as members of the
Executive Committee, the Audit Committee and the Compensation Committee. IWC
maintains a retirement program for its non-employee directors, under which the
quarterly director's retainer of $2,500 is paid to a director who retires after
reaching age 65 and who has at least ten years of service as a director. The
retirement benefit is reduced proportionately in the case of retiring directors
who have fewer than ten years of service as a director.
Indemnification. Industries has agreed to indemnify and hold harmless each
Eligible Person (as defined in IWC's Articles of Incorporation), including the
directors of IWC, determined as of the Effective Time, against any costs,
expenses and other liabilities to the fullest extent that IWC or any of its
subsidiaries would have been permitted to indemnify such person under
applicable law and the Articles of Incorporation of IWC or such subsidiary in
effect on the date of the Merger Agreement.
See "THE MERGER--Interests of Certain Persons."
EFFECTIVE TIME OF THE MERGER
The Effective Time will occur at the time Articles of Merger are filed with
the Secretary of State of Indiana. Such filing will be made as soon as
practicable following the Special Meeting and the satisfaction or waiver of the
other conditions in the Merger Agreement. See "THE MERGER--Effective Time of
the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify as a tax-free reorganization for federal
income tax purposes within the meaning of Section 368(a) of the Code. Assuming
the Merger so qualifies, no gain or loss will be recognized by Industries or
IWC, and no gain or loss will be recognized by any shareholder of IWC, except
in respect of cash received in a Cash Election or for fractional shares.
Consummation of the Merger is conditioned upon receipt of opinions of counsel
to Industries and counsel to IWC to the effect that the Merger will constitute
a tax-free reorganization. See "THE MERGER--Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
The Merger will be accounted for by Industries under the "purchase" method of
accounting in conformity with generally accepted accounting principles. See
"THE MERGER--Accounting Treatment."
COMPARATIVE RIGHTS OF SHAREHOLDERS OF INDUSTRIES AND IWC
Industries and IWC are both incorporated under the laws of Indiana. IWC
shareholders will, upon consummation of the Merger and subject to Cash
Elections, become shareholders of Industries, and their rights as such will be
governed by Indiana law and Industries' Articles of Incorporation and By-laws.
See "COMPARATIVE SHAREHOLDER RIGHTS."
10
<PAGE>
MARKET PRICES AND DIVIDENDS
Industries. Industries Common Shares are listed and traded on the NYSE, the
Pacific Stock Exchange and the Chicago Stock Exchange. The table below
indicates the high and low sales prices of Industries Common Shares reported on
the NYSE Composite Tape, and the dividends declared per share, during the
periods indicated.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW DECLARED
------- ------- --------
<S> <C> <C> <C>
1995
First Quarter........................... $32 1/4 $29 1/4 $0.39
Second Quarter.......................... 35 1/4 30 3/4 0.39
Third Quarter........................... 34 7/8 32 1/8 0.39
Fourth Quarter.......................... 38 1/2 34 1/2 0.42
1996
First Quarter........................... 39 1/8 36 0.42
Second Quarter.......................... 40 1/4 35 1/4 0.42
Third Quarter........................... 40 1/8 36 1/8 0.42
Fourth Quarter.......................... 39 7/8 35 7/8 0.45
1997
First Quarter (through February 18,
1997).................................. 40 1/4 38 5/8 --
</TABLE>
On December 18, 1996, the last full trading day prior to the public
announcement of execution of the Merger Agreement, the closing sale price
reported on the NYSE Composite Tape for the Industries Common Shares was $38
5/8. On February 18, 1997, the last full trading day for which information was
available prior to the printing of this Proxy Statement/Prospectus, the closing
sale price reported on the NYSE Composite Tape for the Industries Common Shares
was $39 5/8.
On December 17, 1996, the Board of Directors of Industries declared a cash
dividend of $0.45 per share on the Industries Common Shares. The dividend was
paid on February 20, 1997, to holders of record of Industries Common Shares on
January 31, 1997. Holders of record of IWC Common Shares were not entitled to
receive this dividend on the Industries Common Shares.
IWC. IWC Common Shares are listed on the Nasdaq National Market. The table
below indicates the high and low sales prices of IWC Common Shares on the
Nasdaq National Market, and the dividends declared per share, during the
periods indicated.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW DECLARED
------- ------- --------
<S> <C> <C> <C>
1995
First Quarter........................... $20 3/4 $18 1/4 $0.35
Second Quarter.......................... 20 1/4 18 0.35
Third Quarter........................... 19 3/4 18 3/4 0.35
Fourth Quarter.......................... 20 1/2 18 3/4 0.35
1996
First Quarter........................... 23 20 0.36
Second Quarter.......................... 21 1/4 17 1/4 0.36
Third Quarter........................... 20 1/4 17 3/4 0.36
Fourth Quarter.......................... 31 3/4 19 3/4 0.36
1997
First Quarter (through February 18,
1997).................................. 31 3/4 31 1/8 0.36
</TABLE>
11
<PAGE>
On December 18, 1996, the last full trading day prior to the public
announcement of execution of the Merger Agreement, the closing price reported
for the IWC Common Shares was $24.25. On February 18, 1997, the last full
trading day for which information was available prior to the printing of this
Proxy Statement/Prospectus, the closing price reported for the IWC Common
Shares was $31 1/2.
On January 16, 1997, the Board of Directors of IWC declared a cash dividend
of $0.36 per share on the IWC Common Shares. The dividend will be paid on March
1, 1997, to holders of record of IWC Common Shares on February 10, 1997.
SELECTED FINANCIAL DATA
The following tables present certain selected consolidated financial data for
Industries and IWC on an historical basis. This summary has been derived from,
and should be read in conjunction with, the consolidated financial statements
of Industries and IWC incorporated by reference in this Proxy
Statement/Prospectus.
Industries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues...... $1,821,626 $1,722,325 $1,676,401 $1,677,872 $1,582,356
Net income.............. 176,734 175,465 163,987 156,140 136,648
Earnings per average
common share........... 2.88 2.72 2.48 2.31 2.00
Total assets (a)........ 4,274,343 3,999,520 3,947,138 3,912,324 3,807,941
Long-term obligations
and redeemable
preferred and
preference stock (a)... 1,269,478 1,274,379 1,281,395 1,295,962 1,160,122
Cash dividends declared
per common share....... 1.71 1.59 1.47 1.35 1.26
Book value per share
(a).................... 18.40 17.99 17.34 16.63 15.73
IWC
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues...... $ 183,030 $ 147,065 $ 111,379 $ 84,242 $ 63,452
Net income.............. 8,932 12,192 10,142 9,376 8,113
Earnings per average
common share........... 1.03 1.64 1.47 1.41 1.27
Total assets (a)........ 416,627 408,879 335,382 312,443 275,112
Long-term obligations
and redeemable
preferred and
preference stock (a)... 116,697 119,080 103,930 91,080 90,780
Cash dividends declared
per common share....... 1.44 1.40 1.40 1.40 1.395
Book value per share
(a).................... 13.14 12.81 11.38 11.20 10.49
</TABLE>
- --------
(a) At end of period.
12
<PAGE>
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following summary presents selected comparative per share data for
Industries Common Shares and IWC Common Shares on an historical basis and
unaudited per share data for Industries on a pro forma basis and for IWC on a
pro forma equivalent basis assuming the Merger had been effective as of January
1, 1996. The data presented should be read in conjunction with the historical
consolidated financial statements of Industries and IWC, and the related notes
thereto, incorporated by reference in this Proxy Statement/Prospectus. The
following data is not necessarily indicative of the results that actually would
have occurred if the Merger had been in effect during the period presented or
which may be attained in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
---------------------------
PRO FORMA
HISTORICAL (1)(2)(4)
---------- ----------------
<S> <C> <C>
Industries
Book value per share.............................. $18.40 $19.51
Cash dividends declared per common share.......... 1.71 1.71
Earnings per average common share................. 2.88 2.68
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
---------------------------
PRO FORMA
HISTORICAL EQUIVALENT(3)(4)
---------- ----------------
<S> <C> <C>
IWC
Book value per share.............................. $13.14 $15.80
Cash dividends declared per common share.......... 1.44 1.39
Earnings per average common share................. 1.03 2.17
</TABLE>
- --------
(1) The pro forma per share data for Industries were prepared based on the
assumptions that the purchase price is $290.6 million, that the Industries
Share Price is $39.50, and that the consideration paid by Industries in the
Merger will be comprised 45% of Industries Common Shares and 55% of cash.
Such assumptions result in a ratio of .36 of an Industries Common Share to
be issued in connection with the Merger for each IWC Common Share
outstanding. For purposes of computing unaudited per share data for
Industries on a pro forma basis, the excess purchase price over the fair
value of the net assets of IWC was allocated to utility plant in service of
Indianapolis Water Company, consistent with regulatory accounting
practices, and to goodwill for all other IWC subsidiaries. This allocation
is preliminary due to certain events and activities that must occur for the
allocation to be final.
(2) The pro forma per share data for Industries were determined assuming that
the purchase price will be comprised 45% of Industries Common Shares and
55% of cash, which is the maximum amount of cash allowable under the Merger
Agreement. Changing this assumption to contemplate that the purchase price
will be comprised 50% of Industries Common Shares and 50% of cash would
increase Industries' pro forma book value per share amount by $.11 and has
no impact on pro forma earnings per average common share for the year ended
December 31, 1996.
(3) The pro forma equivalent per share data for IWC assume a ratio of .81 of an
Industries Common Share for each IWC Common Share converted into Industries
Common Shares, based upon an assumed Industries Share Price of $39.50. No
pro forma equivalent per share data is provided with respect to IWC Common
Shares converted into the right to receive cash.
(4) The pro forma per share data for Industries and the pro forma equivalent
per share data for IWC include liabilities of approximately $13.1 million
to reflect payments to be made to certain senior executives of IWC pursuant
to proposed employment agreements. Such amount was allocated to utility
plant in service of Indianapolis Water Company, consistent with regulatory
accounting practices, and to goodwill for all other IWC subsidiaries. See
"THE MERGER--Interests of Certain Persons--Change in Control Obligations
and New Employment Agreements."
13
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to shareholders of IWC in
connection with the solicitation of proxies by the Board of Directors of IWC
for use at the Special Meeting. The Special Meeting will be held at 10:00
a.m., Eastern Standard Time, on March 25, 1997, at the University Place
Conference Center and Hotel, 850 West Michigan Street, Room 137, Indianapolis,
Indiana. This Proxy Statement/Prospectus is first being mailed to shareholders
of IWC on or about February 21, 1997.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, IWC shareholders will be asked to consider and vote
upon a proposal to approve the Merger Agreement and the Merger. A copy of the
Merger Agreement is attached as Annex A. See "THE MERGER."
In the Merger, IWC will become a wholly-owned subsidiary of Industries, and
each outstanding IWC Common Share will be converted into (i) a fraction of an
Industries Common Share having a value of $32.00 (based upon the Industries
Share Price, determined as provided in the Merger Agreement), or (ii) at the
election of the holder, the right to receive $32.00 in cash, without interest,
subject to certain limitations outlined in the Merger Agreement. See "THE
MERGER--Overview of the Merger"; "--Cash Elections; Allocation and Proration."
The Board of Directors of IWC has determined that the Merger is fair to and
in the best interests of IWC and its shareholders. ACCORDINGLY, IWC'S BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AND
RECOMMENDS THAT THE SHAREHOLDERS OF IWC VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER. See "THE MERGER--IWC's Reasons for the Merger;
Recommendation of the IWC Board of Directors."
The Board of Directors of IWC knows of no other business that will be
presented for consideration at the Special Meeting.
RECORD DATE; QUORUM
The Board of Directors of IWC has fixed the close of business on February
13, 1997, as the Record Date for determining holders of IWC Common Shares
entitled to notice of, and to vote at, the Special Meeting. Only holders of
record of IWC Common Shares at the close of business on that date will be
entitled to vote at the Special Meeting. Each IWC Common Share outstanding on
the Record Date will be entitled to one vote. At the close of business on the
Record Date, 9,080,793 IWC Common Shares were outstanding and entitled to
vote.
A quorum of shareholders is necessary to take action at the Special Meeting.
A majority of the outstanding IWC Common Shares, represented in person or by
proxy, will constitute a quorum of shareholders at the Special Meeting. The
Secretary of IWC will determine whether a quorum of IWC Common Shares entitled
to vote at the Special Meeting is present in person or by proxy and, pursuant
to Indiana law and the Bylaws of IWC, will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. If a broker indicates on a proxy that it does not have the
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote on that
matter even though such shares will be considered as present for the purposes
of determining the presence of a quorum.
VOTE REQUIRED; SHARES ENTITLED TO VOTE
The affirmative vote of the holders of a majority of the IWC Common Shares
outstanding as of the Record Date is required to approve the Merger Agreement
and the Merger. Votes cast by proxy or in person at the
14
<PAGE>
Special Meeting will be tabulated by the Secretary of IWC. As of the Record
Date, directors and executive officers of IWC and their affiliates were the
beneficial owners of 181,840 IWC Common Shares (approximately 2.0% of the
outstanding IWC Common Shares).
VOTING OF PROXIES
IWC Common Shares which are represented by properly executed proxies, unless
such proxies shall have previously been properly revoked, will be voted in
accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval of the
Merger Agreement and the Merger, and in the discretion of the persons named in
the proxy as proxy appointees as to any other matter which may properly come
before the Special Meeting and of which IWC is not presently aware. Pursuant
to Indiana law and the Bylaws of IWC, shares held by persons who abstain from
voting on a proposal will not be counted as voting either for or against such
proposal. If a broker indicates on a proxy that it does not have discretionary
authority as to certain shares on a particular proposal, those shares will not
be counted as voting with respect to that proposal. Because the approval of
Merger Agreement and the Merger by shareholders of IWC requires the
affirmative vote of a majority of the IWC Common Shares outstanding as of the
Record Date, failure to submit a proxy, abstentions and broker non-votes will
have the same effect as a vote against approval of the Merger Agreement and
the Merger.
It is not expected that any matters other than those referred to in this
Proxy Statement/Prospectus will be brought before the Special Meeting. If,
however, other matters are properly presented, the persons named as proxy
appointees will vote in accordance with their best judgment on such matters.
The grant of a proxy will also confer discretionary authority on the persons
named in the proxy to vote in accordance with their best judgment on matters
incident to the conduct of the Special Meeting. The Special Meeting may be
adjourned to another date and/or place for any proper purpose, including,
without limitation, for the purpose of soliciting additional proxies.
REVOCATION OF PROXIES
Any shareholder may revoke a proxy at any time before it is voted by filing
with the Corporate Secretary of IWC an instrument revoking the proxy or by
returning a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Any such filing should be made to the
attention of John M. Davis, Secretary, IWC Resources Corporation, 1220
Waterway Boulevard, P.O. Box 1220, Indianapolis, Indiana 46206. Attendance at
the Special Meeting will not by itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by IWC and its directors, officers and employees (who will
receive no additional compensation therefor) by telephone, telegram, facsimile
transmission and other electronic communication methods or in person. IWC will
reimburse banks, brokers, custodians and other fiduciaries who hold IWC Common
Shares in their name or in custody, or in the names of nominees for others,
for their out-of-pocket expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares. IWC will bear the
costs of the Special Meeting and of soliciting proxies therefor. Costs
incurred in connection with printing, mailing and distributing this Proxy
Statement/Prospectus and related materials will be shared equally by IWC and
Industries.
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THE MERGER
The following section of this Proxy Statement/Prospectus describes certain
aspects of the proposed Merger. This description does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached as Annex A and is incorporated by reference
herein.
OVERVIEW OF THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger
Agreement by the shareholders of IWC and the satisfaction or waiver of certain
other conditions, IWC will be merged with and into Acquisition, which will be
the Surviving Corporation. No vote of Industries' shareholders is required in
connection with the Merger Agreement. The time at which the Merger becomes
effective is referred to as the "Effective Time."
At the Effective Time, each outstanding IWC Common Share will be converted
into (i) a fraction (rounded to the nearest ten-thousandth of a share) of an
Industries Common Share pursuant to the Exchange Ratio or (ii) at the election
of the holder, the right to receive $32.00 in cash, without interest, subject
to certain limitations described below. See "THE MERGER--Cash Elections;
Allocation and Proration." The Exchange Ratio will be determined by dividing
(i) $32.00 by (ii) the Industries Share Price, which is the average of the
closing prices of the Industries Common Shares on the NYSE Composite
Transactions Reporting System, as reported in The Wall Street Journal, for the
20 trading days immediately preceding the second trading day prior to the
Effective Time.
BACKGROUND OF THE MERGER
IWC was formed as the holding company of Indianapolis Water Company in June,
1986, for the purpose of expanding and diversifying the scope of that
company's business beyond its regulated water utility business. IWC acquired
UDC, a billing and data processing company, in December, 1986. UDC renders
billing and data processing for a number of municipalities and utilities,
including, among others, the Cities of Elkhart and Indianapolis, the Town of
Speedway and Indianapolis Water Company. In 1988, IWC acquired the Town of
Zionsville's waterworks.
In the early 1990s, it became apparent to senior management of IWC, as a
result of a series of Indianapolis Water Company rate cases, that IWC was
going to have increasing difficulty achieving returns sufficient to maintain
the then current level of dividend distributions without substantially greater
income from other sources. As a result, the pace of diversification
accelerated. In 1993, IWC acquired SM&P, an underground facilities locating
company. In 1995, IWC acquired MPC, which is in the business of installing and
servicing underground pipelines for gas and storm and wastewater systems. Each
of these acquisitions was a major acquisition and required substantial amounts
of new capital. In 1993, IWC, through its subsidiary IWC Services, entered
into a partnership with two other companies to form WREP, which contracted
with the City of Indianapolis to operate and maintain the City's advanced
wastewater treatment facilities. That relationship with the City of
Indianapolis was expanded in 1996 to include the operation and maintenance of
the City of Indianapolis' storm and wastewater collection system and Eagle
Creek Reservoir Dam.
In 1994, the water utility properties of Avatar, Inc., a holding company
which then owned and operated water utility and sewage disposal systems in
four midwestern states, including 11 systems in Indiana, became available for
purchase. IWC was unsuccessful in its attempt to acquire these systems. IWC
was outbid by a corporation that had substantially greater capital resources
and the resulting ability to take a longer view on its capital investments.
This experience reinforced the belief of IWC's senior management that IWC
needed access to greater capital resources in order to fully take advantage of
the opportunities available to IWC's subsidiaries.
During 1995 and 1996, IWC's senior management internally considered its
strategic alternatives and had informal discussions with various entities with
regard to a possible business combination. Discussions with only two of these
various entities involved transactions which were, in the view of IWC's senior
management, sufficiently attractive to pursue.
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On July 10, 1996, Gary L. Neale, Chairman of the Board, President and Chief
Executive Officer of Industries, and Peter V. Fazio, Jr., Industries' general
counsel, met with Fred E. Schlegel, a member of the Board of Directors of IWC
and outside legal counsel to IWC. Messrs. Neale and Fazio conveyed Industries'
desire to meet with IWC to explore the possibility of a business combination.
At that meeting Mr. Schlegel agreed to discuss Industries' inquiry with James
T. Morris, Chairman of the Board, Chief Executive Officer and President of
IWC, and did so, on July 17, 1996.
At Mr. Morris' request, Mr. Schlegel arranged for a dinner meeting between
Messrs. Morris and Neale to discuss a possible business combination between
the companies. The meeting took place on August 12, 1996.
Over the course of the next 30 days, several telephone conversations took
place between Mr. Schlegel and Mr. Neale and between Mr. Schlegel and Mr.
Morris, at which the parties' desires to explore a possible combination were
discussed. The next face-to-face meeting between Messrs. Neale and Morris took
place on September 12, 1996, in Indianapolis. At that meeting the mutual
advantages of a business combination between the companies were explored, and
both Mr. Morris and Mr. Neale agreed that the subject matter deserved further
discussion.
During the remainder of September and into early October, 1996, Mr. Morris
separately discussed the general parameters of a business combination with
Industries with each member of the Board of Directors of IWC. Also during this
time, IWC's senior management was involved in serious negotiations with
another potential merger partner.
Exchanges of financial data and preliminary due diligence between IWC and
Industries also took place during September and October. On September 27,
1996, IWC and Industries executed a confidentiality agreement in which they
agreed not to disclose to any third party the identity of the other party or
matters related to the proposed business combination. The agreement was
subsequently amended to eliminate the possibility of a transaction between the
parties not mutually acceptable to each.
On October 15, 1996, Messrs. Neale and Morris met again to discuss the
general terms of the proposed combination and the enhanced opportunities an
alliance would provide both companies.
At the regular quarterly meeting of the Board of Directors of IWC on October
25, 1996, the proposed transaction with Industries was discussed at length. At
that meeting the Board of Directors appointed a Special Committee (the
"Special Committee") of outside directors, Robert B. McConnell, J. George
Mikelsons and Jerry D. Semler, to participate with senior management in
consideration of merger proposals.
On October 31, 1996, at Industries' offices in Merrillville, Indiana,
representatives of IWC and Industries met to discuss the proposed combination.
At that meeting general economic terms, structure and business opportunities
were discussed, but no agreement was reached other than to continue
discussions.
On November 25, 1996, Messrs. Morris and Neale met to discuss further the
general terms of the proposed transaction. Again, pricing was discussed, but
no agreement was reached. On December 2, 1996, preliminary agreement was
reached on the price of $32 per share to be paid for IWC Common Shares, which
would be payable in Industries Common Shares or cash at the election of IWC's
shareholders. During this time, IWC terminated discussions with the other
potential merger partner whose cash only offer was at a lower per share price.
On December 10, 1996, the Special Committee met to discuss the proposed
transaction with Industries. At its meeting the Special Committee resolved to
retain Goldman Sachs to advise the Special Committee and the Board of
Directors as to the fairness of the consideration to be received by the
holders of IWC Common Shares in the proposed transaction. The Special
Committee met again on December 17, 1996, to consider the proposed
transaction.
On December 18, 1996, the Board of Directors of IWC met to discuss the
proposed transaction with Industries. At the meeting Goldman Sachs presented
its analysis of the transaction. On December 19, 1996, Goldman Sachs delivered
to the Board its opinion to the effect that, as of such date, and based upon
and subject to the factors and assumptions set forth therein, the Stock
Consideration and the Cash Consideration to be received by the holders of IWC
Common Shares pursuant to the Merger Agreement were each fair to the holders
of IWC Common Shares receiving either such Consideration. See "THE MERGER--
Opinion of Goldman Sachs." At the December 19, 1996, meeting of IWC's Board of
Directors, the Board unanimously approved the transaction.
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IWC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE IWC BOARD OF DIRECTORS
The IWC Board of Directors has determined that the Merger is fair to and in
the best interests of IWC and its shareholders. ACCORDINGLY, THE IWC BOARD OF
DIRECTORS HAS APPROVED THE TERMS OF THE MERGER AGREEMENT AND RECOMMENDS THAT
THE SHAREHOLDERS OF IWC VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER. The Board of Directors of IWC recommends approval of this strategic
alliance for a number of reasons. The Board of Directors of IWC believes that
the price of $32.00 per share represents a substantial premium over the
historical price of IWC Common Shares. The price is also in excess of the
highest alternative price discussed with the other potential merger partner.
The Board of Directors further believes that the price, together with the
opportunity for IWC shareholders to participate in the combined entity as a
result of receiving Industries Common Shares and thereby deferring taxable
gain, make the Merger compelling to IWC shareholders from an economic
standpoint.
In addition, the need for IWC to have access to substantially greater
capital resources was an important factor to the IWC Board of Directors. If
IWC is to continue to grow and acquire other utilities and businesses, it must
have the capital strength to do so. Industries, being a larger company with a
greater capital base, has the capability of providing those resources. The
availability of those resources comes at an important time for IWC, as
consolidation among public utilities in the United States is becoming common.
In addition, it is the stated desire of Industries' management that IWC remain
a free-standing and independently-operating company. This concept is important
to the Board of Directors of IWC, which considers IWC's presence in the City
of Indianapolis important to the community and its institutions. No
significant layoffs of IWC employees are expected to occur as a result of this
transaction. The Board of Directors of IWC considers this point to be very
important. As a result, IWC expects to operate and maintain a first-class
water utility after the Merger in much the same way as it has in the past,
giving the citizens of Indianapolis the continued assurance of a high quality
water supply at all times.
The Merger Agreement contemplates that IWC shareholders may elect to receive
cash or Industries Common Shares, or a combination of cash and Industries
Common Shares, for their IWC Common Shares. In recommending the Merger, the
Board of Directors of IWC took into consideration the superior growth record
for Industries Common Shares in recent years, compared with that of IWC. It
concluded that this record increases the attractiveness of the Merger to the
shareholders of IWC. Consequently, management believes that the proposed
transaction maximizes shareholder value and enhances the capital resources
available to IWC.
OPINION OF GOLDMAN SACHS
On December 19, 1996, Goldman Sachs delivered its oral opinion to the Board
of Directors of IWC (which was subsequently confirmed in writing as of that
date) to the effect that, as of such date, and based upon and subject to the
factors and assumptions set forth therein, the Stock Consideration and the
Cash Consideration (each as defined in Goldman Sachs' opinion attached hereto
as Annex B) to be received by the holders of IWC Common Shares pursuant to the
Merger Agreement were each fair to the holders of IWC Common Shares receiving
either such Consideration. Goldman Sachs subsequently confirmed its December
19, 1996 opinion by delivery of its written opinion, dated February 19, 1997.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED FEBRUARY 19,
1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX B
TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
SHAREHOLDERS OF IWC ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY.
In connection with its opinion attached hereto as Annex B, Goldman Sachs
reviewed, among other things, (i) the Merger Agreement; (ii) this Proxy
Statement/Prospectus; (iii) the Annual Reports to Shareholders and Annual
Reports on Form 10-K of IWC and Industries for the five years ended December
31, 1995; (iv) certain interim reports to shareholders and Quarterly Reports
on Form 10-Q of IWC and Industries; (v) certain other communications from IWC
and Industries to their respective shareholders; and (vi) certain internal
financial
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analyses and forecasts for IWC prepared by its management. Goldman Sachs also
held discussions with members of the senior managements of IWC and Industries
regarding the past and current business operations, financial condition and
future prospects of their respective companies. In addition, Goldman Sachs
reviewed the reported price and trading activity for the IWC Common Shares and
the Industries Common Shares, compared certain financial and stock market
information for IWC and Industries with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the utility industry
specifically and in other industries generally and performed such other studies
and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of IWC or Industries or
any of their subsidiaries and Goldman Sachs has not been furnished with any
such evaluation or appraisal. Goldman Sachs was not provided any internal
financial analyses or forecasts for Industries. Goldman Sachs was not requested
to solicit, and did not solicit, interest from other parties in a potential
transaction involving IWC.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral and written opinions to the
IWC Board of Directors on December 19, 1996. Goldman Sachs utilized
substantially the same type of financial analyses in connection with providing
its written opinion attached hereto as Annex B.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the IWC Common Shares and the
Industries Common Shares. In addition, Goldman Sachs analyzed the
consideration to be received by holders of the IWC Common Shares pursuant
to the Merger in relation to the historical average exchange ratios between
IWC Common Shares and Industries Common Shares. Such analysis indicated
that the average exchange ratio for the one month, three month, six month
and one year periods ending on December 13, 1996 was 0.55x, 0.55x, 0.57x
and 0.55x, respectively. Based on a price of $38.63 per share (the per
share price of Industries Common Shares on December 13, 1996) of Industries
Common Shares, the Merger represents an exchange ratio of 0.83x.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information of IWC to corresponding financial
information, ratios and public market multiples for eight publicly traded
water utilities, American Water Works Company, Inc., California Water
Service Company, Connecticut Water Service, Inc., Consumers Water Company,
E'town Corporation, Southern California Water Company, Southwest Water
Company and United Water Resources, Inc. (the "Selected Water Companies").
Goldman Sachs calculated and compared various financial multiples and
ratios. The multiples of IWC were calculated using a price of $22.50 per
share, the closing price on December 13, 1996. The multiples and ratios for
IWC were based on information provided by its management and the multiples
and ratios for each of the Selected Water Companies were based on the most
recent publicly available information. Goldman Sachs considered leveraged
market capitalization (market value of common equity plus debt less cash)
as a multiple of latest twelve months ("LTM") sales, as a multiple of LTM
earnings before interest, taxes, depreciation and amortization ("EBITDA")
and as a multiple of LTM earnings before interest and taxes ("EBIT").
Goldman Sachs' analysis of the Selected Water Companies indicated leveraged
multiples of (i) LTM sales which ranged from 1.0x to 5.2x, (ii) LTM EBITDA
which ranged from 6.8x to 11.0x, and (iii) LTM EBIT which ranged from 8.7x
to 14.0x compared to leveraged multiples of LTM sales, EBITDA and EBIT of
1.8x, 7.2x and 10.6x, respectively, for IWC. Goldman Sachs also considered
estimated calendar year 1996 and 1997 price/earnings ratios for the
Selected Water Companies which ranged from 12.8x to 15.3x for fiscal year
1996 and 12.2x to 15.0x for fiscal year 1997 compared to estimated calendar
year 1996 and 1997 price/earnings ratios of 14.4x and 12.8x, respectively,
for IWC.
Goldman Sachs also reviewed and compared certain financial information of
Industries to corresponding financial information, ratios and public market
multiples for thirteen publicly traded electric utilities, American
Electric Power Co., Inc., CILCORP Inc., CINergy Corp., CIPSCO Incorporated,
Idaho Power Company, Illinova Corporation, IPALCO Enterprises, Inc., KU
Energy Corporation, Ohio Edison
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Company, Pacific Gas and Electric Company, Pacificorp, SIGCORP, Inc. and
UtiliCorp United Inc. (the "Selected Electric Companies"). Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples of Industries were calculated using a price of $38.63 per share,
the closing price on December 13, 1996. The multiples and ratios for
Industries and for each of the Selected Companies were based on the most
recent publicly available information. Goldman Sachs considered the
projected five-year growth rates of earnings per share ("EPS"), the
dividend yields and the market to book multiples (market value of common
equity to book value). Goldman Sachs' analysis of the Selected Electric
Companies indicated (i) EPS growth rates which ranged from 1.5% to 5.5%,
(ii) dividend yields which ranged from 4.7% to 6.9%, and (iii) market to
book multiples which ranged from 1.1x to 2.0x compared to EPS growth rates,
dividend yields and market to book multiples of 4.0%, 4.3% and 2.1x,
respectively, for Industries. Goldman Sachs also considered estimated
calendar year 1996 and 1997 price/earnings ratios for the Selected Electric
Companies which ranged from 9.5x to 14.6x for fiscal year 1996 and 9.8x to
13.4x for fiscal year 1997 compared to estimated calendar year 1996 and
1997 price/earnings ratios of 13.8x and 13.1x, respectively, for
Industries.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis for IWC's utility businesses taken as a whole and for
IWC's non-regulated businesses taken as a whole, in each case using IWC's
management projections for the fiscal years 1997 to 2000. These future cash
flows were discounted to present value using discount rates ranging from
10% to 12% for IWC's utility businesses and discount rates ranging from 11%
to 13% for IWC's non-regulated businesses. Goldman Sachs calculated
terminal values of IWC's utility businesses and IWC's non-regulated
businesses using 3% to 5% rates of growth of free cash flow in perpetuity.
These terminal values were then discounted to present value using discount
rates ranging from 10% to 12% for IWC's utility businesses and discount
rates ranging from 11% to 13% for IWC's non-regulated businesses. The net
present values were then combined to calculate the discounted cash flow
value for IWC. The implied per share values ranged from $14.79, using a 12%
discount rate for IWC's utility businesses, a 13% discount rate for IWC's
non-regulated business and a 3% growth rate of free cash flow in
perpetuity, to $37.09, using a 10% discount rate for IWC's utility
businesses, an 11% discount rate for IWC's non-regulated businesses and a
5% growth rate of free cash flow in perpetuity.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the water utilities
industry since 1990 (the "Selected Transactions"). Such analysis indicated
that for the Selected Transactions (i) leveraged aggregate consideration as
a multiple of LTM sales ranged from 2.1x to 6.7x, as compared to 2.3x for
the leveraged aggregate consideration as a multiple of LTM sales to be paid
in the Merger, (ii) leveraged aggregate consideration as a multiple of LTM
EBITDA ranged from 5.3x to 16.8x, as compared to 9.1x for the leveraged
aggregate consideration as a multiple of LTM EBITDA to be paid in the
Merger, and (iii) leveraged aggregate consideration as a multiple of LTM
EBIT ranged from 6.4x to 22.2x, as compared to 13.4x for the leveraged
aggregate consideration as a multiple of LTM EBIT to be paid in the Merger.
(v) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger. Using earnings estimates for IWC
prepared by its management for the fiscal years 1996 and 1997, and median
earnings estimates from the Institutional Brokers Estimate System for
Industries for fiscal year 1996 and 1997, Goldman Sachs compared the EPS of
Industries Common Shares, on a stand-alone basis, to the EPS of the common
stock of the combined companies on a pro forma basis before taking into
account any of the possible benefits that may be realized after the Merger.
Goldman Sachs performed this analysis based on a price of $38.63 per share
(the per share price of Industries on December 13, 1996) of Industries
Common Shares under the following two scenarios: (a) assuming IWC Common
Shares representing the Cash Election Maximum are converted into the right
to receive cash in the Merger and (b) assuming the holders of IWC Common
Shares receive only Industries Common Shares in the Merger. Based on such
analyses, the proposed transaction would be dilutive to Industries'
shareholders on an EPS basis in each of the above scenarios in the years
1996 and 1997.
(vi) Contribution and Give-Get Analysis. Goldman Sachs reviewed certain
historical and estimated future operating and financial information
(including, among other things, revenues, EBITDA, EBIT and
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net income) for IWC, Industries, and the pro forma combined entity
resulting from the Merger based on, in the case of IWC, actual results for
the twelve month period ended September 30, 1996 and management estimates
for fiscal years 1996 and 1997 and, in the case of Industries, actual
twelve month results for the period ended September 30, 1996 and
information contained in the equity research report dated June 18, 1996 of
Tucker Anthony Incorporated. This analysis indicated that, for the twelve
months ended September 30, 1996, IWC would have contributed 9.4% to
combined revenues, 7.2% to combined EBITDA, 7.5% to combined EBIT and 6.1%
to combined net income; for fiscal year 1996, IWC would have contributed
9.2% to combined revenues, 6.0% to combined EBITDA, 6.2% to combined EBIT
and 7.4% to combined net income; and for fiscal year 1997, IWC would have
contributed 9.7% to combined revenues, 6.7% to combined EBITDA, 7.1% to
combined EBIT and 8.3% to combined net income. This analysis also indicated
a range of implied IWC/Industries exchange ratios of 0.43x to 0.79x and a
range of implied per share prices of IWC Common Shares of $16.63 to $30.66.
In addition, Goldman Sachs analyzed the amount of accretion (dilution) on
a per share basis from IWC's perspective of revenues, EBITDA, EBIT, net
income and dividends on a pro forma basis before taking into account any of
the possible benefits that may be realized following the Merger. This
analysis showed that IWC would experience, for LTM, fiscal year 1996 and
fiscal year 1997, respectively, an 18.2%, 26.2% and 22.6% revenue
accretion, a 55.0%, 93.9% and 77.2% EBITDA accretion, a 48.7%, 88.8% and
66.7% EBIT accretion and a 72.4%, 48.1% and 34.0% net income accretion.
This analysis also showed a (3.3)% dilution in dividends.
Based on the Exchange Ratio, the number of outstanding IWC Common Shares
and Industries Common Shares as of December 13, 1996, and a price of $38.63
per share (the per share price of Industries Common Shares on December 13,
1996) of Industries Common Shares, if all holders of IWC Common Shares
receive Stock Consideration, the shareholders of IWC would receive
approximately 11.0% of the outstanding common equity of the combined
companies after the Merger, and if IWC Common Shares representing the Cash
Election Maximum are converted into the right to receive cash in the
Merger, the stockholders of IWC would receive approximately 4.9% of the
outstanding common stock of the combined companies after the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering Goldman Sachs' analyses as a whole, could create an incomplete
view of the processes underlying Goldman Sachs' opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of all such
analyses and did not assign relative weights to any of the analyses. No
company or transaction used in the above analyses as a comparison is identical
to IWC or Industries or the contemplated transaction. The analyses were
prepared solely for purposes of Goldman Sachs providing its opinion to the IWC
Board of Directors as to the fairness of the Stock Consideration and the Cash
Consideration to be received by the holders of IWC Common Shares and do not
purport to be appraisals or to necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of IWC, Industries, Goldman Sachs or any other
person assumes responsibility if future results are different from those
projected. Goldman Sachs' opinion to the IWC Board of Directors necessarily
was based on the economic, market and the other conditions as in effect on,
and the information made available to it as of, the date of its opinion. As
described above under the caption "THE MERGER--IWC's Reasons for the Merger;
Recommendation of the IWC Board of Directors", Goldman Sachs' opinion to the
IWC Board of Directors was one of many factors taken into consideration by the
IWC Board of Directors in making its determination to approve the Merger
Agreement. Although Goldman Sachs provided advice to IWC during the course of
these negotiations, the decision to enter into the Merger Agreement and to
accept the Stock Consideration and the Cash Consideration to be received by
the holders of IWC Common Shares was solely that of the IWC Board of
Directors. THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION
OF THE ANALYSES PERFORMED BY GOLDMAN SACHS AND IS QUALIFIED BY REFERENCE TO
THE WRITTEN OPINION OF GOLDMAN SACHS SET FORTH AS ANNEX B HERETO.
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Goldman Sachs, as part of its investment banking business, is continually
engaged in the evaluation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. IWC selected Goldman
Sachs to render its opinion because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger and of its prior investment banking relationship with IWC.
Goldman Sachs has provided certain investment banking services to IWC and
Industries from time to time, and may provide certain investment banking
services to Industries in the future.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of IWC and/or Industries for its own account and for the account of
customers.
Pursuant to a letter agreement dated December 12, 1996 (the "Engagement
Letter"), IWC engaged Goldman Sachs to undertake a study to enable it to
render its opinion with respect to the Stock Consideration and the Cash
Consideration to be received by the holders of IWC Common Shares receiving
either such Consideration. Pursuant to the terms of the Engagement Letter, IWC
agreed to pay Goldman Sachs upon delivery of its opinion a fee of $500,000.
IWC also agreed to reimburse Goldman Sachs periodically, upon request, and
upon consummation of the Merger for its reasonable out-of-pocket expenses,
including attorney's fees (not to exceed $15,000), plus any sales, use or
similar taxes arising in connection with the Merger, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
INDUSTRIES' REASONS FOR THE MERGER
As the electric and gas industries have continued to consolidate,
Industries' management has sought opportunities in other distribution
businesses where Industries could utilize the systems it has developed and the
expertise of its employees in running its distribution businesses. As part of
these efforts, Industries' management has considered various energy-related
businesses into which it might expand. Among these businesses were companies
that locate underground utility facilities so that excavation and other
construction-related activities may proceed safely. During the course of
investigating such companies, Industries discovered that the largest company
in this business, SM&P, is owned by IWC.
While analyzing information relating to SM&P, Industries decided to expand
the scope of its analysis to see whether an acquisition of all of IWC might
make strategic sense for Industries. While conducting its expanded analyses,
Industries learned that IWC also owns MPC, a company in an energy-related
business which had been suggested to Industries several years ago as a
possible acquisition candidate.
In analyzing IWC, Industries discovered a number of parallels between the
state of the water utility business today and the electric utility industry of
several decades ago. A substantial amount of the water utility business today
is conducted by municipal and small private systems at a time when clean water
legislation is likely to require the investment of substantial additional
capital into water distribution systems in order to comply with more stringent
quality standards. Similarly, in the 1940's and 1950's, the electric and gas
utility businesses began building larger and more efficient generating
stations and converting from manufactured gas to natural gas, activities which
brought customer benefits in the way of lower unit costs but imposed
additional capital expenditure burdens on the utilities themselves and
resulted in consolidation in the industry. Industries believes that a similar
increase in capital demands will result in similar consolidation in the water
utility business.
As a result of this analysis, Industries concluded that acquiring IWC would
provide Industries with an opportunity to initiate and to grow, much as it did
with its electric and gas businesses, a new distribution segment.
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OPINION OF BARR DEVLIN
On December 16, 1996, Industries entered into an engagement letter with Barr
Devlin & Co. Incorporated ("Barr Devlin") pursuant to which Barr Devlin was
retained to act as Industries' financial advisor in connection with a
strategic business combination with IWC. Barr Devlin has delivered its written
opinion, dated December 19, 1996, to Industries' Board of Directors to the
effect that, on and as of the date of such opinion, and based upon assumptions
made, matters considered, and limits of the review, as set forth in the
opinion, the consideration to be offered in connection with the Merger was
fair, from a financial point of view, to the holders of Industries Common
Shares. A copy of the opinion of Barr Devlin is attached to this Proxy
Statement/Prospectus as Annex C and is incorporated herein by reference.
In connection with rendering its opinion, Barr Devlin (i) reviewed the
Annual Reports, Forms 10-K and the related financial information for the
three-year period ended December 31, 1995, and the Forms 10-Q and the related
unaudited financial information for the quarterly periods ended March 31,
1996, June 30, 1996 and September 30, 1996, for IWC, (ii) reviewed the Annual
Reports, Forms 10-K and the related financial information for the three-year
period ended December 31, 1995, and the Forms 10-Q and the related financial
information for the quarterly periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, for Industries and Northern Indiana; (iii) reviewed
certain other filings with the SEC and other regulatory authorities made by
IWC, Industries and Northern Indiana during the last three years; (iv)
reviewed certain internal information, including financial forecasts, relating
to the business, earnings, capital expenditures, cash flow, assets and
prospects of IWC and Industries furnished to Barr Devlin by IWC and
Industries; (v) conducted discussions with members of senior management of
Industries and IWC concerning their respective businesses, regulatory
environments, prospects, strategic objectives and possible operating and
administrative synergies which might be realized for the benefit of Industries
following the Merger; (vi) reviewed the historical market prices and trading
activity for shares of IWC with those of certain publicly traded companies
deemed by Barr Devlin to be relevant; (vii) compared the results of operations
of IWC with those of certain companies deemed by Barr Devlin to be relevant;
(viii) compared the proposed financial terms of the Merger with the financial
terms of certain business combinations deemed by Barr Devlin to be relevant;
(ix) analyzed the valuation of IWC Common Shares using various valuation
methodologies deemed by Barr Devlin to be appropriate; (x) considered the pro
forma effect of the Merger on Industries' capitalization, earnings and cash
flow; (xi) compared the pro forma effect of the Merger on Industries' earnings
per share with corresponding current and projected values on a stand-alone
basis; (xii) reviewed the Merger Agreement and (xiii) reviewed such other
studies, conducted such other analyses, considered such other financial,
economic and market criteria, performed such other investigations and took
into account such other matters as Barr Devlin deemed necessary or appropriate
for purposes of its opinion.
In rendering its opinion, Barr Devlin relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it
by Industries and IWC, and further relied upon the assurances of management of
Industries and IWC that they were not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial
projections of Industries and IWC (including, without limitation, possible
operating and administrative synergies), Barr Devlin relied upon the
assurances of management of Industries and IWC that such projections were
reasonably prepared and reflected the best currently available estimates and
judgments of the management of Industries and IWC as to the future financial
performance of Industries and IWC, as the case may be, and as to the projected
outcomes of legal, regulatory and other contingencies. Barr Devlin was not
provided with and did not undertake an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Industries or IWC, nor
did Barr Devlin make any physical inspection of the properties or assets of
Industries or IWC.
In arriving at its opinion, Barr Devlin assumed that the Merger will be a
reorganization as described in Section 368(a) of the Code and the regulations
thereunder, and that no gain or loss will be recognized by Industries or IWC
as a consequence of the Merger. In addition, Barr Devlin has assumed that the
Merger will be accounted for by the purchase method of accounting. Barr
Devlin's opinion is based upon general financial, stock
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market and other conditions and circumstances as they existed and could be
evaluated, and the information made available to it, as of the date of the
opinion. Barr Devlin's opinion is directed only to Industries' Board of
Directors and the fairness from a financial point of view to the holders of
Industries Common Shares of the consideration to be offered in connection with
the Merger and does not address any other aspect of the Merger. Although Barr
Devlin evaluated the fairness from a financial point of view to the holders of
Industries Common Shares of the consideration to be offered in connection with
the Merger, the specific consideration to be offered in connection with the
Merger was determined by Industries and IWC through arm's-length negotiations.
Industries did not place any limitations upon Barr Devlin with respect to the
procedures followed or factors considered by Barr Devlin in rendering its
opinion.
Barr Devlin has advised Industries that, in its view, the preparation of a
fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those
methods to the particular circumstances, and, therefore, such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at
its fairness opinion, Barr Devlin did not attribute any particular weight to
any analysis or factor considered by it, nor did Barr Devlin ascribe a
specific range of fair values to Industries; rather, Barr Devlin made its
determination as to the fairness of the consideration to be offered in
connection with the Merger on the basis of qualitative judgments as to the
significance and relevance of each of the financial and comparative analyses
and factors described below. Accordingly, notwithstanding the separate factors
summarized below, Barr Devlin believes that its analyses must be considered as
a whole and that considering any portions of these analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the evaluation process underlying its opinion. In its
analyses, Barr Devlin made many assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond Industries' and IWC's control. Any estimates in these
analyses do not necessarily indicate actual values or predict future results
or values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
In connection with rendering its opinion dated December 19, 1996, and
preparing its presentations to Industries' Board of Directors, Barr Devlin
performed a variety of financial and comparative analyses and considered a
variety of factors of which the material analyses and factors are summarized
below. While this summary describes the material analyses performed and
factors considered, it does not purport to be a complete description of the
analyses performed or factors considered by Barr Devlin. Barr Devlin's opinion
is based upon its consideration of the collective results of all such
analyses, together with the other factors referred to in its opinion. In
concluding that the consideration to be offered in connection with the Merger
is fair, from a financial point of view, to the holders of Industries Common
Shares and in its discussions with Industries' Board of Directors, Barr Devlin
noted that $32.00 was within the range of implied values set forth under "--
Discounted Cash Flow Analysis" and "--Comparable Transaction Analysis" below,
which were derived from the analyses performed by it.
Stock Trading History. Barr Devlin reviewed the performance of the per share
market prices and trading volumes of Industries Common Shares and IWC Common
Shares and compared such per share market price movements to movements in (i)
the Standard and Poor's Utilities Index and (ii) the Standard and Poor's 500
Composite Index to provide perspective on the current and historical stock
price performance of Industries and IWC relative to one another and selected
market indices. This analysis was utilized to provide historical background
for the manner in which the public trading market had valued Industries and
IWC in absolute terms and relative to each other.
Discounted Cash Flow Analysis. To determine the present value of IWC, Barr
Devlin prepared and reviewed the results of unleveraged discounted cash flow
("DCF") analyses for IWC, assuming that IWC performed in accordance with the
operating and financial projections provided by its management for the period
1996 through 2000 (the "Projection Period"), as revised by Barr Devlin to
reflect certain adjustments it deemed appropriate. To calculate the present
value, the projected unleveraged free cash flows for each year during the
Projection Period, together with the estimated value of the business in the
final year of the Projection Period, were
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discounted to the present. Barr Devlin estimated terminal values for IWC by
applying multiples to the projected earnings before interest, taxes and
depreciation ("EBITDA") in 2000, projected earnings before interest and taxes
("EBIT") in 2000, projected net income available for common shares ("Net
Income") in 2000, and projected book value of common equity ("Book Value") as
of year-end 2000. The multiples applied were based on analyses of the
corresponding multiples of certain public companies comparable to IWC. For the
purposes of these analyses, the terminal multiple ranges used were 8.5x-11.0x
for IWC with respect to EBITDA, 11.5x-13.0x with respect to EBIT, 13.0x-14.0x
with respect to Net Income, and 1.10x-1.40x with respect to Book Value. The
cash flow streams and terminal values were then discounted to present value
using discount rates that ranged from 7.0% to 8.0%. This analysis produced
reference values of $21.31 to $49.63 per share.
Comparable Transaction Analysis. Barr Devlin reviewed certain proposed or
completed transactions involving the acquisition of regulated water utilities
and regulated gas distribution utilities or holding companies for regulated
water utilities and regulated gas distribution utilities (the "Comparable
Transactions"). The Comparable Transactions involved companies possessing
general business, operating and financial characteristics representative of
companies in the industry in which IWC operates.
Barr Devlin calculated the implied equity consideration for each of the
Comparable Transactions as a multiple of each company's respective latest 12-
month Net Income, latest 12-month cash flow, and Book Value for the most
recently available fiscal quarter preceding the transaction. In addition, Barr
Devlin calculated the "implied total consideration" (defined as the sum of the
implied equity consideration plus the liquidation value of preferred stock,
the principal amount of debt, capitalized lease obligations, advances for
construction and minority interests, minus cash and option proceeds, if any)
for each of the Comparable Transactions as a multiple of each company's
respective latest 12-month EBIT, EBITDA and customers. The Comparable
Transactions included in this analysis consisted of Jamaica Water Supply
Co./City of New York & Water Authority of Western Nassau County, Pennsylvania
Gas & Water Company/American Water Works Co., Sangre de Cristo Water
Company/City of Santa Fe, Pennsylvania Enterprises, Inc./United Water
Resources Inc., Western Resources, Inc. (gas operations)/ONEOK Inc., Lykes
Energy Inc./TECO Energy, Inc., United Cities Gas Company/Atmos Energy
Corporation, Allegheny and Western Energy Corp./Energy Corp. Of America,
Greeley Gas Company/Atmos Energy Corporation, Western Resources, Inc.
(Missouri gas operations)/Southern Union Gas Co., and Wisconsin Southern Gas
Co./Wisconsin Energy Corporation. This analysis produced reference values of
$23.70 to $34.76 per share.
Because the reasons for and circumstances surrounding each of the Comparable
Transactions analyzed were diverse and because of the inherent differences
between the operations of IWC and the companies in the selected transactions,
Barr Devlin believed that a purely quantitative comparable transaction
analysis would not be particularly meaningful in the context of the Merger.
Barr Devlin believed that an appropriate use of a comparable transaction
analysis in this instance would involve qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
which would affect the value of IWC.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Barr Devlin compared selected financial information and ratios
(described below) for IWC with the corresponding financial information and
ratios for a group of regulated water utilities (or their holding companies)
deemed by Barr Devlin to be comparable to IWC (the "Comparable Companies").
The Comparable Companies were selected on the basis of being companies which
possessed general business, operating and financial characteristics
representative of companies in the industry in which IWC operates. The
Comparable Companies included United Water Resources, Inc., Philadelphia
Suburban Corporation, California Water Service Company, E'Town Corporation,
Southern California Water Company, Aquarion Company, Consumers Water Company,
and SJW Corporation.
In evaluating the current market value of IWC Common Shares, Barr Devlin
determined ranges of multiples for selected financial ratios for the
Comparable Companies, including: (i) the market value of outstanding common
stock as a multiple of (a) Net Income for the latest 12-month period ended
September 30, 1996 (the "LTM Period"), (b) projected Net Income for the 12-
month period ended December 31, 1996 and 1997, (c)
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Book Value for the most recently available fiscal quarter ended September 30,
1996 and (d) after-tax cash flow from operations for the LTM Period, and (ii)
the "aggregate market value" (defined as the sum of the market value of common
stock, plus the liquidation value of preferred stock, the principal amount of
debt, capitalized lease obligations, advances for construction and minority
interests, minus cash and cash equivalents) as a multiple of (a) EBIT for the
LTM Period and (b) EBITDA for the LTM Period. This analysis produced reference
values of $20.18 to $25.22 per share.
Because of the inherent differences between the operations of IWC and the
Comparable Companies, Barr Devlin believed that a purely quantitative
comparable company analysis would not be particularly meaningful in the
context of the Merger. Barr Devlin believed that an appropriate use of a
comparable company analysis in this instance would involve qualitative
judgments concerning differences between the characteristics of the Comparable
Companies and IWC. Moreover, Barr Devlin observed that comparable company
analysis does not reflect the potential incremental value to Industries of a
controlling interest in IWC or expected synergies, among other factors
incidental to the Merger.
Pro Forma Merger Analysis. Barr Devlin analyzed certain pro forma effects to
the holders of Industries Common Shares resulting from the Merger, based on
the consideration to be offered in connection with the Merger, for the period
1997 through 2000. This analysis was based on the respective forecasts of the
managements of Industries and IWC, as revised by Barr Devlin to reflect
certain adjustments it deemed appropriate, including adjustments for retention
of certain synergies. The analysis showed essentially no dilution to holders
of Industries Common Shares in earnings per share.
Barr Devlin was selected as Industries financial advisor because Barr Devlin
and principals of Barr Devlin have a long history of association in the
investment banking and utility industries. Barr Devlin is a privately held
investment banking firm specializing in strategic and merger advisory services
to the utility industries, the energy industry and selected other industries.
In this capacity, Barr Devlin and principals of Barr Devlin have been involved
as advisors in numerous transactions and advisory assignments in the utility
industries and are constantly engaged in the valuation of businesses and
securities in those industries.
Pursuant to the terms of Barr Devlin's engagement, Industries has paid Barr
Devlin for its services in connection with the Merger a financial advisory fee
of $750,000. Certain fees previously paid to Barr Devlin by Industries
pursuant to an ongoing separate financial services agreement have been
credited against such fee. In addition, Industries has agreed to reimburse
Barr Devlin for its out-of-pocket expenses, including fees and expenses of
legal counsel and other advisors engaged with the consent of Industries, and
to indemnify Barr Devlin against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its
engagement.
CASH ELECTIONS; ALLOCATION AND PRORATION
Each record holder of IWC Common Shares may make a Cash Election with
respect to all or any portion of such holder's IWC Common Shares; however, the
aggregate number of IWC Common Shares that will be converted into the right to
receive cash in the Merger, the "Cash Election Maximum," may not exceed
4,940,700 IWC Common Shares. If the aggregate number of Cash Election Shares
exceeds the Cash Election Maximum, each Cash Election Share will be converted
into (i) the right to receive cash, without interest, in an amount equal to
the product of (a) $32.00 multiplied by (b) a fraction, the numerator of which
will be the Cash Election Maximum and the denominator of which will be the
total number of Cash Election Shares, the "Cash Fraction," and (ii) a fraction
of an Industries Common Share equal to the product of (a) the Exchange Ratio
multiplied by (b) a fraction equal to one minus the Cash Fraction.
Furthermore, if after having made the foregoing calculations, counsel to
Industries or counsel to IWC reasonably determines that it cannot deliver its
opinion to the effect that the Merger will qualify as a reorganization under
Section 368(a) of the Code, then Industries will reduce, to the minimum extent
necessary to enable both counsel to deliver their respective opinions, the
amount of cash to be
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delivered in respect of Cash Election Shares and will deliver in lieu thereof
such number of Industries Common Shares as has an aggregate value, based on
the Industries Share Price, equal to the amount of such reduction, and the
Cash Election Maximum will be appropriately adjusted to give effect to such
reduction.
Promptly after the Effective Time, the Exchange Agent will calculate the
aggregate number of Cash Election Shares. If the aggregate number of Cash
Election Shares does not exceed the Cash Election Maximum, all Cash Election
Shares will be converted into the right to receive cash. However, if the
aggregate number of Cash Election Shares exceeds the Cash Election Maximum,
then the Cash Election Shares will be converted on a pro rata basis into a
combination of cash and Industries Common Shares as described above. AS A
RESULT OF ANY SUCH PRORATION, A HOLDER OF IWC COMMON SHARES MAKING A CASH
ELECTION MAY NOT RECEIVE CASH IN THE AMOUNT THAT SUCH HOLDER ELECTED. A HOLDER
OF IWC COMMON SHARES MAKING A CASH ELECTION WILL NOT BE ABLE TO ALTER ANY SUCH
PRORATION.
CASH ELECTION PROCEDURE
All Cash Elections must be made on the Form of Election included with this
Proxy Statement/Prospectus or a complete facsimile thereof. Holders of record
of IWC Common Shares who hold such shares as nominees, trustees or in other
representative capacities may submit multiple Forms of Election, provided that
any such representative certifies that each Form of Election covers all the
IWC Common Shares held by such representative for a particular beneficial
owner.
To be effective, a Form of Election must be properly completed, signed and
submitted to Harris Trust Company of New York, the Exchange Agent, and
accompanied by the certificate(s) representing the IWC Common Shares as to
which the election is being made (or by an appropriate guarantee of delivery
of such certificate(s) signed by a firm that is a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc., or a bank, broker, dealer, credit union, savings association or
other entity that is a member in good standing of the Securities Transfer
Agent's Medallion Program, the New York Stock Exchange Medallion Signature
Guarantee Program or the Stock Exchange Medallion Program).
Industries will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether Forms of Election have been
properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of Industries (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither
Industries nor the Exchange Agent will be under any obligation to notify any
person of any defect in a Form of Election submitted to the Exchange Agent.
The Exchange Agent will also make all computations and all such computations
shall be conclusive and binding on the holders of IWC Common Shares. A holder
of IWC Common Shares who does not submit a Form of Election that is received
by the Exchange Agent by the Election Deadline will be deemed not to have
properly made a Cash Election. If Industries or the Exchange Agent determines
that any purported Cash Election was not properly made, such purported Cash
Election will be deemed to be of no force and effect, and the IWC Common
Shares covered by such ineffective Cash Election will be converted into
Industries Common Shares.
Industries and IWC will each use its best efforts to mail the Form of
Election, with a copy of this Proxy Statement/Prospectus, to all persons who
become record holders of IWC Common Shares during the period between the
Record Date for the Special Meeting and 10:00 a.m., New York City time, on the
date that is seven calendar days prior to the anticipated Effective Time and
to make the Form of Election available to all persons who become record
holders of IWC Common Shares subsequent to such day and no later than the
close of business on the business day prior to the Election Deadline. A Form
of Election must be received by the Exchange Agent by 5:00 p.m., New York City
time, on March 24, 1997, the "Election Deadline," in order to be effective.
All elections may be revoked in writing by the record holders submitting Forms
of Election until the Election Deadline.
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NO DISSENTERS' RIGHTS
Under the Indiana Business Corporation Law, holders of IWC Common Shares do
not have dissenters' rights with respect to the Merger.
EXCHANGE OF STOCK CERTIFICATES
From time to time after the Effective Time and the completion of the
allocation and proration procedures, if any, Industries will transmit cash and
deliver certificates representing Industries Common Shares to the Exchange
Agent, for the benefit of the holders of IWC Common Shares, when and as
required for exchanges of certificates representing IWC Common Shares.
Promptly after the Effective Time, Industries will require the Exchange Agent
to mail a form of transmittal letter to the holders of certificates
representing IWC Common Shares that are not subject to previously-given and
unrevoked Cash Elections. The form of transmittal letter will contain
instructions with respect to the surrender of such certificates in exchange
for certificates representing Industries Common Shares (and cash in lieu of
any fractional Industries Common Shares and any unpaid dividends and
distributions).
IWC COMMON SHARE CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
CARD. IF YOU WISH TO MAKE A CASH ELECTION, YOU MUST RETURN THE ENCLOSED FORM
OF ELECTION, TOGETHER WITH THE CERTIFICATE(S) REPRESENTING YOUR IWC COMMON
SHARES OR A VALID GUARANTEE OF DELIVERY THEREOF, TO THE EXCHANGE AGENT PRIOR
TO THE ELECTION DEADLINE. A LETTER OF TRANSMITTAL FOR HOLDERS OF IWC COMMON
SHARES WHO DO NOT MAKE CASH ELECTIONS WILL BE PROVIDED FOLLOWING THE EFFECTIVE
TIME.
If a certificate representing IWC Common Shares has been lost, stolen or
destroyed, the Exchange Agent will issue the certificate representing the
Industries Common Shares and/or the cash into which such IWC Common Shares are
converted pursuant to the Merger Agreement upon receipt of appropriate
evidence as to such loss, theft or destruction, appropriate evidence as to the
ownership of such certificate and appropriate and customary indemnification.
No dividends or other distributions declared with respect to Industries
Common Shares with a record date after the Effective Time will be paid to the
holder of any certificate representing IWC Common Shares until such
certificate has been surrendered for exchange. Such dividends or other
distributions will be paid, without interest, to holders of certificates
representing IWC Common Shares after surrender of such certificates.
NO FRACTIONAL SHARES
No fractional Industries Common Shares will be issued pursuant to the
Merger. In lieu of issuing fractional shares, holders of IWC Common Shares who
otherwise would be entitled to receive a fraction of a share will receive cash
equal to such fractional amount multiplied by the Industries Share Price.
IWC DIVIDENDS PRIOR TO THE EFFECTIVE TIME OF THE MERGER
IWC will be entitled to declare and pay quarterly dividends at the rate of
$0.36 per IWC Common Share in accordance with its past practice until the
Effective Time. On January 16, 1997, the Board of Directors of IWC declared a
cash dividend of $0.36 per share on the IWC Common Shares. The dividend will
be paid on March 1, 1997, to shareholders of record on February 10, 1997.
IMPACT OF STOCK SPLITS, ETC.
In the event of any change in Industries Common Shares between the date of
the Merger Agreement and the Effective Time by reason of any stock split,
stock dividend, subdivision, reclassification, recapitalization, combination,
exchange or the like, the Exchange Ratio and the calculation of all share
prices provided for in the Merger Agreement will be proportionately adjusted.
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OPERATION OF IWC AFTER THE MERGER
After the Effective Time, the Surviving Corporation will change its name to
IWC Resources Corporation and will remain a wholly-owned subsidiary of
Industries. IWC's subsidiaries will continue to be legally separate
corporations, and the Water Companies will continue to be fully subject to
regulation to the extent now regulated by applicable regulatory agencies and
will have the same rates, customers, property and operations as prior to the
Merger. It is expected that the Surviving Corporation, Industries and one or
more of their subsidiaries, including the Water Companies, may enter into one
or more management service agreements, pursuant to which certain management,
accounting, treasury, payroll and other financial functions, human resources
administration, information and data processing services, and certain customer
service functions may be provided through one or more of Industries' other
subsidiaries. The terms of any management services agreement will be finalized
after the Effective Time. It is intended that the costs incurred by the
Surviving Corporation and its subsidiaries under such agreements will not
exceed those that would be incurred by continuing the current operating
procedures and staffing of IWC and its subsidiaries. The Water Companies will
file all such agreements with applicable regulatory agencies to the extent
required.
REGULATORY MATTERS
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Industries and IWC filed notification and report forms under the
HSR Act with the FTC and the Antitrust Division on February 18, 1997, and the
applicable 30-day waiting period is scheduled to expire on March 20, 1997,
subject to extension if the FTC or the Antitrust Division requests additional
information.
Indiana Utility Regulatory Commission. Under Indiana law, no approval is
needed from the Indiana Utility Regulatory Commission for the Merger.
STOCK EXCHANGE LISTINGS
It is a condition to the Merger that the Industries Common Shares to be
issued in the Merger be authorized for listing on the NYSE, subject to
official notice of issuance. Industries has also agreed to use its best
efforts to have such shares approved for listing on the Chicago Stock Exchange
and the Pacific Stock Exchange prior to the Effective Time, subject to
official notice of issuance.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligations of IWC and Industries and Acquisition to consummate the Merger are
subject to the satisfaction or waiver of the following conditions: (i) the
shareholders of IWC shall have approved the Merger Agreement and the
transactions contemplated thereby, (ii) IWC and Industries shall have made all
such filings, and obtained all permits, authorizations, consents or approvals,
required by any government entity to consummate the transactions contemplated
by the Merger Agreement, (iii) the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have otherwise expired, (iv) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, (v) the Industries Common
Shares issuable to shareholders of IWC pursuant to the Merger Agreement shall
have been approved for listing on the NYSE, subject to official notice of
issuance, (vi) the Registration Statement shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, (vii) the Surviving Corporation shall have
entered into three-year employment agreements with each of James T. Morris,
Joseph R. Broyles and J.A. Rosenfeld, as described under "THE MERGER--
Interests of Certain Persons--Change in Control Obligations and New Employment
Agreements," (viii) the
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preferred share purchase rights issued pursuant to the Rights Agreement dated
as of February 9, 1988, between IWC and Fifth Third Bank, as rights agent,
shall have been redeemed, and (ix) the executive employment agreements between
IWC and each of James T. Morris, Joseph R. Broyles, J.A. Rosenfeld, Kenneth N.
Giffin and John M. Davis, all IWC Common Shares subject to restrictions under
IWC's Restricted Stock Plan and all obligations to provide benefits under
IWC's nonqualified executive supplemental benefit plan shall have been
canceled in consideration of certain cash payments. See "THE MERGER--Interests
of Certain Persons--Change in Control Obligations and New Employment
Agreements."
Additional Conditions to IWC's Obligation to Effect the Merger. The
obligation of IWC to effect the Merger is further subject to the satisfaction
or waiver of the following additional conditions: (i) the representations and
warranties of Industries and Acquisition contained in the Merger Agreement
shall be true and correct in all material respects, (ii) each of Industries
and Acquisition shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Merger, (iii) IWC shall have received a tax opinion of Baker & Daniels, its
counsel, to the effect that, for federal income tax purposes, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code
and that shareholders of IWC will not be subject to federal income tax on the
receipt of Industries Common Shares in exchange for IWC Common Shares pursuant
to the Merger, and (iv) IWC shall have received an opinion of Schiff Hardin &
Waite, Industries' counsel, as to certain corporate matters.
Additional Conditions to Industries' and Acquisition's Obligations to Effect
the Merger. The obligations of Industries and Acquisition to effect the Merger
are further subject to the satisfaction or waiver of the following additional
conditions: (i) the representations and warranties of IWC contained in the
Merger Agreement shall be true and correct in all material respects, (ii) IWC
shall have performed in all material respects all obligations required to be
performed by it under the Merger Agreement at or prior to the Merger, (iii)
Industries shall have received a tax opinion of Schiff Hardin & Waite to the
effect that, for federal income tax purposes, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and that no
gain or loss will be recognized by Industries or IWC as a consequence of the
Merger, (iv) Industries shall have received an opinion of Baker & Daniels as
to certain corporate matters, (v) the opinion of Barr Devlin discussed under
"THE MERGER--Opinion of Barr Devlin" shall not have been modified or
withdrawn, and (vi) IWC and its subsidiaries shall have received consents to
the Merger under certain loan agreements, which consents have been obtained.
OTHER ACQUISITION PROPOSALS
In the Merger Agreement, IWC has agreed not to solicit, initiate or
encourage the submission of any Acquisition Proposal, participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may be reasonably
expected to lead to, any Acquisition Proposal. However, the Merger Agreement
does not prohibit IWC from furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited Acquisition Proposal, to the extent that (i) the Board of
Directors of IWC makes a good faith determination based upon the advice of
outside counsel that such action is necessary for the Board of Directors of
IWC to comply with its fiduciary duties to shareholders under applicable law,
(ii) IWC provides reasonable notice to Industries that it is taking such
action and (iii) such person or entity enters into a confidentiality agreement
with IWC as provided in the Merger Agreement.
TERMINATION; TERMINATION FEES
Termination. The Merger Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after its approval by the
shareholders of IWC, (i) by mutual written consent of Industries and IWC; (ii)
by either Industries or IWC (a) if the Merger is not approved by the
shareholders of IWC at the Special Meeting, (b) if the Merger is not
consummated on or before May 31, 1997 (unless the failure to consummate the
Merger is the result of a willful and material breach of the Merger Agreement
by the party
30
<PAGE>
seeking to terminate the Merger Agreement), (c) if any government entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable, or
(d) because IWC receives an Acquisition Proposal and the Board of Directors of
IWC concludes that, in order to comply with its fiduciary duties to
shareholders under applicable law, it is necessary to modify or withdraw its
approval or recommendation of the Merger Agreement, approve or recommend such
Acquisition Proposal or enter into an agreement with respect to such
Acquisition Proposal; (iii) by IWC in the event of a material breach of any
representation or warranty of Industries or Industries' failure to comply in
any material respect with any of its covenants or agreements, or if any
representation or warranty of Industries is or becomes untrue in any material
respect, such that certain conditions to the Merger would be incapable of
being satisfied by May 31, 1997, provided that a willful breach shall be
deemed to cause such conditions to be incapable of being satisfied by such
date; (iv) by Industries in the event of a material breach of any
representation or warranty of IWC or IWC's failure to comply in any material
respect with any of its covenants or agreements, or if any representation or
warranty of IWC is or becomes untrue in any material respect, such that
certain conditions to the Merger would be incapable of being satisfied by May
31, 1997, provided that a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied by such date.
In the event of termination of the Merger Agreement by either IWC or
Industries, except as provided below, the Merger Agreement will become null
and void and have no effect, without any liability or obligation on the part
of Industries or IWC, other than provisions relating to confidentiality,
expenses (as described under "THE MERGER--Expenses"), and the termination
payments described below.
Termination Fees. The Merger Agreement provides that, if the Merger
Agreement is terminated by Industries or IWC because IWC receives an
Acquisition Proposal and the Board of Directors of IWC concludes that, in
order to comply with its fiduciary duties to shareholders under applicable
law, it is necessary to modify or withdraw its approval or recommendation of
the Merger Agreement, approve or recommend such Acquisition Proposal or enter
into an agreement with respect to such Acquisition Proposal, IWC will pay
Industries $1,000,000 as liquidated damages within 30 days of the date of such
termination and will pay Industries an additional $9,000,000 as liquidated
damages upon the earlier of consummation of the transactions contemplated by
an Acquisition Proposal or five months from the date of such termination;
provided, that IWC will not be obligated to pay the additional $9,000,000 if,
within such five-month period, the transactions contemplated by the
Acquisition Proposal are abandoned or otherwise terminated and either (i) the
Merger Agreement is reinstated by mutual agreement of Industries and IWC or
(ii) Industries rejects a firm written offer from IWC to reinstate the Merger
Agreement and consummate the transactions contemplated thereby. The Merger
Agreement further provides that, if the Merger Agreement is terminated by
either Industries or IWC as a result of a material breach by the other of any
representation, warranty or obligation thereunder, the breaching party will
pay $10,000,000 to the non-breaching party as liquidated damages.
EXPENSES
Industries, Acquisition and IWC will each pay its own costs and expenses
incident to preparing for, entering into and carrying out the Merger Agreement
and the consummation of the transactions contemplated thereby, except that the
filing fee in respect of the notification and report under the HSR Act and the
expenses incurred in connection with the printing, mailing and distribution of
this Proxy Statement/Prospectus and the preparation and filing of the
Registration Statement will be borne equally by Industries and IWC.
AMENDMENT, EXTENSION AND WAIVER
The Merger Agreement may be amended by the parties thereto by written
agreement prior to the Effective Time, provided that after the approval of the
Merger by the shareholders of IWC, no amendment may be made that would reduce
the consideration to be issued upon conversion of IWC Common Shares pursuant
to the Merger or otherwise adversely affect the rights of the shareholders of
IWC without the approval of such shareholders.
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<PAGE>
At any time prior to the Effective Time, the parties may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties, (ii) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant
thereto and (iii) subject to certain limitations, waive compliance with any of
the agreements or conditions contained in the Merger Agreement.
INTERESTS OF CERTAIN PERSONS
Change in Control Obligations and New Employment Agreements. In December
1993, IWC entered into executive employment agreements (the "Executive
Agreements") with senior executives James T. Morris, J. A. Rosenfeld, Joseph
R. Broyles and Kenneth N. Giffin (together with John M. Davis, the
"Executives"). In January 1996, IWC amended the Executive Agreements with
Messrs. Morris, Rosenfeld, Broyles and Giffin and entered into a similar
agreement with John M. Davis. The Executive Agreements were entered into for
the purpose of better assuring the continued service and loyalty of the
Executives. The Executive Agreements provide, among other things, for various
benefits to be paid to the Executives in the event of a change in control of
IWC. Although the Executive Agreements were not entered into in conjunction
with the Merger, the Merger will constitute a "change in control" within the
meaning of the Executive Agreements, entitling the Executives to certain
rights and potential payments under the Executive Agreements. IWC and
Industries have agreed that, as a condition to the Merger, immediately prior
to the Effective Time, the Executives will agree to the cancellation of their
Executive Agreements and their restricted shares granted pursuant to IWC's
Restricted Stock Plan. In consideration for that action and for future
services to be rendered, the Surviving Corporation will enter into new
employment agreements with the Executives. Industries will guarantee the
payment of all compensation under the new employment agreements.
The new employment agreements will provide to the Executives: (i) base
compensation; (ii) a completion bonus; (iii) an annual incentive bonus based
on Industries' performance (the "Industries Performance Bonus") ; (iv) in the
case of Messrs. Morris, Rosenfeld and Broyles, an incentive bonus based on
IWC's performance (the "IWC Performance Bonus") and an acquisition bonus; and
(v) payments relating to a covenant not to compete with Industries or its
subsidiaries, including the Surviving Corporation, after the termination of
the Executive's employment.
The base compensation for each Executive will be equal to his base
compensation from IWC as in effect on January 1, 1997. Those amounts are as
follows: Mr. Morris--$360,535; Mr. Broyles--$231,186; Mr. Rosenfeld--$231,186;
Mr. Giffin--$137,754; and Mr. Davis--$162,803. The base compensation for the
period from the Effective Time through December 31, 1997 will be paid as part
of the completion bonus described below. Base compensation for years
subsequent to 1997 will be payable during those years in accordance with the
Surviving Corporation's normal payroll practices.
The completion bonus for each Executive will be payable in full immediately
after the Effective Time (unless deferred by the Executive). Those amounts are
as follows: Mr. Morris--$1,158,573; Mr. Broyles--$799,410; Mr. Rosenfeld--
$604,362; Mr. Giffin--$466,382 and Mr. Davis--$534,767. Each Executive has
indicated his intention to defer receipt of his completion bonus. Such
deferred amounts will include interest from the Effective Time at fixed rates
intended to approximate market rates.
The Industries Performance Bonus to be paid to each Executive will be a
contingent amount based on the annual consolidated earnings before interest,
taxes, depreciation and amortization of Industries (the "Performance Base"),
subject to specified maximum amounts. The Industries Performance Bonus will
apply to 1997, in the case of Messrs. Giffin and Davis, and to 1997, 1998 and
1999, in the case of Messrs. Morris, Broyles and Rosenfeld, and will be
payable at the end of such one-year or three-year period (unless deferred by
the Executive). The percentages for each Executive (to be applied against the
Performance Base) and the maximum amounts payable are as follows: Mr. Morris--
1.0% and $1,299,680; Mr. Broyles--.75% and $1,023,600; Mr. Rosenfeld--.75% and
$1,023,595; Mr. Giffin--.5% and $172,193; and Mr. Davis--.5% and $203,503.
Each Executive has indicated his intention to defer receipt of the Industries
Performance Bonus. Such deferred amounts will include interest from the end of
the year in which the bonus is accrued at a fixed rate of 10% per annum,
declining to 8.6% per annum.
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<PAGE>
The IWC Performance Bonus will be a contingent amount to be shared among
Messrs. Morris (38%), Broyles (28%) and Rosenfeld (34%) equal to 20% of the
amount by which the consolidated net income of the Surviving Corporation
exceeds the sum of its budgeted net income plus $2,000,000. The IWC Performance
Bonus will be payable with respect to each of 1997, 1998 and 1999 to such
Executives, if they are employed for the entire year.
The acquisition bonus will be a contingent amount to be shared among Messrs.
Morris (38%), Broyles (28%) and Rosenfeld (34%) and will be based upon the
acquisition price of certain acquisitions made by the Surviving Corporation
during the period that those Executives are employees of the Surviving
Corporation. For acquisitions occurring at a price between $10,000,000 and
$100,000,000, the acquisition bonus will be 1% of the acquisition price. For
acquisitions occurring at a higher price, the acquisition bonus will be based
on a percentage that declines by .125% for each additional $100,000,000 (or any
part thereof) of acquisition price up to $400,000,000 and then .5% of the
acquisition price above $400,000,000.
Each Executive will agree not to compete with Industries or any of its
subsidiaries, including the Surviving Corporation, for five years after the
termination of his employment with the Surviving Corporation. The amounts
payable in consideration for such agreements, which will be paid upon
termination of employment (unless deferred by the Executive), are as follows:
Mr. Morris--$3,318,756; Mr. Broyles--$1,675,058; Mr. Rosenfeld--$889,053; Mr.
Giffin--$952,968 and Mr. Davis--$386,101. Each Executive has indicated his
intention to defer receipt of these payments. Such deferred amounts will
include interest from the Effective Time at the same rates as the Industries
Performance Bonus.
Under the new employment agreements, if any of the Executives is subject to
an excise tax under Section 4999 of the Code as a result of payments made in
connection with his employment, the Surviving Corporation will make an
additional payment or payments to reimburse the Executive, on a grossed-up
after-tax basis, for the excise tax. Industries, IWC and the Executives have
agreed that such gross-up payments will in no event exceed an aggregate of
$6,000,000.
In addition, in lieu of contributing to any pension plan, the Executives will
receive an annual deferred compensation payment in the amount Industries would
have contributed to its defined benefit pension plan had the Executive
participated in the plan. The Executives and their dependents will be entitled
to participate in any health plan, disability plan and life insurance plan made
available by the Surviving Corporation to its senior executives.
Special Bonus Payments. In December 1996, the Compensation Committee of the
IWC Board of Directors awarded special bonuses to four senior executives of
IWC, three of whom are also directors of IWC. The bonuses were paid to the
executives to reward them for their efforts in negotiating the Merger
Agreement. Such bonuses are not forfeited if the Merger is not completed. The
amounts of the special bonuses are as follows: Mr. Morris--$343,367; Mr.
Rosenfeld--$201,344; Mr. Broyles--$55,574 and Mr. Davis--$39,135.
Election to Industries' Board. The Merger Agreement provides that Industries
will use its best efforts to cause its Articles of Incorporation to be amended
at its 1997 annual meeting of shareholders to increase the authorized number of
directors of Industries so as to permit the appointment of one director of IWC
to be mutually determined by Industries and IWC to serve as a director of
Industries. Industries and IWC have selected Mr. Morris to serve as this
director.
IWC Directors. After the Merger, it is expected that the current members of
IWC's Board of Directors will serve as directors of the Surviving Corporation,
other than any current directors of IWC who are also directors of another
electric or gas utility company. It is further expected that the compensation
of those continuing directors will remain substantially unchanged. Directors of
IWC (other than directors who are employees of IWC) receive a quarterly
retainer of $2,500 and an additional $1,000 for each Board of Directors meeting
attended. Directors also receive additional amounts for serving as members of
the Executive Committee, the Audit Committee and the Compensation Committee.
IWC maintains a retirement program for its non-employee directors, under which
the quarterly director's retainer of $2,500 is paid to a director who retires
after reaching age 65 and who has at least ten years of service as a director.
The retirement benefit is reduced proportionately in the case of retiring
directors who have fewer than ten years of service as a director.
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<PAGE>
Indemnification. Industries has agreed to indemnify and hold harmless each
Eligible Person (as defined in IWC's Articles of Incorporation), including the
directors of IWC, determined as of the Effective Time, against any costs,
expenses and other liabilities to the fullest extent that IWC or any of its
subsidiaries would have been permitted under applicable law and the Articles
of Incorporation of IWC or such subsidiary in effect on the date of the Merger
Agreement to indemnify such person.
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved by the requisite vote of the holders of
IWC Common Shares at the Special Meeting and the other conditions to the
Merger are satisfied or waived, the Merger will become effective upon the
filing of Articles of Merger with the Secretary of State of Indiana. The
filing of the Articles of Merger will be made as soon as practicable after all
conditions to the Merger Agreement have been satisfied or waived.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the principal federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
treasury regulations thereunder and administrative rulings and judicial
authority of the date hereof. All of the foregoing are subject to change, and
any such change could affect the continuing validity of the discussion. The
discussion assumes that holders of IWC Common Shares hold such shares as a
capital asset and does not address the tax consequences that may be relevant
to a particular shareholder subject to special treatment under certain federal
income tax laws, such as dealers in securities, banks, insurance companies,
tax-exempt organizations, corporate shareholders which are collapsible
corporations, non-United States persons and shareholders who acquired IWC
Common Shares as compensation or through a tax-qualified retirement plan, nor
any consequences arising under the laws of any state, locality or foreign
jurisdiction.
Tax Opinion. The consummation of the Merger is conditioned upon the receipt
by IWC and Industries of opinions of Baker & Daniels and Schiff Hardin &
Waite, respectively, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and as to
certain other federal income tax consequences incident to the Merger. Baker &
Daniels and Schiff Hardin & Waite are of the opinion, subject to the
assumptions set forth below being true and correct as of the Effective Time,
that the Merger will constitute a reorganization pursuant to Section 368(a) of
the Code and that accordingly neither Industries nor IWC will recognize gain
or loss as a result of the Merger. In addition, Baker & Daniels is of the
opinion that holders of IWC Common Shares that exchange their shares solely
for Industries Common Shares will not recognize gain or loss in the Merger,
and holders of IWC Common Shares that exchange their shares for Industries
Common Shares and cash, or solely for cash, will recognize gain, if any, in
the Merger but not in excess of the amount of cash received.
The foregoing opinions are based upon (i) certain representations of IWC and
Industries, (ii) the assumption that the Merger will be consummated in
accordance with its terms, and (iii) the assumption that the "continuity of
interest" requirement for tax-free reorganization treatment will be satisfied.
If Baker & Daniels or Schiff Hardin & Waite is unable to issue its opinion as
a result of a failure to satisfy the continuity of interest requirement, the
number of Industries Common Shares to be issued in the Merger will be
increased to the minimum extent necessary to permit such opinions to be given,
and the amount of cash to be paid will be reduced as described under "THE
MERGER--Cash Elections; Allocation and Proration."
The discussion below summarizes certain federal income tax consequences of
the Merger to a holder of IWC Common Shares, assuming that the Merger will
qualify as a reorganization.
Holders of IWC Common Shares--General. As discussed below, the federal
income tax consequences of the Merger to a holder of IWC Common Shares depend
on whether such holder receives cash or Industries Common Shares or some
combination thereof in exchange for such holder's IWC Common Shares, as well
as with respect to any IWC Common Shares that such holder constructively owns
within the meaning of Section
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318 of the Code (which generally deems a person to own stock that is owned by
certain family members or related entities or that is the subject of options
owned or deemed owned by such person), and may further depend on whether such
holder actually or constructively owns any Industries Common Shares. Because
the constructive ownership rules contained in Section 318 of the Code are
highly complex, holders of IWC Common Shares who believe that they may
constructively own other IWC Common Shares or Industries Common Shares are
strongly advised to consult their own tax advisors.
Only Industries Common Shares Received. Except as discussed below with
respect to cash received in lieu of a fractional Industries Common Share, a
holder of IWC Common Shares that receives only Industries Common Shares in the
exchange of such holder's IWC Common Shares will not recognize gain or loss.
The adjusted tax basis of the Industries Common Shares received in the Merger
will be the same as the adjusted tax basis of the shares of IWC Common Shares
exchanged therefor in the Merger. The holding period of the Industries Common
Shares received will include the holding period of IWC Common Shares exchanged
therefor.
Only Cash Received. A holder of IWC Common Shares that receives solely cash
in the Merger in exchange for such holder's IWC Common Shares will recognize
capital gain or loss measured by the difference between the amount of cash
received and the adjusted tax basis of the IWC Common Shares exchanged
therefor.
Industries Common Shares and Cash Received. Except as discussed below with
respect to cash received in lieu of a fractional Industries Common Share, a
holder of IWC Common Shares that, as a result of prorations or allocations
resulting from limitations on cash (see "THE MERGER--Cash Elections;
Allocation and Proration") or as a result of not making a Cash Election with
respect to all of such holder's IWC Common Shares, receives both Industries
Common Shares and cash in the exchange for IWC Common Shares will not
recognize loss in such exchange. However, under Section 356(a)(1) of the Code,
such holder will recognize gain (measured by the sum of the fair market value
of the Industries Common Shares received plus the amount of any cash received
minus the adjusted tax basis of the IWC Common Shares exchanged), if any, but
only to the extent of the amount of any cash received. Under existing rulings
of the Internal Revenue Service, any gain recognized by a holder of IWC Common
Shares will be capital gain. It is particularly important that holders of IWC
Common Shares in this position confirm with their own tax advisors that they
do not constructively own either IWC Common Shares or Industries Common
Shares.
The adjusted tax basis of the Industries Common Shares received will be the
same as the adjusted tax basis of the IWC Common Shares exchanged therefor,
decreased by the basis of any fractional share interest for which cash is
received in the Merger, and further decreased by the amount of cash received
(other than cash received for a fractional share interest), and increased by
the amount of gain recognized on the exchange (including any portion that is
treated as a dividend). The holding period of the Industries Common Shares
received will include the holding period of the IWC Common Shares exchanged
therefor.
Fractional Shares. If a holder of shares of IWC Common Shares receives cash
in lieu of a fractional Industries Common Share in the Merger, such cash
amount will be treated as received in exchange for the fractional Industries
Common Share. Gain or loss recognized as a result of that exchange will be
equal to the cash amount received for the fractional Industries Common Share
reduced by the proportion of the holder's adjusted tax basis in the IWC Common
Shares exchanged and allocable to the fractional Industries Common Share.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. HOLDERS
OF IWC COMMON SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL
AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE
TAX LAWS.
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Forms of the tax opinions of Baker & Daniels and Schiff Hardin & Waite
described herein have been filed as exhibits to the Registration Statement of
which this Proxy Statement/Prospectus is a part.
ACCOUNTING TREATMENT
The Merger will be accounted for by Industries using the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to the fair value of net assets acquired. The
excess purchase price over the fair value of the net assets acquired will be
allocated to utility plant in service of Indianapolis Water Company,
consistent with regulatory accounting practices, and to goodwill for all other
IWC subsidiaries.
RESALES OF INDUSTRIES COMMON SHARES ISSUED IN THE MERGER; AFFILIATES
All Industries Common Shares issued in the Merger will be freely
transferable, except that Industries Common Shares received by persons who are
deemed to be "affiliates" (as that term is defined under the Securities Act)
of IWC or Industries prior to the Merger may be sold by them only in
transactions permitted under the resale provisions of Rule 145 under the
Securities Act (with respect to affiliates of IWC) or Rule 144 under the
Securities Act (with respect to persons who are or become affiliates of
Industries), or as generally permitted under the Securities Act. Persons who
may be deemed to be affiliates of IWC or Industries generally include
individuals or entities that control, are controlled by, or are under common
control with IWC or Industries, respectively, and may include certain
officers, directors and principal shareholders of such corporations.
Affiliates may not sell the Industries Common Shares received by them in the
Merger except pursuant to an effective registration under the Securities Act
covering such shares or in compliance with Rule 145 (or Rule 144, in the case
of persons who become affiliates of Industries) under the Securities Act or
another applicable exemption from the registration requirements of the
Securities Act. In general, under Rule 145, for two years following the
Effective Time, an affiliate would be able to sell Industries Common Shares
received in the Merger only through unsolicited "broker's transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144. Moreover, the number of Industries Common Shares sold by an affiliate
during any three-month period may not exceed the greater of 1% of the
outstanding Industries Common Shares or the average weekly trading volume in
Industries Common Shares on all exchanges during the four calendar weeks
proceeding the sale. Sales under Rule 144 are also subject to the availability
of current public information about Industries. The restrictions on sales will
cease to apply under most circumstances once the former IWC affiliate has held
the Industries Common Shares for at least two years. Industries Common Shares
held by persons who are or become affiliates of Industries will be subject to
additional restrictions on sale.
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SHAREHOLDERS OF IWC
The following table sets forth information as of February 13, 1997, the
Record Date, regarding the beneficial ownership of IWC Common Shares by each
5% beneficial owner and by each director of IWC, the chief executive officer
and the four other most highly compensated executive officers of IWC whose
salary and bonus exceeded $100,000 for fiscal 1996, and the directors and
executive officers of IWC as a group. The persons named in the table have sole
voting and investment power with respect to all IWC Common Shares owned by
them unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------------ ----------------- --------
<S> <C> <C>
Don W. Miller (1)............................. 625,494 6.9%
Joseph R. Broyles............................. 54,582(2) *
Robert B. McConnell........................... 14,167 *
J. George Mikelsons........................... 250 *
Jerry D. Semler............................... 10,000 *
Joseph D. Barnette, Jr........................ 2,200 *
Milton O. Thompson............................ 1,164 *
Robert A. Borns............................... 10,676 *
Susan O. Conner............................... 484 *
Otto N. Frenzel, III.......................... 20,927(3) *
J.B. King..................................... 2,207 *
James T. Morris............................... 23,661(4) *
Fred E. Schlegel.............................. 1,186 *
John M. Davis................................. 10,062(5) *
Kenneth N. Giffin............................. 19,427(6) *
J.A. Rosenfeld................................ 10,847(7) *
Directors and Executive Officers as a group
(15 persons)................................. 181,840(8) 2.0%
</TABLE>
- --------
*Less than 1%
(1) Mr. Miller's address is 1220 Waterway Boulevard, Indianapolis, Indiana
46206.
(2) Shares shown include 7,610 shares owned by Mr. Broyles as custodian for
his minor daughters and 1,426 shares owned by Mr. Broyles' wife, as to
which Mr. Broyles disclaims beneficial ownership. Shares shown include
9,209 shares credited to Mr. Broyles' account under IWC's Employee Stock
Ownership Plan, 4,663 restricted shares granted pursuant to IWC's
Restricted Stock Plan and 4,404 shares allocated within IWC's Thrift Plan.
(3) Shares shown include 100 shares held in a family partnership, as to which
Mr. Frenzel has voting and investment power, and 18,000 shares of stock
held in charitable remainder trusts of which Mr. Frenzel is co-trustee.
(4) Shares shown include 884 shares credited to Mr. Morris' account under
IWC's Employee Stock Ownership Plan, 7,203 restricted shares granted
pursuant to IWC's Restricted Stock Plan and 5,860 shares allocated within
IWC's Thrift Plan.
(5) Shares shown include 242 shares credited to Mr. Davis' account under IWC's
Employee Stock Ownership Plan, 3,346 restricted shares granted pursuant to
IWC's Restricted Stock Plan, 660 shares allocated within IWC's Thrift Plan
and 2,860 shares owned by Mr. Davis' spouse, as to which Mr. Davis
disclaims beneficial ownership.
(6) Shares shown include 4,439 shares credited to Mr. Giffin's account under
IWC's Employee Stock Ownership Plan, 2,766 restricted shares granted
pursuant to IWC's Restricted Stock Plan and 8,770 shares allocated within
IWC's Thrift Plan.
(7) Shares shown include 408 shares credited to Mr. Rosenfeld's account under
IWC's Employee Stock Ownership Plan and 4,147 restricted shares granted to
Mr. Rosenfeld pursuant to IWC's Restricted Stock Plan.
(8) Includes 18,800 shares credited to officers under IWC's Employee Stock
Ownership Plan (with respect to which the officers have voting but not
investment power), 13,304 shares with respect to which voting and
investment power is shared with spouses or relatives of the directors and
officers, 6,486 shares as to which beneficial ownership is disclaimed,
26,143 restricted shares granted pursuant to IWC's Restricted Stock Plan
and 33,298 shares allocated within IWC's Thrift Plan with respect to
officers.
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COMPARATIVE SHAREHOLDER RIGHTS
The rights of holders of IWC Common Shares and Industries Common Shares are
currently governed by the Indiana Business Corporation Law (the "Indiana BCL")
and the respective articles of incorporation and by-laws of each corporation.
Upon consummation of the Merger, holders of IWC Common Shares will become
holders of Industries Common Shares, and their rights will be governed by the
Indiana BCL and the articles of incorporation and by-laws of Industries
("Industries' Articles" and "Industries' By-Laws," respectively). A summary of
certain material differences between the rights of holders of IWC Common
Shares and the holders of Industries Common Shares is set forth below.
COMMON AND PREFERRED SHARES
Industries' Articles authorize the issuance of 200,000,000 Industries Common
Shares, of which 59,805,661 shares were issued and outstanding as of December
31, 1996, and the issuance of 20,000,000 Preferred Shares, of which no shares
were issued and outstanding as of December 31, 1996. Industries' Articles also
authorize the issuance of 2,000,000 shares of Series A Junior Participating
Preferred Stock in connection with Industries' Share Purchase Rights Plan. See
"--Share Purchase Rights Plans" below. Industries Preferred Shares may be
issued in series having such rights and preferences as may be designated by
the Board of Directors of Industries. There are no restrictions on the
issuance of additional Industries Preferred Shares.
The articles of incorporation of IWC ("IWC's Articles") authorize the
issuance of 20,000,000 IWC Common Shares, of which 9,080,793 shares were
issued and outstanding as of December 31, 1996, and 2,000,000 Special Shares,
no par value ("IWC Special Shares"), of which no shares are issued and
outstanding. IWC's Articles also authorize the issuance of 100,000 shares of
Series A Junior Participating Preferred Stock ("Series A Preferred Stock") in
connection with IWC's Preferred Stock Purchase Rights Plan. See "--Share
Purchase Rights Plans" below. There are no issued and outstanding shares of
Series A Preferred Stock. The IWC Special Shares may be issued in series
having such rights and preferences as may be designated by the Board of
Directors of IWC. There are no restrictions on the issuance of additional IWC
Special Shares.
GENERAL VOTING RIGHTS
Common Shares. Holders of Industries Common Shares and holders of IWC Common
Shares are entitled to one vote for each share held of record upon any matter
submitted to a vote of Industries shareholders and IWC shareholders,
respectively.
Preferred Shares. Industries' Articles and IWC's Articles both provide that
the holders of preferred shares have no voting rights except as provided in
the resolutions of the board of directors establishing the particular series
of preferred shares or as provided by the Indiana BCL. The resolutions
establishing Industries' Series A Junior Participating Preferred Stock and
IWC's Series A Preferred Stock both provide that the holders of such shares
shall be entitled to 100 votes per share on all matters submitted to a vote of
the shareholders, subject to adjustments for share splits, share dividends and
other events.
VOTING ON TRANSACTIONS WITH INTERESTED SHAREHOLDERS
Industries' Articles and IWC's Articles both have provisions designed to
assure fair treatment for all shareholders of Industries or IWC in certain
business combinations (as described in Industries' Articles or IWC's Articles)
proposed by a beneficial owner of 10% or more of the voting shares of
Industries (an "Interested Shareholder") or IWC (a "Related Person"). Under
Industries' Articles, any business combination that is proposed by an
Interested Shareholder must be approved by 80% of the outstanding voting
shares that are not beneficially owned by the Interested Shareholder, unless
certain fair price and procedural requirements are met, the business
combination is approved by the Board of Directors of Industries before the
Interested Shareholder becomes an Interested Shareholder, or the business
combination is approved by the affirmative vote of the holders of the majority
of the outstanding voting shares that are not beneficially owned by the
Interested Shareholder no earlier than five years after such person becomes an
Interested Shareholder.
38
<PAGE>
Under IWC's Articles any business combination that is proposed by a Related
Person must be approved by two-thirds of the outstanding voting shares of IWC
and by a majority of the outstanding voting shares that are not beneficially
owned by the Related Person, unless certain fair price and procedural
requirements are met, or the business combination is approved by not less than
a two-thirds vote of the Board of Directors of IWC before the Related Person
becomes a Related Person or the Board of Directors of IWC has otherwise
approved the business combination or the business combination is solely
between IWC and another corporation of which IWC owns, indirectly or directly,
all of the voting shares.
These provisions in Industries' Articles and IWC's Articles, in effect,
encourage a party seeking to control Industries or IWC, in advance of the
party becoming an Interested Shareholder or Related Person, respectively, to
negotiate and reach an agreement with the Boards of Directors of Industries or
IWC as to the terms of its proposed business combination. Without such a prior
agreement with the Board of Directors of Industries or IWC, it could take over
five years for a party who is an Interested Shareholder or Related Person to
obtain approval of its proposed business combination unless such proposed
business combination is approved by the requisite 80% or two-thirds vote or
satisfies the fair price and procedural requirements. As a result of these
restrictions on business combinations with Interested Shareholders or Related
Persons, takeovers that might be favored by a majority of Industries' or IWC's
shareholders may be impeded or prevented. On the other hand, the negotiation
of terms of a takeover transaction in advance is likely to result in more
favorable terms for all of the shareholders of Industries or IWC than are
likely to be offered in takeovers initiated without advance negotiations.
BOARD OF DIRECTORS
The Board of Directors of Industries currently consists of nine persons and
is divided into three classes serving staggered three-year terms. As a result,
one-third of the Board of Directors is elected each year. In addition,
Industries' Articles provide that a director of Industries may only be removed
for cause by the directors or shareholders. Industries intends to expand the
size of its Board of Directors to ten, as described under "THE MERGER--
Interests of Certain Persons--Election to Industries' Board."
The by-laws of IWC (the "IWC By-Laws") provide that IWC's Board of Directors
consists of thirteen directors, who are divided into three classes serving
staggered three-year terms. As a result, approximately one-third of IWC's
Board of Directors is elected each year. In addition, the IWC By-Laws provide
that IWC's shareholders have the right to remove a director for cause by a
vote of IWC shareholders representing not less than two-thirds of the votes
cast.
The existence of Industries' and IWC's staggered Boards of Directors
requires a substantial shareholder to negotiate with the existing Board before
attempting a takeover of Industries or IWC because, without the cooperation of
the existing Board, it could take such a shareholder up to two years to
acquire control of the Board. This provision enables Industries' or IWC's
Board of Directors, and ultimately the shareholders of Industries or IWC, to
negotiate with potential acquirors from a strong position and protects
Industries' or IWC's shareholders against unfair or unequal treatment that
could arise from an unsolicited attempt to acquire the respective companies.
On the other hand, the additional time required to obtain control of
Industries' or IWC's Board may discourage takeover bids which a majority of
Industries' or IWC's shareholders might deem desirable.
SPECIAL MEETINGS OF SHAREHOLDERS
Industries' By-Laws provide that Industries' Chairman, President or Board of
Directors may call a special meeting of shareholders and that Industries'
President must call a special meeting of shareholders upon the written request
of a majority of Industries' Board of Directors or the holders of at least 25%
of the outstanding voting stock.
The IWC By-Laws provide that IWC's President, Chief Executive Officer or
Board of Directors may call a special meeting of shareholders at any time and
must call a special meeting of shareholders upon the written request of the
holders of at least 25% of the outstanding voting stock.
39
<PAGE>
AMENDMENT OF ARTICLES
Industries' Articles provide that the provisions relating to directors,
business combinations, indemnification and amendment of such Articles may not
be amended, altered, changed or repealed unless such amendment, alteration,
change or repeal is approved by the affirmative vote of the holders of not
less than 75% of the outstanding shares entitled to vote thereon. This
requirement of a 75% vote is greater than the general voting requirement under
the Indiana BCL and, in effect, could give certain minority shareholders of
Industries, including the members of Industries Board of Directors in their
capacity as shareholders, a veto power over subsequent changes to provisions
relating to directors, business combinations, indemnification and amendment of
the Industries' Articles, ultimately making it more difficult to amend such
provisions, even if a majority of the holders of Industries Common Shares
favors such changes.
IWC's Articles provide that the provisions of IWC's Articles relating to
directors, business combinations and special shareholders meetings may not be
amended or repealed unless such amendment or repeal is approved by the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares entitled to vote thereon and by a majority of shareholders who are not
Related Persons. These provisions may be amended or repealed by a shareholder
vote pursuant to the Indiana BCL rather than by a two-thirds shareholder vote
if not less than two-thirds of the Board of Directors who are not associated
with any Related Person and who became directors before the Related Person
became a Related Person recommend any amendments to or repeal of any of these
provisions. IWC's Articles provide that the provisions of IWC's Articles
relating to the Series A Preferred Stock may not be amended in any manner
which would materially change the rights of the Series A Preferred Stock
without the affirmative vote of the holders of not less than two-thirds of the
outstanding shares of Series A Preferred Stock, voting together as a single
series.
AMENDMENT OF BY-LAWS
Industries' By-Laws and the IWC By-Laws provide that they may be altered,
amended or repealed by an affirmative vote of a majority of a quorum of the
Board of Directors at any meeting of the Board of Directors. In addition, the
IWC By-Laws provide that IWC shareholders can alter or repeal any by-laws
adopted by IWC's directors.
SHARE PURCHASE RIGHTS PLANS
In February 1990, Industries adopted a Share Purchase Rights Plan
("Industries' Rights Plan") and issued, as a dividend, one Preferred Share
Purchase Right (an "Industries Right") for each outstanding Industries Common
Share. Each Industries Common Share issued since the date of that dividend
also includes one Industries Right (including shares to be issued in
connection with the Merger Agreement, except in the unlikely event that the
Industries Rights are redeemed or separately certificated prior to the
Effective Time).
Industries' Rights Plan may impede or prevent takeovers that in some
circumstances might be beneficial to Industries shareholders. Industries'
Rights Plan would not impede or prevent most takeovers approved by the
existing directors and is designed to enhance or have the effect of enhancing
the ability of the Board of Directors, and ultimately the shareholders, to
negotiate with potential acquirors from a strong position and to protect
shareholders against unfair or unequal treatment in the event of an
unsolicited attempt to acquire Industries. It may have, however, the overall
effect of making it more difficult to acquire and exercise control over
Industries and to remove incumbent officers and directors, without the
approval of the directors, thus providing such officers and directors with
enhanced ability to retain their positions. Such provisions might also limit
opportunities for shareholder participation in certain types of transactions
even though such transactions might be favored by the holders of a majority of
the outstanding Industries Common Shares.
Each Industries Right entitles the holder to buy one-hundredth of a share of
Series A Junior Participating Preferred Stock at a price of $60 per one-
hundredth of a share, subject to adjustment. The Industries Rights will be
exercisable only if a person or group acquires 20% or more of the voting power
of Industries or announces a tender or exchange offer following which it would
hold 25% or more of Industries' voting power. If, following
40
<PAGE>
an acquisition by a person or group of 25% or more of Industries' voting
power, Industries were acquired in a merger or other business combination,
each Industries Right would be exercisable for that number of the acquiring
company's shares of common stock having a market value of two times the
exercise price of the Industries Right. Industries may redeem the Industries
Rights at the price of $.01 per Industries Right prior to the occurrence of an
event that causes the Industries Rights to be exercisable for Industries
Common Shares. The Industries Rights will expire on March 12, 2000.
In January 1988, IWC adopted a Preferred Stock Purchase Rights Plan and
issued, as a dividend, one Preferred Stock Purchase Right (an "IWC Right") for
each outstanding IWC Common Share. Each IWC Common Share issued since the date
of that dividend also includes one IWC Right. Each IWC Right entitles the
holder to buy one-hundredth of a share of IWC's Series A Junior Preferred
Stock at a price of $45 per one-hundredth of a share, subject to adjustment.
The IWC Rights will be exercisable only if a person or group (an "Acquiring
Person") acquires 20% or more of the outstanding IWC Common Shares ("Share
Acquisition Date") or commences a tender or exchange offer for 30% or more of
the IWC Common Shares. Each holder of an IWC Right is entitled to exercise the
IWC Right and receive IWC Common Shares having a value equal to two times the
exercise price of the IWC Right if (i) IWC is the surviving corporation in a
merger, (ii) a person becomes an Acquiring Person, (iii) IWC is merged or
consolidated and IWC is not the surviving corporation, or (iv) 50% or more of
IWC's assets is sold or transferred. IWC may redeem the IWC Rights at the
price of $.01 per IWC Right at any time until ten days following the Share
Acquisition Date. The IWC Rights will expire on February 9, 1998 unless
earlier exercised or redeemed by IWC.
Pursuant to the Merger Agreement, as long as the Merger Agreement is in
effect, IWC shall take all action necessary to ensure that (i) no IWC Rights
certificates are issued or required to be issued to holders of IWC Rights
prior to, or as of, the Effective Time and (ii) the IWC Rights shall be
redeemed and IWC's Preferred Stock Purchase Rights Plan shall be terminated no
later than immediately prior to the Effective Time.
* * *
The foregoing does not purport to be a complete description of the
differences between the rights of holders of IWC Common Shares and holders of
Industries Common Shares. Such differences can be determined in full by
reference to IWC's Articles and By-Laws and Industries' Articles and By-Laws.
LEGAL OPINION
The legality of the Industries Common Shares to be issued pursuant to the
Merger has been passed upon for Industries by Schiff Hardin & Waite, 7200
Sears Tower, Chicago, Illinois 60606. Schiff Hardin & Waite has advised
Industries that attorneys representing Industries in this transaction own
1,000 Industries Common Shares.
EXPERTS
The consolidated financial statements and schedules of Industries and its
subsidiaries incorporated by reference in this Proxy Statement/Prospectus from
Industries' 1995 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996
and Current Report on Form 8-K dated February 14, 1997, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference in this Proxy
Statement/Prospectus in reliance upon the authority of said firm as experts in
giving said reports. Reference is made to Industries' 1995 Annual Report on
Form 10-K, which includes an explanatory paragraph with respect to changes in
the methods of accounting for income taxes and post-retirement benefits other
than pensions, as discussed in the notes to the consolidated financial
statements.
The consolidated financial statements of IWC and its subsidiaries
incorporated by reference in this Proxy Statement/Prospectus from IWC's 1995
Annual Report on Form 10-K and Current Report on Form 8-K dated February 18,
1997, have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in this Proxy Statement/Prospectus in reliance upon
such reports and upon the authority of said firm as experts in accounting and
auditing.
41
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 19, 1996
BY AND AMONG
NIPSCO INDUSTRIES, INC.,
SPEEDWAY ACQUISITION CORP.
AND
IWC RESOURCES CORPORATION
A-i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE 1 The Merger.................................................. A-1
1.1 The Merger.................................................. A-1
1.2 Closing..................................................... A-1
1.3 Effective Time.............................................. A-1
1.4 Articles of Incorporation................................... A-2
1.5 By-Laws..................................................... A-2
1.6 Directors................................................... A-2
1.7 Officers.................................................... A-2
1.8 Conversion of Acquisition Shares............................ A-2
1.9 Conversion of Company Common Shares......................... A-2
1.9.1 Outstanding Common Shares............................ A-2
1.9.2 Cash Election........................................ A-2
1.9.3 Cash Election Shares................................. A-3
1.9.4 Form of Election..................................... A-3
1.9.5 Deemed Non-Election.................................. A-3
1.9.6 Election Deadline.................................... A-3
1.9.7 Treasury Shares...................................... A-3
1.9.8 Adjustment Per Tax Opinion........................... A-3
1.9.9 Impact of Stock Splits, etc.......................... A-4
1.10 Exchange of Certificates and Related Matters................ A-4
1.10.1 Paying Agent......................................... A-4
1.10.2 Letter of Transmittal................................ A-4
1.10.3 Exchange Procedures.................................. A-4
1.10.4 Distributions with Respect to Unexchanged Shares..... A-4
1.10.5 No Further Ownership Rights in Company Common
Shares..................................................... A-5
1.10.6 No Fractional Shares................................. A-5
1.10.7 Termination of Paying Agency......................... A-5
1.10.8 No Liability......................................... A-5
ARTICLE 2 Representations and Warranties of the Company............... A-5
2.1 Organization, Standing and Corporate Power.................. A-5
2.2 Capital Structure........................................... A-6
2.3 Subsidiaries................................................ A-6
2.4 Authority; Noncontravention................................. A-7
2.5 SEC Documents and Financial Statements...................... A-8
2.6 Absence of Certain Changes or Events........................ A-8
2.7 Real and Personal Property.................................. A-9
2.8 Employee Matters; ERISA..................................... A-9
2.9 Taxes....................................................... A-11
2.10 Compliance with Applicable Laws............................. A-12
2.11 Environmental Protection.................................... A-12
2.12 Litigation.................................................. A-14
2.13 Labor Relations............................................. A-14
2.14 Intellectual Property....................................... A-15
</TABLE>
A-ii
<PAGE>
<TABLE>
<C> <S> <C>
2.15 No Default................................................... A-15
2.16 Regulation as a Utility...................................... A-16
2.17 Insurance.................................................... A-16
2.18 Change in Business Relationships............................. A-16
2.19 Voting Requirements.......................................... A-16
2.20 Brokers...................................................... A-16
ARTICLE 3 Representations and Warranties of NIPSCO and Acquisition..... A-16
3.1 Organization, Standing and Corporate Power................... A-16
3.2 NIPSCO and Acquisition Capital Structure..................... A-17
3.3 Authority; Noncontravention.................................. A-17
3.4 NIPSCO SEC Documents and Financial Statements................ A-18
3.5 Absence of Certain Changes or Events......................... A-18
3.6 Employee Matters; ERISA...................................... A-19
3.7 Compliance with Applicable Laws.............................. A-19
3.8 Litigation................................................... A-20
3.9 Brokers...................................................... A-20
ARTICLE 4 Additional Agreements........................................ A-20
Preparation of Form S-4 and the Proxy Statement/Prospectus;
4.1 Information Supplied......................................... A-20
4.1.1Form S-4; Proxy Statement/Prospectus.................... A-20
4.1.2Company Information..................................... A-20
4.1.3NIPSCO Information...................................... A-21
4.2 Meeting of the Company's Shareholders........................ A-21
4.3 Best Efforts................................................. A-21
4.4 Letter of the Company's Accountants.......................... A-21
4.5 Letter of NIPSCO's Accountants............................... A-21
4.6 Access to Information; Confidentiality....................... A-21
4.7 Public Announcements......................................... A-22
4.8 Acquisition Proposals........................................ A-22
4.9 Fiduciary Duties............................................. A-23
4.10 Filings; Other Action........................................ A-23
4.11 Stock Exchange Listings...................................... A-23
4.12 Affiliates and Certain Shareholders.......................... A-23
4.13 Indemnification.............................................. A-24
4.14 Shareholder Rights Plan...................................... A-24
4.15 Change in Control Provisions................................. A-24
4.16 Representation on NIPSCO Board............................... A-25
4.17 Termination of Company Dividend Reinvestment Plan............ A-25
4.18 Federal Income Tax Treatment................................. A-25
ARTICLE 5 Covenants Relating to Conduct of Business Prior to Merger.... A-25
5.1 Conduct of Business by the Company........................... A-25
5.2 Management of the Company and its Subsidiaries............... A-26
5.3 Conduct of Business by NIPSCO................................ A-26
5.4 Other Actions................................................ A-27
</TABLE>
A-iii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 6 Conditions Precedent.......................................... A-27
6.1 Conditions to Each Party's Obligation to Effect the Merger.... A-27
6.1.1 Company Shareholder Approval........................... A-27
6.1.2 Governmental and Regulatory Consents................... A-27
6.1.3 HSR Act................................................ A-27
6.1.4 No Injunctions or Restraints........................... A-27
6.1.5 NYSE Listing........................................... A-27
6.1.6 Form S-4............................................... A-27
6.1.7 Employment Agreements.................................. A-27
6.1.8 Share Purchase Rights.................................. A-27
6.1.9 Change in Control Obligations.......................... A-27
6.2 Conditions to Obligations of NIPSCO and Acquisition........... A-28
6.2.1 Representations and Warranties......................... A-28
6.2.2 Performance of Obligations of the Company.............. A-28
6.2.3 Tax Opinion............................................ A-28
6.2.4 Opinion of Counsel..................................... A-29
6.2.5 Consents and Approvals................................. A-28
6.3 Conditions to Obligation of the Company....................... A-28
6.3.1 Representations and Warranties......................... A-28
6.3.2 Performance of Obligations of NIPSCO and Acquisition... A-28
6.3.3 Tax Opinion............................................ A-28
6.3.4 Opinion of Counsel..................................... A-28
ARTICLE 7 Termination, Amendment and Waiver............................. A-29
7.1 Termination................................................... A-29
7.2 Effect of Termination......................................... A-29
7.3 Amendment..................................................... A-30
7.4 Extension; Waiver............................................. A-30
7.5 Procedure for Termination, Amendment, Extension or Waiver..... A-30
ARTICLE 8 Survival of Provisions........................................ A-30
8.1 Survival...................................................... A-30
ARTICLE 9 Notices....................................................... A-31
9.1 Notices....................................................... A-31
ARTICLE 10 Miscellaneous................................................. A-32
10.1 Entire Agreement.............................................. A-32
10.2 Expenses...................................................... A-32
10.3 Counterparts.................................................. A-32
10.4 No Third Party Beneficiary.................................... A-32
10.5 Governing Law................................................. A-32
10.6 Assignment; Binding Effect.................................... A-32
10.7 Headings, Gender, etc......................................... A-32
10.8 Invalid Provisions............................................ A-32
</TABLE>
EXHIBIT A -- Restated Articles of Incorporation of the Surviving Corporation
EXHIBIT B -- Form of Affiliate's Letter
EXHIBIT C -- Form of Opinion of Baker & Daniels
EXHIBIT D -- Form of Opinion of Schiff Hardin & Waite
EXHIBIT E -- Form of Employment Agreement
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered into
as of December 19, 1996 by and among NIPSCO Industries, Inc., an Indiana
corporation ("NIPSCO"), Speedway Acquisition Corp., an Indiana corporation
("Acquisition"), and IWC Resources Corporation, an Indiana corporation (the
"Company").
PREAMBLE
Whereas, the respective Boards of Directors of NIPSCO and the Company have
determined that the Merger (as defined in Section 1.1) is in the best
interests of their respective shareholders and have approved the Merger, upon
the terms and subject to the conditions set forth herein; and
Whereas, NIPSCO and the Company intend that, for federal income tax
purposes, the Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that shareholders of the Company will not be subject to federal
income tax on the receipt of NIPSCO Common Shares (as defined in Section
1.9.1) in exchange for Company Common Shares (as defined in Section 1.9.1)
pursuant to the Merger; and
Whereas, NIPSCO and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger;
Now, Therefore, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as is defined in Section 1.3 hereof), the Company shall be
merged with and into Acquisition (the "Merger"), in accordance with the
Indiana Business Corporation Law (the "Indiana Code") and the separate
corporate existence of the Company shall cease and Acquisition shall continue
as the surviving corporation under the laws of the State of Indiana (the
"Surviving Corporation") with all the rights, privileges, immunities and
powers, and subject to all the duties and liabilities, of a corporation
organized under the Indiana Code. The Merger shall have the effects set forth
in the Indiana Code.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article 6, the closing of the Merger (the "Closing") will take place at 9:00
a.m. on the first business day following the date on which the last of the
conditions set forth in Article 6 shall be fulfilled or waived in accordance
with this Agreement (the "Closing Date"), at the offices of Schiff Hardin &
Waite, 7200 Sears Tower, Chicago, Illinois 60606, unless another date, time or
place is agreed to by the parties hereto.
1.3 Effective Time. The parties hereto will file with the Secretary of State
of the State of Indiana (the "Indiana Secretary of State") on the date of the
Closing (or on such other date as NIPSCO and the Company may agree) articles
of merger or other appropriate documents, mutually satisfactory in form and
substance to NIPSCO and the Company and executed in accordance with the
relevant provisions of the Indiana Code, and make all other filings or
recordings required under the Indiana Code in connection with the Merger. The
Merger shall become effective upon the filing of the articles of merger with
the Indiana Secretary of State, or at such later time as is specified in the
articles of merger (the "Effective Time").
A-1
<PAGE>
1.4 Articles of Incorporation. The Articles of Incorporation of Acquisition
shall be amended and restated in their entirety to read as set forth in
Exhibit A hereto (including an amendment changing the name of Acquisition to
the name of the Company) and, as so amended and restated, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law.
1.5 By-Laws. The By-Laws of the Company, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the By-Laws or the Articles of
Incorporation of the Surviving Corporation.
1.6 Directors. The Board of Directors of the Surviving Corporation from and
after the Effective Time shall be comprised of (i) the directors of the
Company as of immediately prior to the Effective Time (other than any such
directors who also serves as a director of IPALCO Enterprises, Inc.) and (ii)
three directors appointed by NIPSCO, such directors to hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualify in the manner provided in the Articles of Incorporation or By-Laws
of the Surviving Corporation, or as otherwise provided by law.
1.7 Officers. The officers of the Company at the Effective Time shall be the
officers of the Surviving Corporation and will hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualify in the manner provided in the Articles of Incorporation or By-Laws of
the Surviving Corporation, or as otherwise provided by law.
1.8 Conversion of Acquisition Shares. Each share of common stock of
Acquisition issued and outstanding immediately prior to the Effective Time
shall remain outstanding unchanged by reason of the Merger as one common
share, without par value, of the Surviving Corporation.
1.9 Conversion of Company Common Shares.
1.9.1 Outstanding Common Shares. Subject to the other provisions of this
Section 1.9, each common share, no par value, of the Company (the "Company
Common Shares") issued and outstanding immediately prior to the Effective Time
(other than shares held as treasury shares by the Company) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into (i) the right to receive $32.00 in cash, without interest (the
"Cash Price"), or (ii) the fraction (rounded to the nearest ten-thousandth of
a share) of a validly issued, fully paid and non-assessable common share,
without par value, of NIPSCO ("NIPSCO Common Shares") determined by dividing
the Cash Price by the NIPSCO Share Price (as defined below) (the "Exchange
Ratio") or (iii) the right to receive a combination of cash and NIPSCO Common
Shares determined in accordance with Section 1.9.3 or Section 1.9.4 below. The
"NIPSCO Share Price" shall be equal to the average of the closing prices of
the NIPSCO Common Shares on the New York Stock Exchange ("NYSE") Composite
Transactions Reporting System, as reported in The Wall Street Journal, for the
20 trading days immediately preceding the second trading day prior to the
Effective Time.
1.9.2 Cash Election. Subject to the immediately following sentence, each
record holder of Company Common Shares immediately prior to the Effective Time
will be entitled to elect to receive solely cash for all or any part of such
holder's Company Common Shares (a "Cash Election"). Notwithstanding the
foregoing and subject to Section 1.9.8, the number of Company Common Shares
that may be converted into the right to receive cash in the Merger (the "Cash
Election Number") shall not exceed the number of Company Common Shares
determined by dividing (i) (x) $159,000,000 less (y) the amount of the cash
payments made pursuant to Section 4.15 that are attributable to the
cancellation of Company Common Shares, by (ii) the Cash Price. Cash Elections
shall be made on a form designed for that purpose (a "Form of Election"). A
holder of record of Company Common Shares who holds such Company Common Shares
as nominee, trustee or in another representative capacity (a "Representative")
may submit multiple Forms of Election, provided that such Representative
certifies that each such Form of Election covers all the Company Common Shares
held by such Representative for a particular beneficial owner. To the extent
not covered by a properly given Cash Election, all Company Common Shares
issued and outstanding immediately prior to the Effective Time shall, except
as provided in Section 1.9.1, be converted into solely NIPSCO Common Shares.
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1.9.3 Cash Election Shares. If the aggregate number of Company Common Shares
covered by Cash Elections (the "Cash Election Shares") exceeds the Cash
Election Number, each Cash Election Share shall be converted into (i) the
right to receive an amount in cash, without interest, equal to the product of
(x) the Cash Price and (y) a fraction (the "Cash Fraction"), the numerator of
which shall be the Cash Election Number and the denominator of which shall be
the total number of Cash Election Shares, and (ii) a number of NIPSCO Common
Shares equal to the product of (x) the Exchange Ratio and (y) a fraction equal
to one minus the Cash Fraction.
1.9.4 Form of Election. To be effective, a Form of Election must be properly
completed, signed and submitted to NIPSCO's transfer agent and registrar, as
paying agent (the "Paying Agent"), and accompanied by the certificates
representing the Company Common Shares as to which the election is being made
(or by an appropriate guarantee of delivery of such certificate signed by a
firm that is a member of any registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or a bank,
broker, dealer, credit union, savings association or other entity that is a
member in good standing of the Securities Transfer Agent's Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program). NIPSCO will have the discretion, which it may
delegate in whole or in part to the Paying Agent, to determine whether Forms
of Election have been properly completed, signed and submitted or revoked and
to disregard immaterial defects in Forms of Election. The decision of NIPSCO
(or the Paying Agent) in such matters shall be conclusive and binding. Neither
NIPSCO nor the Paying Agent will be under any obligation to notify any person
of any defect in a Form of Election submitted to the Paying Agent. The Paying
Agent shall also make all computations contemplated by this Section 1.9, and
all such computations shall be conclusive and binding on the holders of
Company Common Shares.
1.9.5 Deemed Non-Election. For the purposes hereof, a holder of Company
Common Shares who does not submit a Form of Election that is received by the
Paying Agent prior to the Election Deadline (as defined in Section 1.9.6)
shall be deemed not to have properly made a Cash Election. If NIPSCO or the
Paying Agent shall determine that any purported Cash Election was not properly
made, such purported Cash Election shall be deemed to be of no force and
effect.
1.9.6 Election Deadline. NIPSCO and the Company shall each use its best
efforts to cause copies of the Form of Election and the Proxy
Statement/Prospectus (as defined in Section 4.1.1) to be mailed to the record
holders of the Company Common Shares as of the record date for the Special
Meeting (as defined in Section 4.2), and to all persons who become record
holders of Company Common Shares during the period between the record date for
the Special Meeting and 10:00 a.m. New York time, on the date seven calendar
days prior to the anticipated Effective Time, and to make the Form of Election
available to all persons who become record holders of Company Common Shares
subsequent to such day and no later than the close of business on the business
day prior to the Effective Time. A Form of Election must be received by the
Paying Agent by 5:00 p.m., New York City time, on the last NYSE trading day
prior to the date of the Special Meeting (the "Election Deadline") in order to
be effective. All elections may be revoked in writing by the record holders
submitting Forms of Election until the Election Deadline.
1.9.7 Treasury Shares. Each Company Common Share issued and outstanding
immediately prior to the Effective Time which is then held as a treasury share
by the Company shall, by virtue of the Merger and without any action on the
part of the Company, be canceled and retired and cease to exist, without any
conversion thereof.
1.9.8 Adjustment Per Tax Opinion. If, after having made the calculation
under Section 1.9.3 hereof, the Tax Opinions referred to in Sections 6.2.3 and
6.3.3 cannot be rendered (as reasonably determined by Schiff Hardin & Waite,
counsel to NIPSCO, and Baker & Daniels, counsel to the Company), as a result
of the Merger possibly failing to satisfy continuity of interest requirements
under applicable federal income tax principles relating to reorganizations
under Section 368(a) of the Code then NIPSCO shall reduce, to the minimum
extent necessary to enable the Tax Opinions to be rendered, the amount of cash
to be delivered with respect to the Cash Election Shares and in lieu thereof
shall deliver such number of NIPSCO Common Shares that has an aggregate value,
based on the NIPSCO Share Price, equal to the amount of such reduction, and
the Cash Election Number shall be appropriately adjusted to give effect to
such reduction.
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1.9.9 Impact of Stock Splits, etc. In the event of any change in NIPSCO
Common Shares between the date of this Agreement and the Effective Time by
reason of any stock split, stock dividend, subdivision, reclassification,
recapitalization, combination, exchange or the like, the Exchange Ratio, the
Cash Price and the calculation of all share prices provided for in this
Agreement shall be proportionately adjusted.
1.10 Exchange of Certificates and Related Matters.
1.10.1 Paying Agent. Prior to the Closing Date, NIPSCO shall appoint the
Paying Agent for the purpose of paying the Cash Price and issuing NIPSCO
Common Shares in exchange for certificates representing Company Common Shares.
From time to time after completion of the allocation and election procedures
in Section 1.9, NIPSCO shall transmit, or shall cause the Surviving
Corporation to transmit, cash, and shall deliver certificates representing
NIPSCO Common Shares, to the Paying Agent, for the benefit of the holders of
Company Common Shares, when and as required for exchanges of Company Common
Shares pursuant to Section 1.9.
1.10.2 Letter of Transmittal. Promptly after the Effective Time (but in no
event more than five business days thereafter), NIPSCO shall require the
Paying Agent to mail to each record holder of Certificates that immediately
prior to the Effective Time represented Company Common Shares which have been
converted pursuant to Section 1.9 a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title shall pass, only
upon proper delivery of Certificates representing Company Common Shares to the
Paying Agent and shall be in such form and have such provisions as NIPSCO
reasonably may specify) and instructions for use in surrendering such
Certificates and receiving the Merger Consideration to which such holder shall
be entitled therefor pursuant to Section 1.9.
1.10.3 Exchange Procedures. Upon surrender to the Paying Agent of a
certificate representing Company Common Shares for cancellation, together with
a letter of transmittal and such other customary documents as may be required
by the instructions to the letter of transmittal (collectively, the
"Certificate") and acceptance thereof by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor (i) certificates
evidencing that number of whole NIPSCO Common Shares into which the Company
Common Shares previously represented by such Certificate are converted in
accordance with Section 1.9.1, (ii) the cash to which such holder is entitled
in accordance with Section 1.9.1, (iii) the cash in lieu of fractional NIPSCO
Common Shares to which such holder is entitled pursuant to Section 1.10.6, and
(iv) any dividends or other distributions to which such holder is entitled
pursuant to Section 1.10.4 (the NIPSCO Common Shares, dividends, distributions
and cash described in clauses (i), (ii), (iii) and (iv) are referred to
collectively as the "Merger Consideration"). The Paying Agent shall accept
such Certificate upon compliance with such reasonable terms and conditions as
the Paying Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. If the Merger Consideration (or any
portion thereof) is to be delivered to any person other than the person in
whose name the Certificate representing Company Common Shares surrendered in
exchange therefor is registered on the record books of the Company, it shall
be a condition to such exchange that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such exchange shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of such consideration to a
person other than the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable. After the Effective Time, there shall be no further
transfer on the records of the Company or its transfer agent of any
Certificate representing Company Common Shares, and, if any such Certificate
is presented to the Company for transfer, it shall be canceled against
delivery of the Merger Consideration as hereinabove provided. Until
surrendered as contemplated by this Section 1.10.3, each Certificate
representing Company Common Shares (other than a Certificate representing
Company Common Shares to be canceled in accordance with Section 1.9.7), shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without any interest
thereon.
1.10.4 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to NIPSCO Common Shares with a record date
after the Effective Time shall be paid to the holder of any Certificate that
immediately prior to the Effective Time represented Company Common Shares
which have been
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converted pursuant to Section 1.9, and no other part of the Merger
Consideration shall be paid to any such holder, until the surrender for
exchange of such Certificate in accordance with this Article 1. Following
surrender for exchange of any such Certificate, there shall be paid to the
holder of certificates evidencing whole NIPSCO Common Shares issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the number of whole NIPSCO
Common Shares into which the Company Common Shares represented by such
Certificate immediately prior to the Effective Time were converted pursuant to
Section 1.9, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time, but prior
to such surrender, and with a payment date subsequent to such surrender,
payable with respect to such whole NIPSCO Common Shares.
1.10.5 No Further Ownership Rights in Company Common Shares. The Merger
Consideration paid upon the surrender for exchange of Certificates
representing Company Common Shares in accordance with the terms of this
Article 1 shall be deemed to have been issued and paid in full satisfaction of
all rights pertaining to the Company Common Shares theretofore represented by
such certificates, subject, however, to the Surviving Corporation's obligation
(if any) to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared by the Company
on such Company Common Shares in accordance with the terms of this Agreement
or prior to the date of this Agreement and which remain unpaid at the
Effective Time.
1.10.6 No Fractional Shares. No certificates or scrip representing
fractional NIPSCO Common Shares shall be issued upon the surrender for
exchange of Certificates that immediately prior to the Effective Time
represented Company Common Shares which have been converted pursuant to
Section 1.9, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of NIPSCO. Notwithstanding
any other provisions of this Agreement, each holder of Company Common Shares
who would otherwise have been entitled to receive a fraction of a NIPSCO
Common Share (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a NIPSCO Common Share multiplied by the
NIPSCO Share Price.
1.10.7 Termination of Paying Agency. Any portion of the funds or NIPSCO
Common Shares held by the Paying Agent which remains undistributed to the
holders of the Certificates representing Company Common Shares by 120 days
after the Effective Time shall be delivered to NIPSCO, and any holders of
Company Common Shares who have not theretofore complied with this Article 1
shall thereafter look only to NIPSCO and only as general creditors thereof for
payment, without interest, of their claim for any Merger Consideration and any
dividends or distributions with respect to NIPSCO Common Shares.
1.10.8 No Liability. Neither NIPSCO, the Surviving Corporation nor the
Paying Agent shall be liable to any person in respect of any Merger
Consideration payable with respect to Company Common Shares delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates representing Company Common Shares shall not
have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration in
respect of such Certificate would otherwise escheat to or become the property
of any Governmental Entity (as defined in Section 2.4)), any such cash,
Company Common Shares, dividends or distributions payable in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of NIPSCO free and clear of all claims or interest of any person
previously entitled thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to NIPSCO and Acquisition as
follows:
2.1 Organization, Standing and Corporate Power. The Company is a corporation
duly organized and validly existing under the laws of the State of Indiana and
has the requisite corporate power and authority to
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carry on its business as now being conducted. The nature of the Company's
business does not require its qualification as a foreign corporation in any
jurisdiction, except where the failure to be so qualified would not
individually or in the aggregate have a Material Adverse Effect. As used in
this Agreement, the term "Material Adverse Effect" means with respect to the
Company a material adverse effect on the business, assets, liabilities,
results of operations or financial condition of the Company and its
subsidiaries taken as a whole (and with respect to NIPSCO a material adverse
effect on the business, assets, liabilities, results of operations or
financial condition of NIPSCO and its subsidiaries taken as a whole). With
respect to the Company, to the extent an adverse effect can be attributed to
either of the Company's business segments, it will be deemed to be material if
it involves an amount in excess of (i) $2,000,000, insofar as it relates to
the Company's water utilities business segment or (ii) $500,000, insofar as it
relates to the Company's utility-related services segment. The Company has
delivered to NIPSCO complete and correct copies of its Articles of
Incorporation and By-Laws, as amended to the date of this Agreement.
2.2 Capital Structure. The authorized capital stock of the Company consists
of 20,000,000 Company Common Shares and 2,000,000 special shares, no par
value, of which 60,000 shares have been designated as Series B Redeemable
Preferred Stock ("Company Preferred Shares"). At the close of business on
December 19, 1996, (i) 9,078,249 Company Common Shares were issued and
outstanding (of which 31,430 shares were subject to restrictions under the
Company's Restricted Stock Plan); (ii) no Company Common Shares were held as
treasury stock; (iii) no Company Common Shares were held by subsidiaries of
the Company; (iv) 119,104 Company Common Shares were reserved for issuance
under the Restricted Stock Plan; (v) no special shares, including but not
limited to Company Preferred Shares, were issued and outstanding; and (vi)
100,000 shares of Series A Junior Participating Preferred Stock were reserved
for issuance under the Rights Agreement dated as of February 9, 1988, between
the Company and Bank One, Indianapolis, NA, as rights agent. All outstanding
shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. No bonds,
debentures, notes or other indebtedness of the Company having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which the shareholders of the Company may vote are
issued or outstanding. Section 2.2 of the Disclosure Schedule dated as of the
date hereof and executed by the Company and NIPSCO (the "Disclosure Schedule")
sets forth the name of each participant in the Restricted Stock Plan and the
number of Company Common Shares awarded to such participant as of the date
hereof. Except as set forth above or in Section 2.2 of the Disclosure
Schedule, the Company does not have any outstanding option, warrant,
subscription or other right, agreement or commitment which either obligates
the Company to issue, sell or transfer, repurchase, redeem or otherwise
acquire or vote any shares of capital stock of the Company, or which restricts
the transfer of Company Common Shares.
2.3 Subsidiaries.
2.3.1 Section 2.3.1 of the Disclosure Schedule sets forth the name of each
corporation, limited liability company, general or limited partnership or
other entity that is controlled, directly or indirectly, by the Company (a
"subsidiary") and the jurisdiction of its organization. Each such subsidiary
is a corporation or partnership duly organized and validly existing under the
laws of the jurisdiction of its organization and has the corporate or
partnership power and authority and all necessary government approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority or necessary governmental
approvals would not individually or in the aggregate have a Material Adverse
Effect. Each subsidiary is duly qualified or licensed and in good standing to
do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not
individually or in the aggregate have a Material Adverse Effect.
2.3.2 Section 2.3.2 of the Disclosure Schedule sets forth, as to each
subsidiary of the Company, its authorized capital structure and the number of
its issued and outstanding shares of capital stock or other ownership units.
Except as set forth in Section 2.3.2 of the Disclosure Schedule, the Company
is, directly or
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indirectly, the record and beneficial owner of all of the outstanding shares
of capital stock or other ownership units of each of its subsidiaries, and no
capital stock or other ownership units of any subsidiary is or may become
required to be issued by reason of any options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable or exercisable for,
shares of any capital stock or other ownership units of any subsidiary, and
there are no contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may be bound to issue, redeem,
purchase or sell additional shares of capital stock or other ownership units
of any subsidiary or securities convertible into or exchangeable or
exercisable for any such shares or units. All of such shares and other
ownership units are validly issued, fully paid and nonassessable and, except
as set forth in Section 2.3.2 of the Disclosure Schedule, are owned by the
Company or by another wholly-owned subsidiary of the Company free and clear of
all liens, claims, encumbrances, restraints on alienation, or any other
restrictions with respect to the transferability or assignability thereof
(other than restrictions on transfer imposed by federal or state securities
laws).
2.4 Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company, subject, in the case of the Merger, to the approval of its
shareholders as set forth in Section 4.2. This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement has been
duly executed and delivered by NIPSCO and Acquisition, constitutes a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditor's rights generally and by general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). Except as disclosed in Section 2.4 of the
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated by this Agreement and
compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Articles of Incorporation or By-Laws of the Company or the
comparable documents of any of the subsidiaries, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their assets is bound
or affected, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or regulation
of any state or of the United States or any political subdivision thereof or
therein, or any order, writ, judgment, injunction, decree, determination or
award currently in effect, subject, in the case of clauses (ii) and (iii), to
those conflicts, breaches, defaults and similar matters, which, individually
or in the aggregate, would not have a Material Adverse Effect nor materially
and adversely affect the Company's ability to consummate the transactions
contemplated hereby. No consent, approval or authorization of, or declaration
or filing with, or notice to, any governmental agency or regulatory body,
court, agency, commission, division, department, public body or other
authority (a "Governmental Entity") which has not been received or made, is
required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby,
except for (a) the filing of premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the Merger, (b) the filing with the Securities and
Exchange Commission (the "SEC") of a proxy statement relating to the approval
by the shareholders of the Company of the Merger and such reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions contemplated
by this Agreement, (c) the filing of articles of merger with the Indiana
Secretary of State and appropriate documents with the relevant authorities of
other states in which the Company is qualified to do business and (d) such
other consents, approvals, authorizations, filings or notices as are set forth
in Section 2.4 of the Disclosure Schedule.
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2.5 SEC Documents and Financial Statements.
2.5.1 Except as set forth in Section 2.5.1 of the Disclosure Schedule, the
Company, and each of its subsidiaries that is or was required to do so, has
timely filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1992 (such reports, schedules, forms,
statements and other documents are hereinafter referred to as the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents as of such dates contained
any untrue statement of a material fact or omitted to state a 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.
2.5.2 The consolidated financial statements of the Company included in the
Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved ("GAAP") (except as may be indicated in the notes thereto or,
in the case of unaudited interim financial statements, as permitted by Rule
10-01 of Regulation S-X) 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 consolidated results of their
operations, changes in shareholders' equity and consolidated cash flows for
the periods then ended (subject, in the case of unaudited interim financial
statements, to normal recurring adjustments, none of which is material).
2.5.3 Except as disclosed in the Company SEC Documents filed and publicly
available prior to December 6, 1996 (the "Filed Company SEC Documents") or in
the Disclosure Schedule, neither the Company nor any of its subsidiaries has
any absolute, accrued, contingent or other liabilities or obligations due or
to become due, and there are no claims or causes of action (including but not
limited to those relating to any Company Benefit Plan (as defined in Section
2.8.1) formerly maintained by the Company or any of its subsidiaries or a
Company ERISA Affiliate (as defined in Section 2.8.1) on or after January 1,
1991) that have been or, to the knowledge of the officers of the Company and
its subsidiaries and divisions, the members of the Company's legal department
and the director(s), manager(s) or supervisor(s) of the Company's
environmental compliance and affairs, may be asserted against the Company or
any of its subsidiaries, except (i) as and to the extent reflected or reserved
against on the balance sheet included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the "Company Base Balance Sheet"),
or included in the notes to the Company Base Balance Sheet, (ii) for normal
and recurring liabilities incurred since December 31, 1995, in the ordinary
course of business consistent with past practice, and (iii) for such other
liabilities and obligations that are not in the aggregate reasonably likely to
have a Material Adverse Effect.
2.6 Absence of Certain Changes or Events. Except as disclosed in the Filed
Company SEC Documents or in Section 2.6 of the Disclosure Schedule, since the
date of the Company Base Balance Sheet, the Company and its subsidiaries have
conducted their business only in the ordinary course, and, except as otherwise
expressly permitted by this Agreement, there has not been (i) any change which
has had or which could have a Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of the Company's outstanding
capital stock (other than regular quarterly cash dividends of $.36 per Company
Common Share and $.36 per Company Preferred Share, in accordance with usual
record and payment dates and in accordance with the Company's present dividend
policy), (iii) any split, combination or reclassification of any of its
outstanding capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its outstanding capital stock, (iv) any entry by the Company or any
of its subsidiaries into any employment, severance, change of control,
termination or similar agreement with any officer, director or other employee,
or any increase in the compensation or severance or termination benefits
payable to any director, officer or other employee of the Company or any of
its subsidiaries (except in the case of employees in the ordinary course of
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business consistent with prior practice, or as was required under employment
agreements in effect as of the date of the Company Base Balance Sheet) or (v)
any change in the method of accounting or policy used by the Company or any of
its subsidiaries and disclosed in the financial statements included in the
Filed Company SEC Documents.
2.7 Real and Personal Property.
2.7.1 The Company and its subsidiaries own, or have a valid and enforceable
right to use or a valid and enforceable leasehold interest in, all real
property (including all buildings, fixtures and other improvements thereto)
used by them in the conduct of their respective businesses as such businesses
are now being conducted. Except as disclosed in the Filed Company SEC
Documents or Section 2.7.1 of the Disclosure Schedule, neither the Company's
nor any of its subsidiaries' ownership of or leasehold interest in any such
property is subject to any mortgage, pledge, lien, option, conditional sale
agreement, encumbrance, security interest, title exception or restriction or
claim or charge of any kind ("encumbrances"), except for such encumbrances as
are not in the aggregate reasonably likely to have a Material Adverse Effect.
All such property is in good condition and repair and is suitable in all
material respects for the purposes for which it is now being used in the
conduct of the businesses of the Company and its subsidiaries, except to the
extent that the poor condition or unsuitability of any such property is not in
the aggregate reasonably likely to have a Material Adverse Effect.
2.7.2 Except as otherwise disclosed in Section 2.7.2 of the Disclosure
Schedule, all personal property that is owned by the Company or any of its
subsidiaries or used by any of them in the conduct of their respective
businesses is owned free and clear of any encumbrances, except for such
encumbrances as are not in the aggregate reasonably likely to have a Material
Adverse Effect. All such property is in good working condition, subject to
normal wear and tear, and is suitable in all material respects for the
purposes for which it is now being used in the conduct of the businesses of
the Company and its subsidiaries, except to the extent that the poor condition
or unsuitability of any such property is not in the aggregate reasonably
likely to have a Material Adverse Effect.
2.8 Employee Matters; ERISA.
2.8.1 Section 2.8.1 of the Disclosure Schedule contains a true and complete
list of: (i) each employee benefit plan, program or arrangement covering
employees, former employees or directors of the Company (or any of its
subsidiaries) or any of their dependents or beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity,
including but not limited to any "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (whether or not terminated, if the Company or any of its
subsidiaries could have statutory or contractual liability with respect
thereto on or after the date hereof); (ii) each management, employment,
deferred compensation, severance (including any payment, right or benefit
resulting from a change in control), bonus or other contract for personal
services with or covering any current officer, key employee or director or any
consulting contract with any person who prior to entering into such contract
was a director or officer of the Company or any of its subsidiaries (whether
or not terminated, if the Company or any of its subsidiaries could have
statutory or contractual liability with respect thereto on or after the date
hereof); (iii) each "employee pension benefit plan" (within the meaning of
ERISA Section 3(2)) subject to Title IV of ERISA or the minimum funding
requirements of Code Section 412 maintained or contributed to by the Company
or any entity required to be aggregated therewith pursuant to Code Section
414(b) or (c) (each, a "Company ERISA Affiliate") at any time during the
seven-year period immediately preceding the date hereof (collectively, the
"Company Benefit Plans") and (iv) with respect to each Company Benefit Plan,
the source or sources of benefit payments under the plan (including, where
applicable, the identity of any trust (whether or not a grantor trust),
insurance contract, custodial account, agency agreement, or other arrangement
that holds the assets of, or serves as a funding vehicle or source of benefits
for, such Company Benefit Plan).
2.8.2 Except as disclosed in Section 2.8.2 of the Disclosure Schedule, all
material contributions and other payments required to have been made by the
Company or any of its subsidiaries pursuant to any Company Benefit Plan (or to
any person pursuant to the terms thereof) have been timely made or the amount
of such payment or contribution obligation has been reflected in the Company's
financial statements reflected in the Filed Company SEC Documents.
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2.8.3 Except as disclosed in Section 2.8.3 of the Disclosure Schedule, each
Company Benefit Plan that is intended to be "qualified" within the meaning of
Code Section 401(a) has been determined by the IRS to be so qualified, and, to
the best knowledge of the Company, no event or condition exists or has
occurred that could reasonably be expected to result in the revocation of any
such determination. The Company and each of its subsidiaries are in compliance
with, and each Company Benefit Plan is and has been operated in compliance
with, all applicable laws, rules and regulations governing such plan,
including without limitation ERISA and the Code, except for violations that
could not reasonably be expected to have a Material Adverse Effect. To the
best knowledge of the Company, no individual or entity has engaged in any
transaction with respect to any Company Benefit Plan as a result of which the
Company or any of its subsidiaries could reasonably expect to be subject to
liability pursuant to ERISA Section 409 or 502 or subject to an excise tax
pursuant to Code Section 4975. To the best knowledge of the Company, (i) no
Company Benefit Plan is subject to any ongoing audit, investigation, or other
administrative proceeding of the IRS, the Department of Labor, or any other
federal, state or local governmental entity and (ii) no Company Benefit Plan
is the subject of any pending application for administrative relief under any
voluntary compliance program of any governmental entity (including without
limitation the IRS's Voluntary Compliance Resolution Program or Walk-in
Closing Agreement Program or the Department of Labor's Delinquent Filer
Voluntary Compliance Program).
2.8.4 With respect to the Company Benefit Plans, individually and in the
aggregate, no termination or partial termination of any Company Benefit Plan
or other event has occurred, and, to the best knowledge of the Company, there
exists no condition or set of circumstances that could subject the Company or
any of its subsidiaries to any liability arising under the Code, ERISA or any
other applicable law (including without limitation any liability to or under
any such plan or to the Pension Benefit Guaranty Corporation (the "PBGC"), or
under any indemnity agreement to which the Company, any of its subsidiaries or
any Company ERISA Affiliate is a party, which liability, excluding liability
for benefit claims and funding obligations payable in the ordinary course and
liability for PBGC insurance premiums payable in the ordinary course, is
reasonably likely to have a Material Adverse Effect.
2.8.5 Except as disclosed in Section 2.8.5 of the Disclosure Schedule, no
Company Benefit Plan that is a "welfare plan" (within the meaning of ERISA
Section 3(1)) provides benefits for any retired or former employees (other
than as required pursuant to ERISA Section 601).
2.8.6 The Company has made available to NIPSCO a true and correct copy of
each collective bargaining agreement to which the Company is a party or under
which the Company has obligations and, with respect to each Company Benefit
Plan, as applicable (i) the current plan document (including all amendments
adopted since the most recent restatement) and its most recently prepared
summary plan description and all summaries of material modifications prepared
since the most recent summary plan description, (ii) the most recently
prepared annual report (IRS Form 5500 Series) including financial statements,
(iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent IRS determination letter with respect to the
qualified status under Code Section 401(a) of such plan and a copy of any
application for an IRS determination letter filed since the most recent IRS
determination letter was issued and (v) the most recent actuarial report or
valuation.
2.8.7 Except as disclosed in Section 2.8.7 of the Disclosure Schedule, the
consummation or announcement of any transaction contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or further
acts or events) result in any (i) payment (whether of severance pay or
otherwise) becoming due from the Company or any of its subsidiaries under any
applicable Company Benefit Plans to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (ii) benefit under any Company Benefit Plan being established
or becoming accelerated, vested or payable, except for a payment or benefit
that would have been payable under the same terms and conditions without
regard to the transactions contemplated by this Agreement.
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2.8.8 Except as disclosed in Section 2.8.8 of the Disclosure Schedule, each
Company Benefit Plan that is subject to either or both of the minimum funding
requirements of ERISA Section 302 or to Title IV of ERISA has assets that, as
of the date hereof, have a fair market value equal to or exceeding the present
value of the accrued benefit obligations thereunder on a termination basis, as
of the date hereof based on the actuarial methods, tables and assumptions
theretofore utilized by such plan's actuary in preparing such plan's most
recently prepared actuarial valuation report, except to the extent that
applicable law would require the use of different actuarial assumptions if
such plan was to be terminated as of the date hereof. No Company Benefit Plan
subject to the minimum funding requirements of ERISA Section 302 has incurred
any "accumulated funding deficiency" (within the meaning of ERISA Section
302).
2.8.9 Except as disclosed in Section 2.8.9 of the Disclosure Schedule, no
Company Benefit Plan is or was a "multiemployer plan" (within the meaning of
ERISA Section 4001(a) (3)), a multiple employer plan described in Code Section
413(c), or a "multiple employer welfare arrangement" (within the meaning of
ERISA Section 3(40)); and none of the Company, any subsidiary thereof or any
Company ERISA Affiliate has been obligated to contribute to, or otherwise has
or has had any liability with respect to, any multiemployer plan, multiple
employer plan, or multiple employer welfare arrangement. With respect to any
Company Benefit Plan that is listed in Section 2.8.9 of the Disclosure
Schedule as a multiemployer plan, the Company and its subsidiaries have not
made or incurred a "complete withdrawal" or a "partial withdrawal," as such
terms are defined in ERISA Sections 4203 and 4205, therefrom at any time
during the five-calendar-year period immediately preceding the date of this
Agreement and the transactions contemplated by the Agreement will not, in and
of themselves, give rise to such a "complete withdrawal" or "partial
withdrawal."
2.8.10 Except as disclosed in Section 2.8.10 of the Disclosure Schedule: (i)
neither the Company nor any subsidiary of the Company is subject to any legal,
contractual, equitable or other obligation to establish as of any date any
employee benefit plan of any nature, including without limitation any pension,
profit sharing, welfare, post-retirement welfare, stock option, stock or cash
award, nonqualified deferred compensation or executive compensation plan,
policy or practice, and (ii) to the best knowledge of Company, after review of
all Company Benefit Plan documents, the Company or one or more of its
subsidiaries may, in any manner, and without the consent of any employee,
beneficiary or dependent, employees' organization or other person, terminate,
modify or amend any Company Benefit Plan or any other employee benefit plan,
policy, program or practice (or its participation in any such Company Benefit
Plan or other employee benefit plan, policy, program or practice) at any time
sponsored, maintained or contributed to by the Company or any of its
subsidiaries, effective as of any date before, on or after the Effective Time
except to the extent that any retroactive amendment would be prohibited by
ERISA Section 204(g) or would deprive a plan participant of a benefit in which
such participant has a vested right.
2.8.11 Except as disclosed in Section 2.8.11 of the Disclosure Schedule, (i)
no event constituting a "reportable event" (within the meaning of ERISA
Section 4043(b)) for which the 30-day notice requirement has not been waived
by the PBGC has occurred with respect to any Company Benefit Plan and (ii) no
liability, claim, action or litigation has been made, commenced or, to the
best knowledge of the Company, threatened, by or against the Company or any of
its subsidiaries with respect to any Company Benefit Plan (other than for
benefits or PBGC premiums payable in the ordinary course) that is reasonably
likely to have a Material Adverse Effect.
2.9 Taxes. Except as disclosed in Section 2.9 of the Disclosure Schedule and
except for payments required to be made pursuant to Article 4 hereof:
2.9.1 Each of the Company and each of its subsidiaries has duly filed all
tax returns and reports required to be filed by it or requests for extensions
to file such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file or to have extensions
granted that remain in effect would not individually or in the aggregate have
a Material Adverse Effect. All tax returns filed by the Company and each of
its subsidiaries are complete and accurate in all material respects, the
Company and each of its subsidiaries has paid (or the Company has paid on the
subsidiaries' behalf) all taxes shown as due on such
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returns, and the most recent financial statements contained in the Filed
Company SEC Documents and all Company SEC Documents filed prior to the Closing
Date reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
2.9.2 No deficiencies for any taxes have been proposed, asserted or assessed
against the Company or any of its subsidiaries that are not adequately
reserved for, and no requests for waivers of the time to assess any such taxes
have been granted or are pending. The Federal income tax returns of the
Company and each of its subsidiaries consolidated in such returns have been
examined by and settled with the United States Internal Revenue Service, or
the statute of limitations on assessment or collection of any Federal income
taxes due from the Company or the any of its subsidiaries has expired, through
such taxable years as are set forth in Section 2.9.2 of the Disclosure
Schedule.
2.9.3 As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, premium, franchise, sales, excise,
employment, payroll, withholding and other taxes, tariffs or governmental
charges of any nature whatsoever and any interest, penalties and additions to
taxes relating thereto.
2.9.4 Neither the Company nor any of its subsidiaries has made, nor is
obligated to make, in connection with the transactions contemplated by this
Agreement or otherwise, any payments that will not be deductible because of
the application of Section 280G or Section 162(m) of the Code.
2.9.5 Neither the Company nor any of its subsidiaries has made any election,
filed any consent or entered into any agreement with respect to taxes that is
not reflected on the federal income tax returns of the Company and its
subsidiaries for the three years ended December 31, 1995 (copies of which
returns have been made available to NIPSCO for review prior to the date of
this Agreement).
2.10 Compliance with Applicable Laws. Except as disclosed in Section 2.10 of
the Disclosure Schedule:
2.10.1 The business of the Company and each of its subsidiaries is being
conducted in compliance in all material respects with all applicable laws,
ordinances, rules and regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within the last three years were properly
filed and were in compliance in all material respects with such laws.
2.10.2 Each of the Company and each of its subsidiaries has all material
licenses (including, without limitation, utility licenses), permits,
authorizations, franchises and rights ("Licenses") which are necessary for it
to own or lease, as the case may be, and operate its properties and assets and
to conduct its business as now conducted. The business of the Company and each
of its subsidiaries has been and is being conducted in compliance in all
material respects with all such Licenses. All restrictions and limitations on
those Licenses requested or required by any utility regulator are disclosed in
the Filed Company SEC Documents or in Section 2.10.2 of the Disclosure
Schedule. All such Licenses are in full force and effect, and there is no
proceeding or investigation pending or, to the knowledge of the Company,
threatened which would reasonably be expected to lead to the revocation,
amendment, failure to renew, limitation, suspension or restriction of any such
License.
2.10.3 Each subsidiary of the Company that has been or is required to do so
has filed all forms, reports, statements and other documents required by law
to be filed by it with the Indiana Utility Regulatory Commission, and such
forms, reports, statements and other documents, did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.11 Environmental Protection.
2.11.1 Except as disclosed in Section 2.11.1 of the Disclosure Schedule or
as disclosed in the Company SEC Documents, the Company and its subsidiaries
are and have been in material compliance with all applicable Environmental
Laws (as defined in Section 2.11.7), except where the failure to be or to have
so been in material compliance, in the aggregate, is not reasonably likely to
have a Material Adverse Effect. Except as disclosed in Section 2.11.1 of the
Disclosure Schedule, neither the Company nor any of its subsidiaries has
received any
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written notice from any person or Governmental Entity that alleges that the
Company or any of its subsidiaries is not or has not been in material
compliance with applicable Environmental Laws, except where the failure to be
or to have so been in material compliance, in the aggregate, would not have a
Material Adverse Effect.
2.11.2 Except as disclosed in Section 2.11.2 of the Disclosure Schedule or
as disclosed in the Company SEC Documents, the Company and each of its
subsidiaries have obtained or have applied for all material environmental,
health and safety permits and authorizations (collectively, "Environmental
Permits") necessary for the construction of their facilities and the conduct
of their operations, and all such Environmental Permits are in good standing
or, where applicable, a renewal application has been timely filed and is
pending agency approval, and the Company and its subsidiaries are in material
compliance with all terms and conditions of all such Environmental Permits and
are not required to make any material expenditures in connection with any
renewal application pending agency approval, except where the failure to
obtain or be in such compliance and the requirement to make such expenditures,
in the aggregate, would not have a Material Adverse Effect.
2.11.3 Except as disclosed in Section 2.11.3 of the Disclosure Schedule or
as disclosed in the Company SEC Documents, to the best knowledge of the
Company, no Environmental Claim (as defined in Section 2.11.7) is pending or,
to the best knowledge of the Company, threatened (i) against the Company or
any of its subsidiaries, (ii) against any person or entity whose liability for
any Environmental Claim the Company or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law or (iii)
against any real or personal property or operations that the Company or any of
its subsidiaries owns, leases or manages, in whole or in part, that is
reasonably likely in the aggregate to have a Material Adverse Effect.
2.11.4 Except as disclosed in Section 2.11.4 of the Disclosure Schedule or
as disclosed in the Company SEC Documents, to the best knowledge of the
Company, there has been no Release (as defined in Section 2.11.7) of Hazardous
Materials (as defined in Section 2.11.7) that would be reasonably likely to
(i) form the basis of any Environmental Claim against the Company or any of
its subsidiaries, or against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law, or (ii) cause
damage to or diminution of real property or operations that the Company or any
of its subsidiaries owns, leases, or manages, in whole or in part, except for
Releases of Hazardous Materials the liability for which would not in the
aggregate have a Material Adverse Effect.
2.11.5 Except as disclosed in Section 2.11.5 of the Disclosure Schedule, or
as disclosed in the Company SEC Documents, to the best knowledge of the
Company, with respect to any predecessor of the Company or any of its
subsidiaries, there is no Environmental Claim pending or threatened, or
Release of Hazardous Materials, that would be reasonably likely to form the
basis of any Environmental Claims that are reasonably likely to have, in the
aggregate, a Material Adverse Effect.
2.11.6 To the best knowledge of the Company, the Company has disclosed to
NIPSCO all material facts that the Company reasonably believes are likely to
form the basis of a material Environmental Claim or to require material
expenditures by the Company or any of its subsidiaries in order to comply with
current or future applicable Environmental Laws arising from (i) the cost of
pollution control equipment currently required or known to be required in the
future, (ii) current investigatory, removal, remediation or response costs or
investigatory, removal, remediation or response costs known to be required in
the future, in each case, both on-site and off-site and (iii) any other
environmental matters affecting the Company or any of its subsidiaries.
2.11.7 As used in this Agreement:
(a) "Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices by any person or entity
(including without limitation any Governmental Entity) alleging potential
liability (including without limitation potential liability for enforcement
costs, investigatory costs, cleanup costs, response costs, removal costs,
remedial costs, natural resources damages, property damages, personal
injuries, fines or
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penalties) arising out of, based on or resulting from (i) the presence, or
Release or threatened Release, of any Hazardous Materials at any location,
whether or not owned, operated, leased or managed by the Company or any of
its subsidiaries or joint ventures (ii) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Laws or (iii) any
and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from the presence or Release of any Hazardous Materials.
(b) "Environmental Laws" means all Federal, state and local laws, rules
and regulations relating to pollution or protection of human health or the
environment (including without limitation ambient air, surface water,
groundwater, land surface or subsurface strata), including without
limitation laws and regulations relating to Releases or threatened Releases
of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(c) "Hazardous Materials" means (i) any petroleum or petroleum products
or petroleum wastes (including crude oil or any fraction thereof), nuclear
fuel or waste or other radioactive materials, friable asbestos or friable
asbestos-containing material, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls, (ii) any chemicals, materials or substances
which are now defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," or words of similar import, under any Environmental Law
and (iii) any other chemical, material, substance or waste, exposure to
which is now prohibited, limited or regulated under any Environmental Law
in a jurisdiction in which the Company or any of its subsidiaries or joint
ventures operates.
(d) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property (indoors or
outdoors).
2.12 Litigation. Except as set forth in the Filed Company SEC Documents or
Section 2.12 of the Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries, which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or to materially and adversely affect the Company's
ability to consummate the transactions contemplated hereby. Neither the
Company nor any its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect. Except as set forth in the
Filed Company SEC Documents or Section 2.12 of the Disclosure Schedule, none
of the Company's subsidiaries whose rates or services are subject to
regulation by a Governmental Entity (i) has rates which have been or are being
collected subject to refund, pending final resolution of any proceeding
pending before a Governmental Entity or on appeal to the courts or (ii) is a
party to any proceeding before the Governmental Entity or on appeal from
orders of the Governmental Entity.
2.13 Labor Relations. Except as set forth in Section 2.13 of the Disclosure
Schedule:
2.13.1 Neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any
labor union or organization, and there is no current union representation
question involving employees of the Company or any of its subsidiaries, nor
does the Company or any of its subsidiaries know of any activity or proceeding
of any labor organization (or representative thereof) or employee group (or
representative thereof) to organize any such employees.
2.13.2 There is no unfair labor practice charge or grievance arising out of
a collective bargaining agreement or other grievance procedure against the
Company or any of its subsidiaries pending or, to the knowledge of the Company
or any of its subsidiaries, threatened that could reasonably be expected to
have a Material Adverse Effect.
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2.13.3 There is no complaint, lawsuit or proceeding in any forum by or on
behalf of any present or former employee, any applicant for employment or any
classes of the foregoing alleging breach of any express or implied contract of
employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection
with the employment relationship against the Company or any of its
subsidiaries pending or, to the knowledge of the Company or any of its
subsidiaries, threatened that could reasonably be expected to have a Material
Adverse Effect.
2.13.4 There is no strike, dispute, slowdown, work stoppage or lockout
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or involving the Company or any of its subsidiaries that
could reasonably be expected to have a Material Adverse Effect.
2.13.5 Each of the Company and each of its subsidiaries is in compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that would not, individually or in the
aggregate, have a Material Adverse Effect.
2.13.6 There is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of the Company or any of its
subsidiaries, threatened in respect to which any current or former director,
officer, employee or agent of the Company or any of its subsidiaries is or may
be entitled to claim indemnification from the Company or any of its
subsidiaries pursuant to their respective articles or certificates of
incorporation or bylaws, as provided in any indemnification agreement to which
the Company or any of its subsidiaries is a party or pursuant to applicable
law that could reasonably be expected to have a Material Adverse Effect.
2.14 Intellectual Property. The Company and its subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of their business
(collectively, the "Company Intellectual Property"), except where the failure
to possess or have adequate rights to use such properties would not have a
Material Adverse Effect. Except as set forth in Section 2.14 of the Disclosure
Schedule, all of the Company Intellectual Property is owned by the Company or
one of its subsidiaries, free and clear of any and all liens, claims or
encumbrances, except for those liens, claims and encumbrances that would not,
individually or in the aggregate, have a Material Adverse Effect, and neither
the Company nor any of its subsidiaries has forfeited or otherwise
relinquished any Company Intellectual Property which forfeiture would have a
Material Adverse Effect. To the knowledge of the Company, the use of the
Company Intellectual Property by the Company or its subsidiaries does not, in
any material respect, conflict with, infringe upon, violate or interfere with
or constitute an appropriation of any right, title, interest or goodwill
(including, without limitation, any intellectual property right, trademark,
trade name, patent, service mark, brand mark, brand name, computer program,
database, industrial design, copyright or any pending application therefor) of
any other person, and neither the Company nor any of its subsidiaries has
received notice of any claim or otherwise knows that any of the Company
Intellectual Property is invalid, conflicts with the asserted rights of any
other person, has not been used or enforced or has failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Company Intellectual Property, except for such
conflicts, infringements, violations, interferences, claims, invalidity,
abandonments, cancellations or unenforceability that would not, individually
or in the aggregate, have a Material Adverse Effect.
2.15 No Default. Neither the Company nor any of its subsidiaries is in
default or violation (and no event has occurred which, with notice or the
lapse of time or both, would constitute a default or violation) of any term,
condition or provision of (i) its articles or certificate of incorporation or
bylaws, (ii) any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which it is now a party or by which it or any of
its properties or assets may be bound (except for the requirement under
certain of such instruments to file supplemental indentures as a result of the
transactions contemplated hereby) or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to it, except in the case of
(ii) and (iii) for defaults or
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violations which in the aggregate would not have a Material Adverse Effect.
The Company and each of its subsidiaries have fulfilled, and have taken all
action reasonably necessary to date to enable them to fulfill when due, all of
their material obligations under all contracts, commitments and arrangements
and, to the knowledge of the Company, no breach or default by any other party
under such contracts, commitments or arrangements has occurred or is
threatened that will or could impair the ability of the Company or any of its
subsidiaries to enforce any of its rights thereunder in any material respect.
2.16 Regulation as a Utility. Certain subsidiaries of the Company are
regulated as public utilities in the State of Indiana and in no other state.
Except as disclosed in Section 2.16 of the Disclosure Schedule, neither the
Company nor any "subsidiary company" or "affiliate" (as such terms are defined
in the Public Utility Holding Company Act of 1935, as amended (the "1935
Act")) of the Company is subject to regulation as a public utility or public
service company (or similar designation) by any other state in the United
States, by the United States or any agency or instrumentality of the United
States or by any foreign country. The Company is not a holding company under
the 1935 Act.
2.17 Insurance. Except as disclosed in Section 2.17 of the Disclosure
Schedule, each of the Company and each of its subsidiaries is, and has been
continuously since January 1, 1991, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary
for companies engaged in the respective businesses conducted by the Company
and its subsidiaries during such time period. Except as disclosed in Section
2.17 of the Disclosure Schedule, neither the Company nor any of its
subsidiaries has received any notice of cancellation or termination with
respect to any insurance policy. All insurance policies of the Company and its
subsidiaries are valid and enforceable policies.
2.18 Change in Business Relationships. Neither the Company nor any of its
subsidiaries has knowledge of any event or circumstance that indicates that,
whether on account of the transactions contemplated by this Agreement or
otherwise, any customer, agent, representative or supplier of the Company or
any of its subsidiaries intends to discontinue, diminish or change its
relationship with the Company or any of its subsidiaries in any way that would
be reasonably likely to have a Material Adverse Effect.
2.19 Voting Requirements. The affirmative vote of the holders of a majority
of the outstanding Company Common Shares entitled to vote at the Special
Meeting with respect to the approval of the Merger is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement.
2.20 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company directly
with NIPSCO, without the intervention of any person on behalf of the Company
in such manner as to give rise to any valid claim by any person against
NIPSCO, the Company or any of their respective subsidiaries for a finder's
fee, brokerage commission or similar payment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NIPSCO AND ACQUISITION
NIPSCO and Acquisition hereby jointly and severally represent and warrant to
the Company as follows:
3.1 Organization, Standing and Corporate Power. Each of NIPSCO and
Acquisition is a corporation duly organized and validly existing under the
laws of the State of Indiana and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of NIPSCO and
Acquisition is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary except where the failure to be so qualified would not individually
or in the aggregate have a material adverse effect on the ability of NIPSCO or
Acquisition to consummate the transactions contemplated hereby. NIPSCO and
Acquisition have delivered to the Company complete and correct copies of their
Articles of Incorporation and By-Laws, as amended to the date of this
Agreement.
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3.2 NIPSCO and Acquisition Capital Structure.
3.2.1 As of the date hereof, the authorized capital stock of NIPSCO consists
of 200,000,000 NIPSCO Common Shares and 20,000,000 shares of preferred stock,
without par value. At the close of business on November 30, 1996, there were
(i) 60,304,810 NIPSCO Common Shares issued and outstanding, (ii) 13,587,299
NIPSCO Common Shares held as treasury shares, (iii) 2,203,211 NIPSCO Common
Shares reserved for issuance under NIPSCO's Long-Term Incentive Plans, and
(iv) 2,000,000 shares of Series A Junior Participating Preferred Stock
reserved for issuance under NIPSCO's Share Purchase Rights Plan. Except as set
forth above, at the close of business on October 31, 1996, no other shares of
capital stock or other voting securities of NIPSCO were issued, reserved for
issuance or outstanding. All such outstanding NIPSCO Common Shares are, and
all NIPSCO Common Shares which may be issued in connection with the Merger
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. All the outstanding shares
of capital stock of each significant subsidiary (within the meaning of Rule 1-
02 of Regulation S-X) of NIPSCO have been validly issued and are fully paid
and nonassessable and are owned by NIPSCO or a wholly-owned subsidiary, free
and clear of all liens, claims, encumbrances, restraints on alienation, or any
other restrictions with respect to the transferability or assignability
thereof (other than restrictions imposed by Federal or state securities laws).
Except as set forth above, neither NIPSCO nor any of its significant
subsidiaries has any outstanding option, warrant, subscription or other right,
agreement or commitment which either obligates NIPSCO or any of its
significant subsidiaries to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of NIPSCO or any of
its significant subsidiaries, or which restricts the transfer of NIPSCO Common
Shares.
3.2.2 As of the date hereof, the authorized capital stock of Acquisition
consists of 1,000 common shares, without par value, all of which are issued
and outstanding and owned by NIPSCO. All such outstanding common shares are
duly authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights.
3.3 Authority; Noncontravention. Each of NIPSCO and Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by NIPSCO and Acquisition and the consummation by each of them of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of NIPSCO and Acquisition. This
Agreement has been duly executed and delivered by NIPSCO and Acquisition and,
assuming this Agreement has been duly executed and delivered by the Company,
constitutes a valid and binding obligation of each of NIPSCO and Acquisition,
enforceable against each of them in accordance with its terms, except that the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditor's
rights generally and by general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). Except as
set forth in Section 3.3 of the Disclosure Schedule, the execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not (i) conflict with any of the provisions of the Articles of
Incorporation or By-Laws of NIPSCO or Acquisition, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture, or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which NIPSCO or any of its subsidiaries is a party or by which
NIPSCO or any of its subsidiaries or any of their assets is bound or affected,
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, contravene any law, rule or regulation of any state or
of the United States or any political subdivision thereof or therein, or any
order, writ, judgment, injunction, decree, determination or award currently in
effect, subject, in the case of clauses (ii) and (iii), to those conflicts,
breaches, defaults and similar matters, which, individually or in the
aggregate, would not materially and adversely affect NIPSCO's ability to
consummate the transactions contemplated hereby. No consent, approval or
authorization of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received or made is
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required by or with respect to NIPSCO or Acquisition in connection with the
execution and delivery of this Agreement by NIPSCO and Acquisition or the
consummation by them of any of the transactions contemplated hereby, except
for (a) the filing of premerger notification and report forms under the HSR
Act with respect to the Merger, (b) the filing with the SEC of a registration
statement on Form S-4 by NIPSCO in connection with the issuance of NIPSCO
Common Shares in the Merger (the "Form S-4") and such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (c) the filing of articles of
merger with the Indiana Secretary of State and appropriate documents with the
relevant authorities of the other states in which the Company is qualified to
do business and (d) such other consents, approvals, authorizations, filings or
notices as are set forth in Section 2.4 of the Disclosure Schedule.
3.4 NIPSCO SEC Documents and Financial Statements.
3.4.1 NIPSCO has timely filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1992 (the "NIPSCO
SEC Documents"). As of their respective dates (or, with respect to any
amendment to the NIPSCO SEC Documents, as of the date of the filing of such
amendment), the NIPSCO SEC Documents complied with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such NIPSCO SEC
Documents, and none of the NIPSCO SEC Documents as of such dates contained any
untrue statement of a material fact or omitted to state a 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.
3.4.2 The consolidated financial statements of NIPSCO included in the NIPSCO
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP (except as
may be indicated in the notes thereto or, in the case of unaudited interim
financial statements, as permitted by Rule 10-01 of Regulation S-X) and fairly
present, in all material respects, the consolidated financial position of
NIPSCO and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations, changes in shareholders' equity and
consolidated cash flows for the periods then ended (subject, in the case of
unaudited financial statements, to normal recurring adjustments, none of which
is material).
3.4.3 Except as disclosed in the NIPSCO SEC Documents filed and publicly
available prior to December 6, 1996 (the "Filed NIPSCO SEC Documents") or in
the Disclosure Schedule, neither NIPSCO nor any of its subsidiaries has any
absolute, accrued, contingent or other liabilities or obligations due or to
become due, and there are no claims or causes of action (including but not
limited to those relating to any NIPSCO Benefit Plan (as defined in Section
3.6.1) formerly maintained by NIPSCO or any of its subsidiaries or a NIPSCO
ERISA Affiliate (as defined in Section 3.6.1) on or after January 1, 1991)
that have been or, to the knowledge of the officers of NIPSCO and its
subsidiaries and divisions, the members of the NIPSCO's legal department and
the director(s), manager(s) or supervisor(s) of NIPSCO's environmental
compliance and affairs, may be asserted against NIPSCO or any of its
subsidiaries, except (i) as and to the extent reflected or reserved against on
the balance sheet included in NIPSCO's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "NIPSCO Base Balance Sheet"), or included in the
notes to the NIPSCO Base Balance Sheet, (ii) for normal and recurring
liabilities incurred since December 31, 1995, in the ordinary course of
business consistent with past practice, and (iii) for such other liabilities
and obligations that are not in the aggregate reasonably likely to have a
Material Adverse Effect.
3.5 Absence of Certain Changes or Events. Except as disclosed in the Filed
NIPSCO SEC Documents or in Section 3.5 of the Disclosure Schedule, since the
date of the NIPSCO Base Balance Sheet, NIPSCO and its subsidiaries have
conducted their business only in the ordinary course, and there has not been
(i) any change which has had or which would have a Material Adverse Effect,
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
NIPSCO's outstanding capital stock (other than regular quarterly cash
dividends in accordance with NIPSCO's present dividend policy) or (iii) any
split, combination or reclassification of any of its outstanding capital stock
or any issuance of the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of, its outstanding
capital stock.
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3.6 Employee Matters; ERISA.
3.6.1 Except as disclosed in Section 3.6.1 of the Disclosure Schedule, each
employee benefit plan, program or arrangement covering employees, former
employees or directors of NIPSCO (or any of its subsidiaries) or any of their
dependents or beneficiaries, or providing benefits to such persons in respect
of services provided to any such entity, including but not limited to any
"employee benefit plan" within the meaning of Section 3(3) of ERISA (whether
or not terminated, if NIPSCO or any of its subsidiaries could have statutory
or contractual liability with respect thereto on or after the date hereof),
and each "employee pension benefit plan" (within the meaning of ERISA Section
3(2)) subject to Title IV of ERISA or the minimum funding requirements of Code
Section 412 maintained or contributed to by NIPSCO or any entity required to
be aggregated therewith pursuant to Code Section 414(b) or (c) (each, a
"NIPSCO ERISA Affiliate") at any time during the seven-year period immediately
preceding the date hereof (collectively, the "NIPSCO Benefit Plans"), that is
intended to be "qualified" within the meaning of Code Section 401(a) has been
determined by the IRS to be so qualified, and, to the best knowledge of
NIPSCO, no event or condition exists or has occurred that could reasonably be
expected to result in the revocation of any such determination. NIPSCO and
each of its subsidiaries are in compliance with, and each NIPSCO Benefit Plan
is and has been operated in compliance with, all applicable laws, rules and
regulations governing such plan, including without limitation ERISA and the
Code, except for violations that could not reasonably be expected to have a
Material Adverse Effect. To the best knowledge of NIPSCO, no individual or
entity has engaged in any transaction with respect to any NIPSCO Benefit Plan
as a result of which NIPSCO or any of its subsidiaries could reasonably expect
to be subject to liability pursuant to ERISA Section 409 or 502 or subject to
an excise tax pursuant to Code Section 4975. To the best knowledge of NIPSCO,
(i) no NIPSCO Benefit Plan is subject to any ongoing audit, investigation, or
other administrative proceeding of the IRS, the Department of Labor, or any
other federal, state or local governmental entity and (ii) no NIPSCO Benefit
Plan is the subject of any pending application for administrative relief under
any voluntary compliance program of any governmental entity (including without
limitation the IRS's Voluntary Compliance Resolution Program or Walk-in
Closing Agreement Program or the Department of Labor's Delinquent Filer
Voluntary Compliance Program).
3.6.2 Except as disclosed in Section 3.6.2 of the Disclosure Schedule, each
NIPSCO Benefit Plan that is subject to either or both of the minimum funding
requirements of ERISA Section 302 or to Title IV of ERISA has assets that, as
of the date hereof, have a fair market value equal to or exceeding the present
value of the accrued benefit obligations thereunder on a termination basis, as
of the date hereof based on the actuarial methods, tables and assumptions
theretofore utilized by such plan's actuary in preparing such plan's most
recently prepared actuarial valuation report, except to the extent that
applicable law would require the use of different actuarial assumptions if
such plan was to be terminated as of the date hereof. No NIPSCO Benefit Plan
subject to the minimum funding requirements of ERISA Section 302 has incurred
any "accumulated funding deficiency" (within the meaning of ERISA Section
302).
3.7 Compliance with Applicable Laws
3.7.1 The business of NIPSCO and each of its significant subsidiaries is
being conducted in compliance, in all material respects, with all applicable
laws, ordinances, rules, regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within the last three years were properly
filed and were in compliance in all material respects with such laws.
3.7.2 NIPSCO and each of its significant subsidiaries has all material
Licenses which are necessary for it to own or lease, as the case may be, and
operate its properties and assets and to conduct its business as now
conducted. The business of NIPSCO and each of its significant subsidiaries has
been and is being conducted in compliance in all material respects with all
such Licenses. All restrictions and limitations on those Licenses requested or
required by any utility regulator are disclosed in the Filed NIPSCO SEC
Documents or in Section 3.7.2 of the Disclosure Schedule. All such Licenses
are in full force and effect, and there is no proceeding or investigation
pending or, to the knowledge of NIPSCO, threatened which would reasonably be
expected to lead to the revocation, amendment, failure to renew, limitation,
suspension or restriction of any such License.
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3.7.3 Each subsidiary of NIPSCO that has been or is required to do so has
filed all forms, reports, statements and other documents required by law to be
filed by it with the Indiana Utility Regulatory Commission, and such forms,
reports, statements and other documents, did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.8 Litigation. Except as set forth in the Filed NIPSCO SEC Documents or
Section 3.8 of the Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of NIPSCO, threatened
against NIPSCO or any of its subsidiaries which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect or
to materially and adversely affect NIPSCO's ability to consummate the
transactions contemplated hereby. Neither NIPSCO nor any its subsidiaries is
subject to any outstanding order, writ, injunction or decree which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
3.9 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by NIPSCO directly with
the Company, without the intervention of any person on behalf of NIPSCO in
such manner as to give rise to any valid claim by any person against the
Company or any of its subsidiaries for a finder's fee, brokerage commission or
similar payment.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and the Proxy Statement/Prospectus; Information
Supplied.
4.1.1 Form S-4; Proxy Statement/Prospectus. As soon as practicable following
the date of this Agreement, the Company and NIPSCO shall prepare and the
Company shall file with the SEC a preliminary proxy statement relating to the
Special Meeting, and NIPSCO shall prepare and file with the SEC the Form S-4,
in which such preliminary proxy statement will be included as a preliminary
prospectus (such proxy statement, together with the prospectus relating to the
NIPSCO Common Shares, in each case as amended or supplemented from time to
time, is referred to herein as the "Proxy Statement/Prospectus"). NIPSCO shall
use its best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. The Company will
use its best efforts to cause the Proxy Statement/Prospectus to be mailed to
the Company's shareholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. NIPSCO shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of the NIPSCO Common Shares in the
Merger, and the Company shall furnish all information concerning the Company
and the holders of the Company Common Shares and Company Preferred Shares as
may be reasonably requested in connection with any such action.
4.1.2 Company Information. The Company agrees that none of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statement therein not misleading and
(ii) the Proxy Statement/Prospectus will, at the date it is first mailed to
the Company's shareholders or at the time of the Special Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respect with the requirements of the Exchange Act and the rules and
regulations thereunder, except with respect to statements made or incorporated
by reference therein based on information supplied by NIPSCO specifically for
inclusion or incorporation by reference in the Proxy Statement/Prospectus.
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4.1.3 NIPSCO Information. NIPSCO agrees that none of the information
supplied or to be supplied by NIPSCO specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Proxy Statement/Prospectus will, at the date the Proxy
Statement/Prospectus is first mailed to the Company's shareholders or at the
time of the Special Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Form S-4 will comply as to form in
all material respects with the requirements of the Securities Act and the
rules and regulations promulgated thereunder, and the Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, except with respect to statements made or incorporated by
reference in either the Form S-4 or the Proxy Statement/Prospectus based on
information supplied by the Company specifically for inclusion or
incorporation by reference therein.
4.2 Meeting of the Company's Shareholders. The Company will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and By-laws to convene a meeting of its shareholders (the "Special Meeting")
to consider and vote upon the approval of the Merger. Subject to Section 4.9,
the Company will, through its Board of Directors, recommend to its
shareholders approval of the Merger. Without limiting the generality of the
foregoing, the Company agrees that, subject to its right to terminate this
Agreement pursuant to Section 4.9, its obligations pursuant to the first
sentence of Section 4.2 shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to the Company of any Acquisition
Proposal (as defined in Section 4.8) or (ii) the withdrawal or modification by
the Board of Directors of the Company of its approval or recommendation of
this Agreement or the Merger. Subject to Section 4.9 hereof, the Company will
use its best efforts to obtain the favorable vote of its shareholders as soon
as practicable after the date hereof.
4.3 Best Efforts. Upon the terms and subject to the conditions and other
agreements set forth in this Agreement, each of the parties agrees to use its
best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
4.4 Letter of the Company's Accountants. The Company shall use its best
efforts to cause to be delivered to NIPSCO a letter of KPMG Peat Marwick LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and a letter
of KPMG Peat Marwick LLP dated a date within two business days before the date
of the Special Meeting, addressed to NIPSCO, in form and substance reasonably
satisfactory to NIPSCO and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
4.5 Letter of NIPSCO's Accountants. NIPSCO shall use its best efforts to
cause to be delivered to the Company a letter of Arthur Andersen LLP, NIPSCO's
independent public accountants, dated a date within two business days before
the date on which the Form S-4 shall become effective, and a letter of Arthur
Andersen LLP, dated a date within two business days before the Special
Meeting, each addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
4.6 Access to Information; Confidentiality. Upon reasonable notice, the
Company shall, and shall cause its subsidiaries to, afford to NIPSCO and to
the officers, employees, accountants, counsel, financial advisors and other
representatives of NIPSCO, reasonable access during normal business hours
during the period prior to the Effective Time to all its properties, books,
contracts, commitments, personnel and records. Upon reasonable notice, NIPSCO
shall make its executive officers available to the Company and its
representatives during the
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period prior to the Effective Time for the purpose of permitting the Company
to continue its review of NIPSCO. During such period, each of the Company and
NIPSCO shall furnish promptly to the other party a copy of each Company SEC
Document or NIPSCO SEC Document, as the case may be, filed by it (including
any separate subsidiary) during such period, and (iii) all correspondence or
written communication with any securities rating agency or any Governmental
Entity or utility regulatory authorities which relates to the transactions
contemplated hereby or which is otherwise material to the financial condition
or operations of the Company and its subsidiaries taken as a whole, or to
NIPSCO and its subsidiaries taken as a whole, as the case may be. During such
period, each of the Company and NIPSCO shall furnish to the other party such
other financial, operating and other data as may be reasonably required by the
other party in order to perform its investigation regarding the
representations and warranties made by the other party pursuant to this
Agreement. Without limiting the foregoing, the Company shall furnish to NIPSCO
(a) after the end of each month, any management financial reports (together
with all accompanying documents) prepared with respect to such month, (b) all
notices with respect to any alleged deficiency or violation material to the
financial condition or operations of any subsidiary from any Governmental
Entity, (c) all material filings with utility regulators made by any
subsidiaries, (d) all material correspondence with, and any prepared summaries
of meetings with, representatives of the IRS or other taxing authorities, (e)
all material correspondence or communications with state utility regulatory
authorities concerning any subsidiaries and (f) all correspondence or
communications with any rating agency. Except as required by law, each of the
Company and NIPSCO will hold, and will cause its respective directors,
officers, partners, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information
obtained from the other party in confidence to the extent required by, and in
accordance with, the provisions of the letter dated September 27, 1996, as
amended, 1996, between NIPSCO and the Company (the "Confidentiality
Agreement").
4.7 Public Announcements. NIPSCO and the Company will consult with each
other before issuing, and shall provide each other a reasonable opportunity to
review and comment upon, any press release or public statement with respect to
this Agreement or the transactions contemplated hereby, except to the extent
disclosure prior to such consultation, review and comment may be required by
applicable law, court process or obligations pursuant to any listing agreement
with any national securities exchange.
4.8 Acquisition Proposals. The Company shall not, nor shall it authorize or
permit any officer, director or employee of, or any investment banker,
attorney or other advisor or representative of, the Company or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage
the submission of any Acquisition Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that nothing contained in this Section 4.8 shall prohibit the Board
of Directors of the Company from furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited Acquisition Proposal after the date hereof if, and only to the
extent that, (a) the Board of Directors of the Company, after consultation
with and based upon the advice of outside counsel, concludes in good faith
that such action is necessary for the Board of Directors of the Company to
comply with its fiduciary duties to shareholders under applicable law and (b)
the Company (x) provides reasonable notice to NIPSCO to the effect that it is
taking such action and (y) receives from such person or entity an executed
confidentiality agreement not less favorable to the Company than the
Confidentiality Agreement, except that such confidentiality agreement shall
not prohibit such person or entity from making an unsolicited Acquisition
Proposal to the Board of Directors of the Company. Notwithstanding anything in
this Agreement to the contrary, the Company shall promptly advise NIPSCO
orally and in writing of the receipt by it (or by any of the other entities or
persons referred to above) after the date hereof of any Acquisition Proposal,
or any inquiry which could lead to any Acquisition Proposal, the material
terms and conditions of such Acquisition Proposal or inquiry, and the identity
of the person or entity making any such Acquisition Proposal or inquiry,
provided that the Company shall have no obligation to disclose the identity of
such person or entity if such disclosure would violate the terms of any
agreement outstanding on the date hereof with such person or entity, or the
Board of Directors, after consultation with and based upon the advice of
outside counsel, concludes in good faith that such disclosure would violate
its fiduciary duties or would be
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otherwise inconsistent with applicable law. For purposes of this Agreement,
"Acquisition Proposal" means any bona fide proposal with respect to a merger,
consolidation, share exchange or similar transaction involving the Company or
any of its subsidiaries, or any purchase of all or any significant portion of
the assets or shares of the Company or any of its subsidiaries, or any other
business combination (including without limitation the acquisition of an
equity interest therein) involving the Company or any of its subsidiaries,
other than the transactions contemplated hereby.
4.9 Fiduciary Duties. The Board of Directors of the Company shall not (i)
withdraw or modify the approval or recommendation by such Board of Directors
of this Agreement or the Merger, (ii) approve or recommend an Acquisition
Proposal or (iii) enter into any agreement with respect to any Acquisition
Proposal, unless the Company receives an Acquisition Proposal and the Board of
Directors of the Company concludes in good faith, after consultation with and
based upon the advice of outside counsel, that in order to comply with its
fiduciary duties to shareholders under applicable law it is necessary for the
Board of Directors to withdraw or modify its approval or recommendation of
this Agreement or the Merger, approve or recommend such Acquisition Proposal
or enter into an agreement with respect to such Acquisition Proposal. Nothing
contained in this Section 4.9 shall prohibit the Company from taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders which, in the good faith judgment of the Board of
Directors of the Company based on advice of outside counsel, is required under
applicable law; provided that the Company does not withdraw or modify its
position with respect to the Merger or approve or recommend an Acquisition
Proposal, except under the circumstances described in the immediately
preceding sentence. Notwithstanding anything contained in this Agreement to
the contrary, any action by the Board of Directors permitted by this Section
4.9 shall not constitute a breach of this Agreement by the Company.
4.10 Filings; Other Action. As promptly as practicable, (i) the Company and
NIPSCO shall make all filings and submissions under the HSR Act and (ii) the
Company and NIPSCO shall cooperate in all reasonable respects with each other
in (a) determining if other filings are required to be made prior to the
Effective Time with, or if other material consents, approvals, permits,
notices or authorizations are required to be obtained prior to the Effective
Time from any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and (b) timely making all such filings and timely seeking
all such consents, approvals, permits, notices or authorizations. In
connection with the foregoing, the Company will provide NIPSCO, and NIPSCO
will provide the Company, with copies of correspondence, filings or
communications (or memoranda setting forth the substance thereof) between such
party or any of its representatives, on the one hand, and any Governmental
Entity or members of their respective staffs, on the other hand, with respect
to this Agreement and the transactions contemplated hereby. Each of NIPSCO and
the Company acknowledge that certain actions may be necessary with respect to
the foregoing in making notifications and obtaining clearances, consents,
approvals, waivers or similar third party actions which are material to the
consummation of the transactions contemplated hereby, and each of NIPSCO and
the Company agrees to take such action as is reasonably necessary to complete
such notifications and obtain such clearances, approvals, waivers or third
party actions.
4.11 Stock Exchange Listings. NIPSCO shall use its best efforts to cause the
NIPSCO Common Shares to be issued in the Merger to be approved for listing on
the NYSE, the Chicago Stock Exchange and the Pacific Stock Exchange, in each
case subject to official notice of issuance, prior to the Closing Date.
4.12 Affiliates and Certain Shareholders. Prior to the Closing Date, the
Company shall deliver to NIPSCO a letter identifying all persons who it
believes to be, at the time the Merger is submitted for approval to the
shareholders of the Company, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall use its best efforts to cause
each such person to deliver to NIPSCO on or prior to the Closing Date a
written agreement in connection with restrictions on affiliates under Rule
145, in substantially the form attached as Exhibit B to this Agreement. NIPSCO
shall not be required to maintain the effectiveness of the Form S-4 or any
other registration statement under the Securities Act for the purposes of
resale of NIPSCO Common
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Shares by such affiliates, and the certificates representing NIPSCO Common
Shares received by such affiliates in the Merger shall bear a customary legend
regarding applicable Securities Act restrictions and the provisions of this
Section 4.12. The Company shall use its best efforts to obtain from each of
the beneficial owners (within the meaning of Rule 13d-3 and Rule 13d-5 of the
Exchange Act) of 5% or more of the Company Common Shares such representation
letters addressed to NIPSCO, Schiff Hardin & Waite and Baker & Daniels as such
law firms shall require in connection with the delivery of their Tax Opinions
pursuant to Sections 6.2.3 and 6.3.3, respectively.
4.13 Indemnification. From and after the Effective Time, NIPSCO and the
Company agree that the Surviving Corporation will indemnify and hold harmless
each Eligible Person (as defined in the Company's Articles of Incorporation),
determined as of the Effective Time, against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent that the Company or any of its
subsidiaries would have been permitted under applicable law and the Articles
of Incorporation of the Company or such subsidiary in effect on the date
hereof to indemnify such person (and the Surviving Corporation shall also
advance expenses as incurred to the fullest extent permitted under applicable
law provided the person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such person is not
entitled to indemnification). The provisions of this Section 4.13 are intended
to be for the benefit of, and shall be enforceable by, each such indemnified
party, his heirs and his personal representatives and shall be binding on all
successors and assigns of the Surviving Corporation.
4.14 Shareholder Rights Plan. The Company shall take all action necessary to
ensure that, so long as this Agreement shall not have been terminated pursuant
to Article 7 hereof, (i) no Right Certificates under the Rights Agreement
dated as of February 9, 1988 between the Company and Bank One, Indianapolis,
N.A., as Rights Agent (the "Rights Agreement"), are issued or required to be
issued to the shareholders of the Company prior to, or as of, the Effective
Time and (ii) the preferred share purchase rights shall be redeemed and the
Rights Agreement shall be terminated no later than immediately prior to the
Effective Time.
4.15 Change in Control Provisions. Prior to the Effective Time, the Company
shall use its best efforts (i) to cause the Executive Employment Agreements
dated as of December 31, 1993 between the Company and each of James T. Morris,
Joseph R. Broyles, J. A. Rosenfeld, Kenneth N. Giffin and John M. Davis (the
"Change in Control Agreements") to be terminated by mutual consent of the
parties, (ii) to cause all Company Common Shares subject to restrictions under
the Company's Restricted Stock Plan to be canceled, and (iii) to cause all
obligations to provide benefits under the Company's nonqualified executive
supplemental benefit plan to be canceled, in consideration of an aggregate
cash payment of not more than $12,638,194. Notwithstanding anything in the
Change in Control Agreements to the contrary, the determination of whether and
when a Gross-Up Payment (as such term is defined in Section 9 of the Change in
Control Agreements) is required to be made to any of the above-named
individuals (an "Executive") and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
jointly by KPMG Peat Marwick and Arthur Andersen LLP (the "Accounting Firms").
Except as provided below, any determination by the Accounting Firms with
respect to matters described in the previous sentence shall be binding on IWC,
NIPSCO and the Executive. In the event the Accounting Firms cannot agree as to
the amount and timing of the Gross-Up Payment to a particular Executive listed
above, the Accounting Firms shall jointly select one of the other "Big 6"
accounting firms (the "Substitute Accounting Firm") to determine whether and
when a Gross-Up Payment is required to be made and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination.
The determination by the Substitute Accounting Firm with respect to matters
described in the previous sentence shall be binding on IWC, NIPSCO and the
Executive. Nothwithstanding anything in the Agreements or this Section to the
contrary, in the event the Accounting Firm or Substitute Accounting Firm
determines that the aggregate Gross-Up Payments payable to the Executives
exceeds $6,000,000, the liability of IWC or NIPSCO to make Gross-Up Payments
shall be limited to $6,000,000.
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4.16 Representation on NIPSCO Board. NIPSCO shall use its best efforts to
cause its Articles of Incorporation to be amended at the 1997 annual meeting
of its shareholders to increase the authorized number of directors so as to
permit the appointment immediately thereafter of one director of the Company
to be mutually determined by NIPSCO and the Company to serve as a director of
NIPSCO until the 1998 annual meeting of NIPSCO's shareholders or until his
earlier death, resignation or removal in accordance with NIPSCO's Articles of
Incorporation.
4.17 Termination of Company Dividend Reinvestment Plan. The Company shall
terminate its Dividend Reinvestment Plan as soon as reasonably practicable,
but in any event before March 1, 1997.
4.18 Federal Income Tax Treatment. The Company and NIPSCO shall use their
reasonable best efforts to ensure that the Merger constitutes a reorganization
within the meaning of Section 368(a)(1) of the Code and that shareholders of
the Company will not be subject to federal income tax on the receipt of NIPSCO
Common Shares in exchange for Company Common Shares pursuant to the Merger.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business by the Company. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Disclosure Schedule, during
the period from the date of this Agreement to the Effective Time, the Company
shall, and shall cause its subsidiaries to, act and carry on their respective
businesses in the ordinary course of business and, to the extent consistent
therewith, use best efforts to preserve intact their current business
organizations, keep in full force and effect their Licenses, keep available
the services of their current key officers, employees, agents and field
representatives, and preserve the goodwill of regulators or those engaged in
material business relationships with them. Without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior consent of NIPSCO:
5.1.1 adopt or propose any change to its Articles of Incorporation or By-
Laws;
5.1.2. (i) declare, set aside or pay any dividends on, or make any other
distributions with respect to, any of the Company's outstanding capital stock
(other than the regular quarterly cash dividends for the first two quarters of
1997 not in excess of $.36 per Company Common Share and $.36 per Company
Preferred Share, with usual record and payment dates and in accordance with
the Company's present dividend policy), (ii) split, combine or reclassify any
of its outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its outstanding capital stock or (iii) purchase, redeem or otherwise acquire
any shares of capital stock or other securities of the Company other than the
Company Preferred Shares to be redeemed as contemplated by Section 1.9.10
above and the preferred share purchase rights to be redeemed as contemplated
by Section 4.14 above;
5.1.3. issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities other than upon the conversion of Company
Preferred Shares outstanding on the date of this Agreement or the issuance of
shares under the Company's dividend reinvestment plan or Thrift Plan;
5.1.4. acquire any business or any corporation, partnership, joint venture,
association or other business organization or division;
5.1.5. take any action that, if taken prior to the date of this Agreement,
would have been required to be disclosed in Section 2.6 of the Disclosure
Schedule or that would otherwise cause any of the representations and
warranties contained in Article 2 not to be true and correct in all material
respects;
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5.1.6 sell, mortgage or otherwise encumber or subject to any lien or
otherwise dispose of any of its properties or assets that are material to the
Company and its subsidiaries taken as a whole, except in the ordinary course
of business;
5.1.7 (i) except for borrowings in the ordinary course of business under
existing credit facilities, incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, other than indebtedness
owing to or guaranties of indebtedness owing to the Company or any direct or
indirect wholly-owned subsidiary of the Company or (ii) make any loans or
advances to any other person, other than to the Company, or to any direct or
indirect wholly-owned subsidiary of the Company and other than routine
advances in the ordinary course of business to employees;
5.1.8 make any tax election or settle or compromise any income tax
liability;
5.1.9 pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by,
the most recent consolidated financial statements (or the notes thereto) of
the Company included in the Filed Company SEC Documents or incurred since the
date of such financial statements in the ordinary course of business
consistent with past practice;
5.1.10 except in the ordinary course of business, modify, amend or
terminate, or waive, release or assign any material rights or claims under any
material agreement, License or similar instrument to which the Company or any
of its subsidiaries is a party; or
5.1.11 authorize any of, or commit or agree to take any of the foregoing
actions.
5.2 Management of the Company and its Subsidiaries. The Company shall, from
the date of this Agreement through the Effective Time, cause its management
and that of its subsidiaries to consult on a regular basis and in good faith
with the employees and representatives of NIPSCO concerning the management of
the Company's and its subsidiaries' businesses.
5.3 Conduct of Business by NIPSCO. Except as contemplated by this Agreement
or as set forth in Section 5.3 of the Disclosure Schedule, during the period
from the date of this Agreement to the Effective Time, NIPSCO shall, and shall
cause its subsidiaries to, act and carry on their respective businesses in the
ordinary course of business and, to the extent consistent therewith, use best
efforts to preserve intact their current business organizations, keep
available the services of their current key officers and employees and
preserve the goodwill of those engaged in material business relationships with
them. Without limiting the generality of the foregoing, during the period from
the date of this Agreement to the Effective Time, NIPSCO shall not and shall
not permit any of its significant subsidiaries to, without the prior consent
of the Company:
5.3.1 adopt or propose any change to its Articles of Incorporation or By-
Laws, except as otherwise contemplated by this Agreement;
5.3.2 issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities, in each case if any such action could
reasonably be expected to (i) delay materially the date of mailing of the
Proxy Statement/Prospectus or, (ii) if it were to occur after such date of
mailing, require an amendment of the Proxy Statement/Prospectus;
5.3.3 acquire any business or any corporation, partnership, joint venture,
association or other business organization or division thereof, in each case
if any such action could reasonably be expected to (i) delay materially the
date of mailing of the Proxy Statement/Prospectus or, (ii) if it were to occur
after such date of mailing, require an amendment of the Proxy
Statement/Prospectus; or
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5.3.4 authorize any of, or commit or agree to take any of, the foregoing
actions.
5.4 Other Actions. The Company and NIPSCO shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement becoming untrue in any
material respect or (ii) any of the conditions of the Merger set forth in
Article 6 not being satisfied.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
6.1.1 Company Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by an affirmative vote of the holders of the
requisite number of shares present, in person or by proxy, and entitled to
vote on the Merger at the Special Meeting.
6.1.2 Governmental and Regulatory Consents. The Company and NIPSCO shall
have made all such filings, and obtained such permits, authorizations,
consents, or approvals required by any Governmental Entity to consummate the
transactions contemplated hereby; provided, however, that such consents or
approvals shall impose no conditions that, in the reasonable opinion of the
Company and NIPSCO, would be expected to have a Material Adverse Effect after
giving effect to the consummation of the Merger.
6.1.3 HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
otherwise expired.
6.1.4 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the
party invoking this condition shall use its best efforts to have any such
order or injunction vacated.
6.1.5 NYSE Listing. The NIPSCO Common Shares issuable to the Company's
shareholders pursuant to this Agreement shall have been approved for listing
on the NYSE, subject to official notice of issuance.
6.1.6 Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
6.1.7 Employment Agreements. NIPSCO shall have entered into three-year
employment agreements with each of James T. Morris, J. A. Rosenfeld and Joseph
R. Broyles providing for (i) base salary at an annual rate equal to such
person's base salary from the Company as of January 1, 1997 (provided that no
base salary shall accrue or be payable with respect to any period prior to
January 1, 1998), (ii) deferred compensation in an amount per year equal to
the annual contribution NIPSCO would have made to its defined benefit pension
plan with respect to such person for that year if such person had been a
participant in such plan, (iii) a performance incentive bonus, (iv) an
acquisition incentive bonus, and (v) participation in employee welfare benefit
plans made available generally to employees of NIPSCO and its subsidiaries, in
such form as shall be determined in the sole discretion of the Chief Executive
Officer of NIPSCO.
6.1.8 Share Purchase Rights. The preferred share purchase rights issued
pursuant to the Rights Agreement shall have been redeemed.
6.1.9 Change in Control Obligations. The Change in Control Agreements, the
Company Common Shares subject to restrictions under the Company's Restricted
Stock Plan and the Company's obligations under the ESB shall have been
canceled in accordance with Section 4.15.
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6.2 Conditions to Obligations of NIPSCO and Acquisition. The obligations of
NIPSCO and Acquisition to effect the Merger are further subject to the
following conditions:
6.2.1 Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects on the date hereof and (except to the extent specifically
given as of an earlier date) on and as of the Closing Date as though made on
the Closing Date, and the Company shall have delivered to NIPSCO a certificate
dated as of the Closing Date signed by an executive officer to the effect set
forth in this Section 6.2.1.
6.2.2 Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the Company shall
have delivered to NIPSCO a certificate dated as of the Closing Date signed by
an executive officer to the effect set forth in this Section 6.2.2.
6.2.3 Tax Opinion. NIPSCO shall have received the opinion dated the Closing
Date of Schiff Hardin & Waite, counsel to NIPSCO, to the effect that for
federal income tax purposes the Merger will constitute a reorganization within
the meaning of Section 368(a)(1) of the Code and no gain or loss will be
recognized by NIPSCO or the Company as a consequence of the Merger. In
rendering such opinion, Schiff Hardin & Waite shall be entitled to receive and
may rely on representations contained in certificates of NIPSCO and the
Company and representation letters of certain shareholders of the Company.
6.2.4 Opinion of Counsel. NIPSCO shall have received the opinion dated the
Closing Date of Baker & Daniels, counsel to the Company, in substantially the
form attached as Exhibit C to this Agreement.
6.2.5 Fairness Opinions. The opinion of Barr Devlin & Co. Incorporated dated
December 19, 1996, that as of that date the terms of the merger are fair to
the current shareholders of NIPSCO from a financial point of view, shall not
have been modified or withdrawn.
6.2.6 Consents and Approvals. The Company and its subsidiaries shall have
received the consents set forth in Section 2.4 of the Disclosure Schedule.
6.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
6.3.1 Representations and Warranties. The representations and warranties of
NIPSCO and Acquisition contained in this Agreement shall be true and correct
in all material respects on the date hereof and (except to the extent
specifically given as of an earlier date) on and as of the Closing Date as
though made on the Closing Date, and NIPSCO and Acquisition shall have
delivered to the Company a certificate dated as of the Closing Date, signed by
an executive officer of each of them and to the effect set forth in this
Section 6.3.1.
6.3.2 Performance of Obligations of NIPSCO and Acquisition. Each of NIPSCO
and Acquisition shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and NIPSCO and Acquisition shall have delivered to the Company a
certificate dated as of the Closing Date, signed by an executive officer of
each of them and to the effect set forth in this Section 6.3.2.
6.3.3 Tax Opinion. The Company shall have received the opinion dated the
Closing Date of Baker & Daniels, counsel to the Company, to the effect that
for federal income tax purposes the Merger will constitute a reorganization
within the meaning of Section 368(a)(1) of the Code and that shareholders of
the Company will not be subject to Federal income tax on the receipt of NIPSCO
Common Shares in exchange for Company Common Shares pursuant to the Merger. In
rendering such opinion, Baker & Daniels shall be entitled to receive and may
rely on representations in certificates of NIPSCO and the Company and
representation letters of certain shareholders of the Company.
6.3.4 Opinion of Counsel. The Company shall have received the opinion dated
the Closing Date of Schiff Hardin & Waite, counsel to NIPSCO, in substantially
the form attached as Exhibit D to the Agreement.
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ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the shareholders of the Company:
7.1.1 by mutual written consent of NIPSCO and the Company;
7.1.2 by either NIPSCO or the Company:
(i) if, upon a vote at a duly held Special Meeting, this Agreement and
the Merger shall fail to receive the requisite vote for approval and
adoption by the shareholders of the Company;
(ii) if the Merger shall not have been consummated on or before May 31,
1997, unless the failure to consummate the Merger is the result of a
willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(iii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iv) if the Board of Directors of the Company shall have exercised its
rights set forth in Section 4.9 of this Agreement; or
7.1.3 by the Company upon a material breach of any representation or
warranty of NIPSCO or if NIPSCO fails to comply in any material respect with
any of its covenants or agreements, or if any representation or warranty of
NIPSCO shall be or become untrue in any material respect, in either case such
that the conditions set forth in Sections 6.3.1 and 6.3.2 would be incapable
of being satisfied by May 31, 1997, provided that a willful breach shall be
deemed to cause such conditions to be incapable of being satisfied by such
date; or
7.1.4 by NIPSCO upon a material breach of any representation or warranty of
the Company or if the Company fails to comply in any material respect with any
of its covenants or agreements, or if any representation or warranty of the
Company shall be or become untrue in any material respect, in either case such
that the conditions set forth in Sections 6.2.1 and 6.2.2 would be incapable
of being satisfied by May 31, 1997, provided that a willful breach shall be
deemed to cause such conditions to be incapable of being satisfied by such
date.
7.2 Effect of Termination.
7.2.1 In the event of termination of this Agreement by either the Company or
NIPSCO as provided in Section 7.1, except as provided below in Section 7.2.4,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of NIPSCO or the Company, other than the
last sentence of Section 4.6 and Sections 7.2 and 10.2. Nothing contained in
this Section shall relieve any party from any liability resulting from any
material breach of the representations, warranties, covenants or agreements
set forth in this Agreement.
7.2.2 In the event of termination of this Agreement by NIPSCO pursuant to
Section 7.1.4, the Company shall pay NIPSCO $10,000,000 in cash, as liquidated
damages and not as a penalty, within 60 days of such termination, provided
that NIPSCO shall not be in material breach of its obligations under this
Agreement (the "Termination Payment"). The Termination Payment, if payable,
shall be paid only once.
7.2.3 In the event of termination of this Agreement by the Company pursuant
to Section 7.1.3, NIPSCO shall pay the Company $10,000,000 in cash, as
liquidated damages and not as a penalty, within 60 days of such termination,
provided that (i) the Company shall not be in material breach of its
obligations under this Agreement and (ii) NIPSCO shall not then be entitled to
receive the Termination Payment.
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7.2.4 In the event of termination of this Agreement by either NIPSCO or the
Company pursuant to Section 7.1.2(iv), the Company shall pay NIPSCO $1,000,000
in cash, as liquidated damages and not as a penalty, within 30 days of such
termination, provided that NIPSCO shall not be in material breach of its
obligations under this Agreement, and shall pay NIPSCO an additional
$9,000,000 in cash, as additional liquidated damages and not as a penalty,
upon the earlier of consummation of the transactions contemplated by an
Acquisition Proposal or five months from the date of such termination;
provided, however, the Company shall not be obligated to pay NIPSCO such
additional $9,000,000 in liquidated damages, if the transactions contemplated
by such Acquisition Proposal shall be abandoned or otherwise terminated during
such five-month period and, within such five-month period, (i) this Agreement
shall be reinstated by mutual agreement of NIPSCO and the Company or (ii)
NIPSCO shall reject a firm written offer from the Company to reinstate this
Agreement and consummate the transactions contemplated hereby.
7.2.5 The payments provided in Sections 7.2.2, 7.2.3 and 7.2.4 shall be the
parties' sole and exclusive remedies hereunder for the termination of this
Agreement under the circumstances in which such payments are paid (regardless
of any breach of this Agreement), and upon such delivery of such payment to
NIPSCO or the Company, as the case may be, no person shall have any further
claim or rights against the Company, NIPSCO or Acquisition under this
Agreement.
7.3 Amendment. Subject to the applicable provisions of the Indiana Code, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval of
the Merger by the shareholders of the Company, no amendment shall be made
which reduces the Merger Consideration payable in the Merger or adversely
affects the rights of the Company's shareholders hereunder without the
approval of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties, (ii) waive any inaccuracies in the representations
and warranties of the other parties contained in this Agreement or in any
document delivered pursuant to this Agreement or (iii) subject to Section 7.3,
waive compliance with any of the agreements or conditions of the other parties
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension or Waiver. A termination
of this Agreement pursuant to Section 7.1, an amendment of this Agreement
pursuant to Section 7.3 or an extension or waiver pursuant to Section 7.4
shall, in order to be effective, require in the case of NIPSCO or the Company,
action by its Board of Directors or the duly authorized designee of its Board
of Directors.
ARTICLE 8
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties respectively required to be
made by the Company and NIPSCO and Acquisition in this Agreement, or in any
certificate, respectively, delivered by the Company or NIPSCO and Acquisition
pursuant to Section 6.2 or Section 6.3 hereof, will terminate upon the Closing
and be of no further force or effect.
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ARTICLE 9
NOTICES
9.1 Notices. Any notice or communication given pursuant to this Agreement
must be in writing and will be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested),
transmitted by facsimile or delivered by courier, as follows:
If to the Company, to:
IWC Resources Corporation
1220 Waterway Boulevard
P.O. Box 1220
Indianapolis, Indiana 46206
Attention: J.A. Rosenfeld
Telephone: (317) 639-1501
Telecopy: (317) 263-6448
with a copy to:
Baker & Daniels
300 North Meridian Street
Indianapolis, Indiana 46204
Attention: Fred E. Schlegel
Telephone: (317) 237-0300
Telecopy: (317) 237-1000
If to NIPSCO, to:
NIPSCO Industries, Inc.
5265 Hohman Avenue
Hammond, Indiana 46320
Attention: Stephen P. Adik
Telephone: (219) 647-6012
Telecopy: (219) 647-6060
with copies to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606-6473
Attention: Peter V. Fazio, Jr.
Telephone: (312) 258-5634
Telecopy: (312) 258-5600
All notices and other communications required or permitted under this
agreement that are addressed as provided in this Section 9.1 will, whether
sent by mail, facsimile or courier, be deemed given upon the first Business
Day after actual delivery to the party to whom such notice or other
communication is sent (as evidenced by the return receipt or shipping invoice
signed by a representative of such party or by facsimile confirmation). Any
party from time to time may change its address for the purpose of notices to
that party by giving a similar notice specifying a new address, but no such
notice will be deemed to have been given until it is actually received by the
party sought to be charged with the contents thereof. For purposes of this
Section 9.1, "Business Day" shall mean a day other than Saturday, Sunday or
any day on which the principal commercial banks located in Indianapolis,
Indiana are authorized or obligated to close under the laws of Indiana.
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ARTICLE 10
MISCELLANEOUS
10.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes, except as set forth in Section 4.6 with respect to the
Confidentiality Agreement, all prior communications, agreements,
understandings, representations and warranties, whether oral or written,
between the parties hereto. There are no oral or written agreements,
understandings, representations or warranties between the parties hereto with
respect to the subject hereof other than those set forth in this Agreement.
10.2 Expenses. The Company, NIPSCO and Acquisition each will pay its own
costs and expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby,
except that (i) the filing fee in respect of the notification and report under
the HSR Act and (ii) the expenses incurred in connection with the printing,
mailing and distribution of the Proxy Statement/Prospectus and the preparation
and filing of the Form S-4 shall be borne equally by the Company and NIPSCO.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
10.4 No Third Party Beneficiary. Except as otherwise specifically provided
in Section 4.13, this Agreement is not intended and may not be construed to
create any rights in any parties other than the Company, NIPSCO and
Acquisition and their respective successors or assigns, and it is not the
intention of the parties to confer third-party beneficiary rights upon any
other person.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana (without regard to the
principles of conflicts of law) applicable to a contract executed and to be
performed in such State.
10.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, such consent not to be
unreasonably withheld, and any such assignment that is not consented to shall
be null and void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
10.7 Headings, Gender, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (i) words of any gender are deemed to include
each other gender; (ii) words using the singular or plural number also include
the plural or singular number, respectively; (iii) the terms "hereof,"
"herein," "hereby," "hereto," and derivative or similar words refer to this
entire Agreement; (iv) the terms "Article" or "Section" refer to the specified
Article or Section of this Agreement; (v) all references to "dollars" or "$"
refer to currency of the United States of America; (vi) the term "person"
shall include any natural person, corporation, limited liability company,
general partnership, limited partnership, trust or other entity, enterprise,
authority or business organization; and (vii) the term "or" is disjunctive but
not necessarily exclusive.
10.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of the Company or NIPSCO and Acquisition under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable; (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof; and (iii) the remaining provisions of this Agreement
will remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom.
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<PAGE>
In Witness Whereof, this Agreement has been duly executed and delivered by
the duly authorized officers of the Company, NIPSCO and Acquisition effective
as of the date first written above.
NIPSCO Industries, Inc.
/s/ Gary L. Neale
By: _________________________________
Gary L. Neale,
Chairman of the Board,
President and Chief
Executive Officer
Speedway Acquisition Corp.
/s/ Gary L. Neale
By: _________________________________
Gary L. Neale,
President
IWC Resources Corporation
/s/ James T. Morris
By: _________________________________
James T. Morris,
Chairman of the Board,
Chief Executive Officer
and President
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<PAGE>
ANNEX B
PERSONAL AND CONFIDENTIAL
February 19, 1997
Board of Directors
IWC Resources Corporation
1220 Waterway Boulevard
Indianapolis, IN 46202
Gentlemen and Madame:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, no par value (the "Shares"), of IWC
Resources Corporation (the "Company") of the Stock Consideration and the Cash
Consideration (as defined below) to be received in exchange for Shares
pursuant to the Agreement and Plan of Merger dated as of December 19, 1996
among NIPSCO Industries, Inc. ("NIPSCO"), Speedway Acquisition Corp., a
wholly-owned subsidiary of NIPSCO, and the Company (the "Agreement").
Pursuant to the Agreement, the Company will be merged with Speedway
Acquisition Corp. and each outstanding Share will be converted into that
number of shares (or fraction thereof) of Common Stock, no par value, of
NIPSCO (the "NIPSCO Shares") based upon the average closing price of the
NIPSCO Shares on the New York Stock Exchange Composite Transactions Reporting
System as more fully set forth in the Agreement (the "Stock Consideration").
Holders of Shares may elect, with respect to all or a portion of their Shares,
to convert such Shares into the right to receive $32.00 per Share in cash (the
"Cash Consideration"), subject to certain procedures and limitations contained
in the Agreement, as to which procedures and limitations we are expressing no
opinion.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having provided certain investment
banking services to the Company from time to time. We have also provided
certain investment banking services to NIPSCO from time to time, and we may
provide investment banking services to NIPSCO from time to time in the future.
Goldman, Sachs & Co. is a full service securities firm and in the course of
its trading activities it may from time to time effect transactions and hold
positions in the securities of the Company and NIPSCO.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Proxy Statement/Prospectus relating to the Special Meeting of
Shareholders of the Company to be held in connection with the Agreement;
Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company
and NIPSCO for the five years ended December 31, 1995; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q of the Company and NIPSCO;
certain other communications from the Company and NIPSCO to their respective
stockholders; and certain internal financial analyses and forecasts for the
Company prepared by its management. We also have held discussions with members
of the senior managements of the Company and NIPSCO regarding the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Shares and the NIPSCO Shares, compared certain
financial and stock market information for the Company and NIPSCO with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations
in the utility industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
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We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or NIPSCO
or any of their subsidiaries and we have not been furnished with any such
evaluation or appraisal. We were not provided any internal financial analyses
or forecasts for NIPSCO. We were not requested to solicit, and did not
solicit, interest from other parties in a potential transaction involving the
Company. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Stock
Consideration and the Cash Consideration to be received by the holders of
Shares are each fair to the holders of Shares receiving either such
Consideration.
Very truly yours,
/s/ Goldman, Sachs & Co.
-------------------------------------
(Goldman, Sachs & Co.)
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<PAGE>
ANNEX C
December 19, 1996
The Board of Directors
NIPSCO Industries, Inc.
5265 Hohman Avenue
Hammond, Indiana 46320-1775
Dear Members of the Board:
We understand that NIPSCO Industries, Inc., an Indiana corporation
("NIPSCO") and IWC Resources Corporation, an Indiana corporation ("IWC"), have
determined to enter into a strategic business combination. The terms and
conditions of the business combination are set forth in the Agreement and Plan
of Merger dated as of December 19, 1996 (the "Merger Agreement") among NIPSCO,
IWC, and Speedway Acquisition Corp., a wholly owned subsidiary of NIPSCO and
an Indiana corporation ("Acquisition"). Capitalized terms used herein without
definition shall have the respective meanings assigned to such terms in the
Merger Agreement. The Merger Agreement provides for, among other things, the
merger of IWC with and into Acquisition (the "Merger") whereby the surviving
corporation will be re-named IWC and will be a wholly owned subsidiary of
NIPSCO. Pursuant to the Merger Agreement, each common share, no par value, of
IWC (the "IWC Common Shares") issued and outstanding immediately prior to the
Effective Time shall be converted into (i) the right to receive $32 in cash,
without interest (the "Cash Price"), or (ii) the fraction of a validly issued,
fully paid and non-assessable common share, without par value, of NIPSCO
("NIPSCO Common Shares") determined by dividing the Cash Price by the NIPSCO
Share Price (as defined below) (the "Exchange Ratio") or (iii) the right to
receive a combination of cash and NIPSCO Common Shares determined as set forth
in the Merger Agreement. The "NIPSCO Share Price" shall be equal to the
average of the closing prices of NIPSCO Common Shares on the New York Stock
Exchange Composite Transactions Reporting System for the 20 trading days
immediately preceding the second trading day prior to the Effective Time. The
terms and conditions of the Merger are set forth in more detail in the Merger
Agreement.
We have been requested by NIPSCO to render our opinion with respect to the
fairness, from a financial point of view, to the holders of NIPSCO Common
Shares of the Merger Consideration to be offered in connection with the
Merger.
In arriving at our opinion, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1995 and the Forms
10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1996, June 30, 1996 and September 30, 1996 for IWC;
(2) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1995 and the Forms
10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1996, June 30, 1996 and September 30, 1996 for
NIPSCO and Northern Indiana Public Service Company;
(3) Reviewed certain other filings with the Securities and Exchange
Commission and other regulatory authorities made by IWC, NIPSCO and
Northern Indiana Public Service Company during the last three years;
(4) Reviewed certain internal information, including financial forecasts,
relating to the business, earnings, capital expenditures, cash flow, assets
and prospects of IWC and NIPSCO furnished to us by IWC and NIPSCO;
(5) Conducted discussions with members of senior management of NIPSCO and
IWC concerning their respective businesses, regulatory environments,
prospects, strategic objectives and possible operating and administrative
synergies which might be realized for the benefit of NIPSCO following the
Merger;
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(6) Reviewed the historical market prices and trading activity for shares
of IWC with those of certain publicly traded companies which we deemed to
be relevant;
(7) Compared the results of operations of IWC with those of certain
companies which we deemed to be relevant;
(8) Compared the proposed financial terms of the Merger with the
financial terms of certain business combinations which we deemed to be
relevant;
(9) Analyzed the valuation of shares of IWC Common Stock using various
valuation methodologies which we deemed to be appropriate;
(10) Considered the pro forma effect of the Merger on NIPSCO's
capitalization, earnings and cash flow;
(11) Compared the pro forma effect of the Merger on NIPSCO's earnings per
share with corresponding current and projected values on a stand-alone
basis;
(12) Reviewed the Merger Agreement; and
(13) Reviewed such other studies, conducted such other analyses,
considered such other financial, economic and market criteria, performed
such other investigations and taken into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to us
by NIPSCO and IWC and have further relied upon the assurances of management of
NIPSCO and IWC that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial
projections of NIPSCO and IWC (including, without limitation, projected cost
savings and operating synergies), we have relied upon the assurances of
management of NIPSCO and IWC that such projections have been reasonably
prepared and reflect the best currently available estimates and judgments of
the management of NIPSCO and IWC as to the future financial performance of
NIPSCO and IWC, as the case may be, and as to the outcomes projected of legal,
regulatory and other contingencies. In arriving at our opinion, we have not
made or been provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of NIPSCO or IWC, nor have we
made any physical inspection of the properties or assets of NIPSCO or IWC. We
have assumed that the Merger will be a reorganization as described in Section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder, and that no gain or loss will be recognized by
NIPSCO or IWC as a consequence of the Merger. We have also assumed that for
financial accounting purposes, NIPSCO will use purchase accounting to account
for the Merger. Our opinion herein is necessarily based upon financial, stock
market and other conditions and circumstances existing and disclosed to us as
of the date hereof.
We have acted as financial advisor to NIPSCO in connection with the Merger
and will receive certain fees for our services. In addition, we have in the
past rendered certain investment banking and financial advisory services to
NIPSCO for which we received customary compensation.
Our advisory services and the opinion expressed herein are provided solely
for the use of NIPSCO's Board of Directors in evaluating the Merger and are
not provided on behalf of, or intended to confer rights or remedies upon, any
stockholder of NIPSCO or any person other than NIPSCO's Board of Directors.
Our opinion may not be published or otherwise used or referred to without our
prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the Merger Consideration to be offered in connection with the
Merger is fair, from a financial point of view, to the holders of NIPSCO
Common Shares.
Very truly yours,
Barr Devlin & Co. Incorporated
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