<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-50537
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
NIPSCO INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
INDIANA 4931 35-1719974
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
801 EAST 86TH AVENUE
MERRILLVILLE, INDIANA 46410
(219) 853-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN P. ADIK
NIPSCO INDUSTRIES, INC.
801 EAST 86TH AVENUE
MERRILLVILLE, INDIANA 46410
(219) 647-6012
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
PETER V. FAZIO, JR. DOUGLAS W. HAWES
MICHAEL L. MEYER WARREN J. INGBER
SCHIFF HARDIN & WAITE LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
7300 SEARS TOWER 125 WEST 55TH STREET
CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10019-5389
(312) 258-5500 (212) 424-8000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
NIPSCO INDUSTRIES, INC.
Cross-Reference Sheet showing the location in the Prospectus of information
required to be included in the Prospectus pursuant to Item 501(b) of
Regulation S-K.
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C>
A.Information about the
Transaction.
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of Inside Front Cover Pages; AVAILABLE
Prospectus.................. INFORMATION; INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE; Table of
Contents
3. Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information....... SUMMARY
4. Terms of Transaction........ SUMMARY; THE MERGER; COMPARATIVE
SHAREHOLDER RIGHTS
5. Pro Forma Financial
Information................. *
6. Material Contracts With the
Company Being Acquired...... THE MERGER--Interests of Certain Persons
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed
To Be Underwriters.......... *
8. Interests of Named Experts
and Counsel................. LEGAL OPINION; EXPERTS
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................. *
B.Information about the
Registrant.
10. Information With Respect to INCORPORATION OF CERTAIN INFORMATION BY
S-3 Registrant.............. REFERENCE
11. Incorporation of Certain INCORPORATION OF CERTAIN INFORMATION BY
Information................. REFERENCE
12. Information With Respect to
S-2 or S-3 Registrant....... *
13. Incorporation of Certain
Information by Reference.... *
14. Information With Respect to
Registrants Other Than S-2
or S-3 Registrant........... *
C.Information about the Company
Being Acquired.
15. Information With Respect to INCORPORATION OF CERTAIN INFORMATION BY
S-3 Companies............... REFERENCE
16. Information With Respect to
S-2 or S-3 Companies........ *
17. Information With Respect to
Companies Other Than S-2 or
S-3 Companies............... *
</TABLE>
<PAGE>
<TABLE>
<S> <C>
D.Voting and Management Information.
18. Information if Proxies,
Consents or Authorizations are INCORPORATION OF CERTAIN INFORMATION BY
to be Solicited............... REFERENCE; SUMMARY; THE SPECIAL MEETING;
THE MERGER--Interests of Certain Persons
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer................ *
</TABLE>
--------
*Not applicable
<PAGE>
BAY STATE GAS COMPANY
300 Friberg Parkway
Westborough, MA 01581
(508) 836-7000
[LOGO OF BAYSTATE GAS COMPANY]
April 24, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Common
Shareholders (the "Special Meeting") of Bay State Gas Company ("Bay State"),
to be held on May 27, 1998, at 10:30 a.m., local time, at the office of Bay
State, 300 Friberg Parkway, Westborough, Massachusetts.
At the Special Meeting, you will be asked to consider and vote upon an
Agreement and Plan of Merger dated as of December 18, 1997, as amended and
restated as of March 4, 1998 (the "Merger Agreement"), by and between NIPSCO
Industries, Inc. ("Industries") and Bay State that provides for the merger of
Bay State with and into a corporation ("Acquisition") to be organized as a
wholly owned subsidiary of Industries. Acquisition will be the surviving
corporation and will continue to conduct Bay State's gas utility business
under the name "Bay State Gas Company." Upon consummation of the merger each
outstanding share of Bay State common stock, par value $3.33 1/3 per share
("Bay State Shares"), will be converted into the right to receive shares of
Industries common stock or, at the election of the shareholder and subject to
certain limitations, cash, in either case having a value of $40.00, all as
more fully described in the accompanying Proxy Statement/Prospectus. Elections
to receive cash may be subject to proration if the aggregate number of cash
election shares exceeds a stated maximum. The merger of Bay State with and
into Acquisition is referred to as the "Preferred Merger." The Merger
Agreement also provides that an alternative merger structure may be used
instead of the Preferred Merger in certain circumstances, referred to as the
"Alternative Merger." Bay State shareholders would receive, per share, the
same consideration in the Alternative Merger as in the Preferred Merger. The
term "Merger" refers to the acquisition of Bay State by Industries, regardless
of whether its structure is that of the Preferred Merger or the Alternative
Merger.
Consummation of the Merger is subject to satisfaction of certain conditions,
including the satisfaction of certain regulatory conditions as described in
the accompanying Proxy Statement/Prospectus. Assuming timely regulatory
approvals, it is expected that the closing of the Merger will occur sometime
in the second half of 1998.
More detailed information concerning the Merger, together with financial and
other information concerning the businesses of Bay State and Industries, is
included or incorporated by reference in the enclosed Proxy
Statement/Prospectus. I urge you to review this material carefully.
The Board of Directors of Bay State has received the written opinion, dated
April 22, 1998, of its financial advisor, SG Barr Devlin (formerly Barr Devlin
& Co. Incorporated), to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the consideration to be
received by holders of Bay State Shares pursuant to the Merger is fair to such
shareholders from a financial point of view.
YOUR BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF BAY STATE AND ITS SHAREHOLDERS. ACCORDINGLY, YOUR BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY.
We encourage you to participate in the Special Meeting in person or by
mailing the enclosed proxy. Even if you plan to attend the Special Meeting, we
urge you to mark, sign and date your proxy and return it promptly in the
enclosed addressed, postage-paid envelope. You have the option to revoke it at
any time before it is voted or to vote your shares personally on request if
you attend the Special Meeting.
<PAGE>
IF YOU DO NOT RETURN THE PROXY AND DO NOT VOTE AT THE SPECIAL MEETING, IT
WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE AFFIRMATIVE VOTE OF
THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING BAY STATE COMMON STOCK IS
REQUIRED TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY. You will receive
instructions concerning the cash election and exchange of shares at a later
date.
Sincerely,
/s/ Roger A. Young
ROGER A. YOUNG
Chairman of the Board of Directors
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS IMPORTANT.
2
<PAGE>
BAY STATE GAS COMPANY
300 Friberg Parkway
Westborough, MA 01581
(508) 836-7000
NOTICE OF SPECIAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD ON MAY 27, 1998
To the Common Shareholders of Bay State Gas Company:
NOTICE IS HEREBY GIVEN that a Special Meeting of Common Shareholders (the
"Special Meeting") of Bay State Gas Company, a Massachusetts corporation ("Bay
State"), has been called by the Board of Directors of Bay State (the "Bay
State Board") and will be held on May 27, 1998, at 10:30 a.m., local time, at
the office of Bay State, 300 Friberg Parkway, Westborough, Massachusetts, for
the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of December 18, 1997, as amended and restated as of
March 4, 1998 (the "Merger Agreement"), by and between NIPSCO Industries,
Inc., an Indiana corporation ("Industries"), and Bay State, pursuant to
which Bay State will become a wholly owned subsidiary of Industries through
a merger with and into a corporation to be formed as a wholly owned
subsidiary of Industries or, in certain circumstances, through an
alternative merger structure, and to approve the transactions provided for
in the Merger Agreement; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The Bay State Board has fixed April 24, 1998 as the record date for the
determination of those shareholders entitled to notice of and to vote at the
Special Meeting. All persons who were holders of record of Bay State common
stock at the close of business on such date, and no others, will be entitled
to notice of and to vote at the Special Meeting.
EVEN IF YOU EXPECT TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO MARK,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ADDRESSED, POSTAGE-PAID ENVELOPE. YOU MAY REVOKE OR CHANGE YOUR PROXY AT ANY
TIME BEFORE IT IS VOTED. IF YOU DO NOT VOTE AT THE SPECIAL MEETING, IN PERSON
OR BY PROXY, IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST APPROVAL OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
By Order of the Board of Directors,
/s/ Roger A. Young
Roger A. Young
Chairman of the Board of Directors
/s/ Charles H. Tenney III
Charles H. Tenney III
Clerk
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS IMPORTANT.
Westborough, Massachusetts
April 24, 1998
<PAGE>
BAY STATE GAS COMPANY
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
----------------
NIPSCO INDUSTRIES, INC.
PROSPECTUS
----------------
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of common shares, par value $3.33 1/3 per share ("Bay
State Shares"), of Bay State Gas Company, a Massachusetts corporation ("Bay
State"), in connection with the solicitation of proxies by the Board of
Directors of Bay State for use at a special meeting of the holders of Bay
State Shares ("Bay State Shareholders") to be held at the office of Bay State,
300 Friberg Parkway, Westborough, Massachusetts, 10:30 a.m., local time, on
May 27, 1998 and at any and all adjournments or postponements thereof (the
"Special Meeting").
This Proxy Statement/Prospectus relates to an Agreement and Plan of Merger
dated as of December 18, 1997, as amended and restated as of March 4, 1998
(the "Merger Agreement"), by and between NIPSCO Industries, Inc.
("Industries") and Bay State that provides for the merger of Bay State with
and into a corporation ("Acquisition") to be organized as a wholly owned
subsidiary of Industries. Acquisition will be the surviving corporation and
will continue to conduct Bay State's gas utility business under the name "Bay
State Gas Company." Upon consummation of the Merger, each outstanding Bay
State Share will be converted into the right to receive shares of Industries
common stock, without par value (including preferred share purchase rights,
"Industries Shares"), or, at the election of the shareholder and subject to
certain limitations, cash, in either case having a value of $40.00, all as
more fully described herein. The limitation on cash consideration to be paid
in the Merger is designed to ensure that the Merger qualifies as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of
1986, which generally limits the portion of cash consideration that may be
paid in the Merger to 50 percent. AS A RESULT OF THIS LIMITATION, A BAY STATE
SHAREHOLDER WHO VOTES TO APPROVE THE MERGER AGREEMENT AND RELATED TRANSACTIONS
MAY NOT RECEIVE CASH FOR ALL OF THE BAY STATE SHARES FOR WHICH SUCH
SHAREHOLDER SUBSEQUENTLY MAKES A CASH ELECTION BUT MAY INSTEAD RECEIVE BOTH
CASH AND INDUSTRIES SHARES. See "THE MERGER--Overview of the Merger" and "THE
MERGER--Cash Elections; Allocation and Proration." The merger of Bay State
with and into Acquisition is referred to as the "Preferred Merger." The Merger
Agreement also provides that an alternative merger structure (referred to as
the "Alternative Merger") may be used instead of the Preferred Merger in the
event of certain regulatory impediments to the Preferred Merger but not to the
Alternative Merger. The Alternative Merger would involve the merger of Bay
State with and into Industries' wholly owned utility subsidiary, Northern
Indiana Public Service Company ("Northern Indiana"), followed immediately by
the merger of Bay State's wholly owned utility subsidiary, Northern Utilities,
with and into Northern Indiana. Bay State Shareholders would receive, per
share, the same consideration in the Alternative Merger as in the Preferred
Merger. The term "Merger" refers to the acquisition of Bay State by
Industries, regardless of whether its structure is that of the Preferred
Merger or the Alternative Merger. Consummation of the Merger is subject to
various conditions, including the approval of the Merger Agreement at the
Special Meeting by the holders of two-thirds of the outstanding Bay State
Shares. Approval of the Merger Agreement shall constitute approval of both the
Preferred Merger and the Alternative Merger. See "THE MERGER."
This Proxy Statement/Prospectus also constitutes the Prospectus of
Industries with respect to the Industries Shares to be issued in connection
with the Merger. Industries Shares are traded on the New York Stock Exchange
(the "NYSE") under the symbol "NI." On April 17, 1998, the last full trading
day for which information was available prior to the printing of this Proxy
Statement/Prospectus, the closing sales price for Industries Shares, as
reported in The Wall Street Journal's NYSE Composite Transactions Report, was
$27 1/8 per share.
All information contained in this Proxy Statement/Prospectus with respect to
Bay State has been provided by Bay State. 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 Bay State Shareholders on or about April 24, 1998. A
shareholder who has executed and returned 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 April 22, 1998.
<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 THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF INDUSTRIES OR BAY STATE 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 Bay State 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 and Bay State can be inspected and copied at the offices of the
following exchanges: (i) the New York Stock Exchange ("NYSE") at 20 Broad
Street, New York, New York 10005; (ii) with respect to Industries, the Chicago
Stock Exchange ("CSE"), at One Financial Place, 444 LaSalle Street, Chicago,
Illinois 60605 and the Pacific Stock Exchange ("PSE"), at 301 Pine Street, San
Francisco, California 94101; and (iii) with respect to Bay State, the Boston
Stock Exchange ("BSE"), at One Boston Place, Boston, Massachusetts 20006.
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 28,000,000 Industries Shares to be issued in connection with the Merger.
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.
2
<PAGE>
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 BAY STATE SHOULD BE
DIRECTED TO CHARLES H. TENNEY III, CLERK, BAY STATE GAS COMPANY, 300 FRIBERG
PARKWAY, WESTBOROUGH, MASSACHUSETTS 01581-5039, TELEPHONE NUMBER (508) 836-
7357. IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY SUCH REQUEST
SHOULD BE MADE BY MAY 20, 1998.
The following documents previously filed with the SEC by Industries (File
No. 001-9779) and Bay State (File No. 001-7479) are incorporated herein by
reference:
(a) Industries' Annual Report on Form 10-K for the year ended December
31, 1997;
(b) 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;
(c) Bay State's Annual Report on Form 10-K for the year ended September
30, 1997, as amended by Form 10-K/A filed on December 17, 1997;
(d) Bay State's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997;
(e) Bay State's Proxy Statement for the 1998 Annual Meeting of
Shareholders held on January 22, 1998; and
(f) Bay State's Current Report on Form 8-K dated December 30, 1997.
All documents subsequently filed by Industries or Bay State pursuant to
Section 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 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.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes or incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Although Bay State and Industries
believe their expectations regarding future events are based on reasonable
assumptions within the bounds of their knowledge of their respective
businesses, these forward-looking statements are subject to risks and
uncertainties that could prevent their goals from being achieved, or their
expectations regarding the benefits of the Merger or the future expansion and
growth of their combined businesses from being realized. Important factors
that could cause actual results to differ materially from those in the
forward-looking statements include the effects of competition, legislative and
regulatory developments, the timing and extent of changes in prices and demand
for natural gas and other energy products and services, conditions of the
capital markets and equity markets and, in general, the ability of Bay State
and Industries to achieve the goals described in "THE MERGER--Bay State's
Reasons for the Merger and Recommendation of the Bay State Board" and "THE
MERGER--Industries' Reasons for the Merger," as well as other factors
contained in other cautionary statements included or incorporated by reference
in this Proxy Statement/Prospectus.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 3
FORWARD LOOKING STATEMENTS................................................ 3
SUMMARY................................................................... 6
The Companies........................................................... 6
The Special Meeting..................................................... 6
Revocation of Proxies................................................... 7
Opinion of Financial Advisor to Bay State............................... 7
The Merger.............................................................. 7
No Dissenters' Rights................................................... 12
Bay State Dividends Prior to the Effective Time of the Merger........... 12
Regulatory Matters...................................................... 12
Conduct of Business Pending the Merger.................................. 12
Conditions to the Merger................................................ 12
Other Acquisition Proposals............................................. 12
Termination; Termination Fees........................................... 13
Interests of Certain Persons in the Merger.............................. 14
Effective Time of the Merger............................................ 15
Material Federal Income Tax Consequences to Certain Shareholders........ 15
Accounting Treatment.................................................... 15
Comparative Rights of Shareholders of Industries and Bay State.......... 15
Operation of Bay State after the Merger................................. 15
Market Prices and Dividends............................................. 16
Selected Financial Data................................................. 17
Historical and Pro Forma Comparative Per Share Data..................... 17
THE SPECIAL MEETING....................................................... 19
General................................................................. 19
Matters to be Considered................................................ 19
Record Date; Quorum; Voting Rights...................................... 19
Proxies; Revocation of Proxies; Solicitation of Proxies................. 19
THE COMPANIES............................................................. 21
Industries.............................................................. 21
Bay State............................................................... 22
THE MERGER................................................................ 23
Overview of the Merger.................................................. 23
Background of the Merger................................................ 23
Bay State's Reasons for the Merger and Recommendation of the Bay State
Board.................................................................. 25
Opinion of Financial Advisor to Bay State............................... 26
Industries' Reasons for the Merger...................................... 30
Cash Elections; Allocation and Proration................................ 31
Cash Election Procedure................................................. 32
No Dissenters' Rights................................................... 32
Exchange of Stock Certificates.......................................... 33
No Fractional Shares.................................................... 33
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Bay State Dividends Prior to the Effective Time of the Merger............ 33
Impact of Stock Splits, Etc. ............................................ 33
Regulatory Matters....................................................... 34
Stock Exchange Listings.................................................. 35
Representations and Warranties in the Merger Agreement................... 35
Conduct of Business Pending the Merger................................... 36
Conditions to the Merger................................................. 36
Other Acquisition Proposals.............................................. 37
Termination; Termination Fees............................................ 37
Expenses................................................................. 38
Amendment, Extension and Waiver.......................................... 38
Treatment of Bay State Options and Certain Contracts..................... 39
Interests of Certain Persons in the Merger............................... 39
Portland Natural Gas Transmission System................................. 43
Effective Time of the Merger............................................. 44
Operation of Bay State after the Merger.................................. 44
Material Federal Income Tax Consequences to Certain Shareholders......... 44
Accounting Treatment..................................................... 47
Resales of Industries Shares Issued in the Merger; Affiliates............ 47
DESCRIPTION OF INDUSTRIES CAPITAL STOCK.................................... 47
General.................................................................. 47
Industries Common Stock.................................................. 48
COMPARATIVE SHAREHOLDER RIGHTS............................................. 48
Common and Preferred Shares.............................................. 48
General Voting Rights.................................................... 49
Certain Business Combinations and Share Purchases........................ 49
Dividends and Repurchase of Stock........................................ 51
Board of Directors....................................................... 52
Special Meetings of Shareholders......................................... 53
Action by Written Consent................................................ 53
Dissenters' or Appraisal Rights.......................................... 53
Inspection Rights........................................................ 53
Shareholder Proposals.................................................... 54
Amendment of Articles.................................................... 54
Amendment of By-Laws..................................................... 55
Share Purchase Rights Plans.............................................. 55
Indemnification of Directors............................................. 56
LEGAL OPINION.............................................................. 56
EXPERTS.................................................................... 57
BAY STATE SHAREHOLDER PROPOSALS............................................ 57
</TABLE>
ANNEXES
ANNEX A: Agreement and Plan of Merger dated as of December 18, 1997, by and
between NIPSCO Industries, Inc. and Bay State Gas Company, as
amended and restated as of March 4, 1998
ANNEX B: Opinion of SG Barr Devlin
5
<PAGE>
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. Bay State
Shareholders are urged to read this Proxy Statement/Prospectus in its entirety.
Certain capitalized terms used in this summary are defined elsewhere in this
Proxy Statement/Prospectus.
THE COMPANIES
Bay State Gas Company. Bay State is primarily a gas distribution utility that
provides local gas sales and transportation service in the greater Brockton,
Lawrence and Springfield, Massachusetts areas and, through Northern Utilities,
Inc. ("Northern"), a wholly owned subsidiary, in the Portland and Lewiston
areas of Maine and the Portsmouth area of New Hampshire. Bay State also offers
additional energy products and services to its customers and invests in energy
ventures. See "THE COMPANIES--Bay State."
The principal executive offices of Bay State are located at 300 Friberg
Parkway, Westborough, Massachusetts 01581-5039, and its telephone number is
(508) 836-7000.
NIPSCO Industries, Inc. Industries is an energy/utility based holding company
that provides electric energy, natural gas and water for residential,
commercial and industrial uses in Indiana through its six wholly owned
regulated companies: Northern Indiana Public Service Company ("Northern
Indiana"), Kokomo Gas and Fuel Company ("Kokomo Gas"), Northern Indiana Fuel
and Light Company, Inc. ("NIFL"), Crossroads Pipeline Company ("Crossroads"),
Indianapolis Water Company and Harbour Water Corporation. Industries' non-
utility subsidiaries include IWC Resources Corporation ("IWCR"), NIPSCO
Development Company, Inc. ("Development"), NI Energy Services, Inc.
("Services"), Primary Energy, Inc. ("Primary") and NIPSCO Capital Markets, Inc.
("Capital Markets"), some of which invest in energy ventures and provide
energy-related services. See "THE COMPANIES--Industries."
The principal executive offices of Industries are located at 801 East 86th
Avenue, Merrillville, Indiana 46410, and its telephone number is (219) 853-
5200.
THE SPECIAL MEETING
Matters to be Considered. A Special Meeting of Bay State Shareholders (the
"Special Meeting") has been called to consider and vote upon approval of the
Merger Agreement and the transactions contemplated thereby and to transact such
other business as may properly come before the Special Meeting. See "THE
SPECIAL MEETING."
Date, Time and Place of Meeting; Record Date. The Special Meeting is
scheduled to be held on May 27, 1998, at 10:30 a.m., local time, at the office
of Bay State, 300 Friberg Parkway, Westborough, Massachusetts. The Board of
Directors of Bay State (the "Bay State Board") has fixed the close of business
on April 24, 1998 as the record date (the "Record Date") for the determination
of the holders ("Bay State Shareholders") of shares of common stock of Bay
State, par value $3.33 1/3 ("Bay State Shares"), entitled to notice of and to
vote at the Special Meeting. See "THE SPECIAL MEETING."
Quorum; Required Vote. A majority of outstanding Bay State Shares entitled to
vote, represented in person or by proxy, is required to constitute a quorum for
consideration of business at the Special Meeting. If a quorum is present, the
affirmative vote of the holders of two-thirds of the outstanding Bay State
Shares is required for the approval of the Merger Agreement and the
transactions contemplated thereby. In determining whether the requisite number
of affirmative votes have been cast on such proposal, abstentions and broker
non-votes will have the same effect as votes cast against the proposal. Each
Bay State Share entitles the holder thereof on the Record Date to one vote on
each matter to be considered at the Special Meeting. The Cumulative Preferred
6
<PAGE>
Stock, $50 par value, and the Cumulative Preferred Stock, $100 par value, of
Bay State (together, the "Bay State Preferred Shares"), were redeemed effective
March 1, 1998, and therefore have no voting rights with respect to the Merger
Agreement or the transactions contemplated thereby.
On April 17, 1998, 13,525,014 Bay State Shares were outstanding and entitled
to vote. Directors, executive officers and affiliates of Bay State beneficially
owned approximately 823,955 Bay State Shares as of April 17, 1998,
approximately 5.96% of the Bay State Shares outstanding on such date. It is
currently expected that each such director and executive officer of Bay State
will vote the Bay State Shares owned beneficially by him or her for approval of
the Merger Agreement and the transactions contemplated thereby. See "THE
SPECIAL MEETING--Record Date; Quorum; Voting Rights."
REVOCATION OF PROXIES
A Bay State Shareholder who has executed and returned a proxy may revoke it
at any time before it is exercised at the Special Meeting. See "THE SPECIAL
MEETING--Proxies; Revocation of Proxies; Solicitation of Proxies."
OPINION OF FINANCIAL ADVISOR TO BAY STATE
On December 17, 1997, SG Barr Devlin, formerly Barr Devlin & Co. Incorporated
("Barr Devlin"), delivered its oral opinion to the Bay State Board, which was
confirmed in written opinions, dated December 18, 1997 and April 22, 1998, each
to the effect that, as of such date and based upon and subject to the factors
and assumptions set forth in Barr Devlin's opinion attached hereto as Annex B,
the Consideration (as defined in Annex B) to be received by Bay State
Shareholders pursuant to the Merger Agreement is fair to the Bay State
Shareholders from a financial point of view. See "THE MERGER--Opinion of Barr
Devlin."
The full text of the written opinion of Barr Devlin, dated April 22, 1998,
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. BAY
STATE SHAREHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
THE MERGER
Background of the Merger. For a description of the background of the Merger,
see "THE MERGER--Background of the Merger."
Bay State's Reasons for the Merger and Recommendation of the Bay State
Board. The Bay State Board believes that the Merger offers significant
strategic benefits to Bay State and its shareholders, customers and employees
and the communities in which it does business by creating a stronger company
that has greater financial flexibility and leverage to take advantage of future
strategic opportunities, that can offer customers more comprehensive customer
services than Bay State alone could provide and that can provide growth
opportunities for employees while gaining access to the resources and the
expertise of Industries' management. In addition to the value to be paid to all
Bay State Shareholders, which represents a premium from the trading price of
Bay State Shares prior to announcement of the Merger, Bay State Shareholders
who elect to receive Industries Shares in the Merger will hold securities that
historically have been more widely held and actively traded than Bay State
Shares and thus should benefit from increased liquidity in their security
holdings. Bay State Shareholders who elect to receive Industries Shares in the
Merger should also benefit from participation in the continued growth of Bay
State and Industries and their combined utility and non-utility operations as
enhanced by the Merger. See "THE MERGER--Bay State's Reasons for the Merger and
Recommendation of the Bay State Board."
The Bay State Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby after considering a number of factors that
are described under the heading "THE MERGER--Bay State's Reasons for the Merger
and Recommendation of the Bay State Board." The Bay State Board believes
7
<PAGE>
that approval of the Merger Agreement and the transactions contemplated thereby
is in the best interests of Bay State and the Bay State Shareholders and
unanimously recommends that such holders vote FOR the approval thereof. See
"THE MERGER--Bay State's Reasons for the Merger and Recommendation of the Bay
State Board." In considering the recommendation of the Bay State Board, Bay
State Shareholders should be aware that certain officers and directors of Bay
State have certain interests with respect to the Merger apart from their
interests as Bay State Shareholders. See "THE MERGER--Interests of Certain
Persons in the Merger."
THE BAY STATE BOARD UNANIMOUSLY RECOMMENDS THAT BAY STATE SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Preferred Merger. The Merger Agreement provides that, subject to the
approval of the Bay State Shareholders, approval of the SEC under the Public
Utility Holding Company Act of 1935, as amended (the "1935 Act"), or the repeal
or amendment of the 1935 Act in a manner that would permit the timely
completion of the Preferred Merger, and subject to satisfaction or waiver of
certain other conditions, Bay State will be merged with and into Acquisition,
which will be the surviving corporation (the "Surviving Corporation") and will
be a wholly owned subsidiary of Industries. The Surviving Corporation will
continue to conduct Bay State's gas utility business under the name "Bay State
Gas Company." See "THE MERGER--Overview of the Merger" and "THE MERGER--
Regulatory Matters."
The Alternative Merger. In the event that it is not possible to accomplish
the Preferred Merger, the Merger Agreement provides for the Alternative Merger,
by which Bay State will be merged into Northern Indiana, followed immediately
by the merger of Bay State's wholly owned subsidiary, Northern, into Northern
Indiana, provided that the Alternative Merger is permissible under the laws
applicable to Bay State, Northern and Industries and provided that certain
other conditions to the Alternative Merger have been satisfied. In general,
either the Preferred Merger or the Alternative Merger must be legally
permissible by December 31, 1998 (or must be likely by such date to become
legally permissible by June 30, 1999), or either party may terminate the Merger
Agreement after December 31, 1998 without the payment of termination fees to
the other. The Preferred Merger is the preferred structure of the transaction,
and the Alternative Merger exists as an option. Bay State Shareholders would
receive the same consideration, per share, whether the Preferred Merger or
Alternative Merger is effected. See "THE MERGER--Overview of the Merger" and
"THE MERGER--Regulatory Matters."
At the time the Articles of Merger are filed with the Secretary of the
Commonwealth of Massachusetts to effect the Preferred Merger or at the time the
Articles of Merger are also filed with the Secretary of State of any other
jurisdiction as may be required to effect the Alternative Merger, as the case
may be (either, the "Effective Time"), each outstanding Bay State Share will be
converted into (i) a multiple (rounded to the nearest ten-thousandth of a
share) of an Industries Share determined by dividing $40.00 by the Industries
Share Price (the "Exchange Ratio") or, (ii) at the election of the holder
subject to certain limitations described below, the right to receive $40.00 in
cash, without interest. The "Industries Share Price" means the average of the
closing prices of the Industries Shares, as reported in The Wall Street
Journal's NYSE Composite Transactions Report, for the 20 trading days
immediately preceding the second trading day prior to the Effective Time.
Cash Elections; Allocation and Proration. Each record holder of Bay State
Shares may elect to receive $40.00 in cash per share for all or any portion of
such holder's Bay State Shares (a "Cash Election"). However, the aggregate
number of Bay State Shares that will be converted into the right to receive
$40.00 in cash in the Merger (the "Cash Election Maximum") may not exceed an
amount determined by dividing (A) the dollar number equal to the difference
between (i) one-half the product of (x) $40.00 multiplied by (y) the aggregate
number of Bay State Shares outstanding at 5:00 p.m. New York City time on the
second day prior to the Effective Time less (ii) the dollar amount of the
Special Dividend (as defined in "THE MERGER--Bay State Dividends Prior to the
Effective Time of the Merger"), if any, paid by Bay State and such other dollar
amounts as may be reasonably determined by the respective counsel to Bay State
and Industries to enable the Merger to qualify as a tax-free reorganization, by
(B) $40.00. If the aggregate number of Bay State Shares covered by valid Cash
8
<PAGE>
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) $40.00 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 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 may be subject to further
adjustment to achieve the desired tax treatment for the Merger as discussed
under "THE MERGER--Cash Elections; Allocation and Proration" and "THE MERGER--
Material Federal Income Tax Consequences to Certain Shareholders." For the tax
consequences of a Cash Election, see "THE MERGER--Material Federal Income Tax
Consequences to Certain Shareholders."
Promptly after the Effective Time, Harris Trust and Savings Bank, or such
other nominee as Industries shall appoint as its transfer agent and registrar
(the "Paying 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 Shares
as described above. AS A RESULT OF ANY SUCH PRORATION, A BAY STATE SHAREHOLDER
MAKING A CASH ELECTION MAY NOT RECEIVE CASH FOR ALL OF THE BAY STATE SHARES
SUCH BAY STATE SHAREHOLDER HAS ELECTED TO RECEIVE CASH BUT MAY RECEIVE CASH AND
INDUSTRIES SHARES. A BAY STATE SHAREHOLDER MAKING A CASH ELECTION WILL NOT BE
ABLE TO ALTER ANY SUCH PRORATION.
For example, if the Effective Time had occurred on April 17, 1998, the
maximum number of Bay State Shares that could have been converted entirely into
cash would have been 6,762,507 (50% of the total number of outstanding Bay
State Shares). The maximum number of shares that actually may be converted
entirely into cash at the Effective Time will depend on the number of Bay State
Shares outstanding and eligible to be converted in the Merger, any amount paid
prior to the Effective Time by Bay State as a Special Dividend (as defined in
"THE MERGER--Bay State Dividends Prior to the Effective Time of the Merger"),
any amount of cash paid by Bay State for its capital stock or options on its
capital stock in connection with the Merger and any other amount which, based
on the advice of tax counsel, must be subtracted from the amount of cash
payable to Bay State Shareholders in the Merger consistent with the proposed
tax treatment thereof. See "THE MERGER --Cash Elections; Allocation and
Proration."
Cash Election Procedure. A Bay State Shareholder who wishes to receive cash
instead of Industries Shares for all or any portion of such holder's Bay State
Shares may make a Cash Election by completing the Form of Election and
returning it to the Paying Agent so that it is received no later than 5:00
p.m., New York City time, on the fourth business day before the Effective Time
(the "Election Deadline"). The failure of a Bay State Shareholder 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 be treated as being an improper Cash Election and will result in
all of such holder's Bay State Shares being automatically converted into
Industries Shares pursuant to the Merger Agreement. Industries and Bay State
will use their best efforts to cause the Form of Election to be mailed
approximately one month prior to the Effective Time to all persons who are
record holders of Bay State Shares and shall thereafter make the Form of
Election available to all persons who become record holders of Bay State Shares
for the period subsequent to the date on which the Form of Election was mailed
and prior to the seventh business day prior to the Election Deadline. See "THE
MERGER--Cash Election Procedure."
No Fractional Shares. No fractional Industries Shares will be issued pursuant
to the Merger. Bay State Shareholders will receive cash in lieu of any
fractional shares resulting from the conversion of Bay State Shares into
Industries Shares based on the Industries Share Price. See "THE MERGER--No
Fractional Shares."
The following diagrams show the organizational structure of Industries and
its material subsidiaries and Bay State and its material subsidiaries as of the
date hereof and as anticipated at the Effective Time of the Preferred Merger
and the Alternative Merger, respectively.
9
<PAGE>
[Flow Chart Illustrating Pre-Merger Industries Structure appears here.]
- --------------------------------------------------------------------------------
[Flow Chart Illustrating Pre-Merger Bay State Structure appears here.]
10
<PAGE>
[Flow Chart Illustrating Post-Preferred Merger Structure appears here.]
------------------------------------------------------------
[Flow Chart Illustrating Post-Alternative Merger Structure appears here.]
11
<PAGE>
NO DISSENTERS' RIGHTS
Bay State Shareholders do not have dissenters' rights with respect to the
Merger. See "THE MERGER--No Dissenters' Rights."
BAY STATE DIVIDENDS PRIOR TO THE EFFECTIVE TIME OF THE MERGER
Bay State will be entitled to declare and pay regular quarterly dividends,
which may be increased at the rate consistent with Bay State's past practice
until the Effective Time. In addition to these quarterly dividends, in the
event the Effective Time has not occurred on or before December 17, 1998, Bay
State will be entitled to declare a Special Dividend to be paid at or
immediately prior to the Effective Time. The amount of the Special Dividend
will be based on, among other things, the period of time beginning with
December 17, 1998 and ending on the date of the Effective Time. See "THE
MERGER--Bay State Dividends Prior to the Effective Time of the Merger."
REGULATORY MATTERS
Consummation of the Preferred Merger is subject to the notification and
reporting provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), the approval of the SEC under the 1935 Act and certain
regulatory approvals or filings with the Massachusetts Department of
Telecommunications and Energy ("MDTE"), the New Hampshire Public Utilities
Commission ("NHPUC"), the Maine Public Utilities Commission ("MPUC") and, if
required, the Federal Energy Regulatory Commission ("FERC"). See "THE MERGER--
Regulatory Matters."
If the Alternative Merger is effected instead of the Preferred Merger,
consummation of the Alternative Merger will be subject to the notification and
reporting requirements of the HSR Act, certain regulatory approvals or filings
with MDTE, NHPUC and MPUC, and the passage of legislation in New Hampshire
authorizing transactions of this type. FERC approval may also be required. See
"THE MERGER--Regulatory Matters."
CONDUCT OF BUSINESS PENDING THE MERGER
Bay State and Industries have each agreed to, and will cause their respective
subsidiaries to, undertake or refrain from undertaking certain actions pending
the Merger. In addition, Bay State has agreed to cooperate and coordinate
certain actions with Industries. For a summary of the terms of the Merger
Agreement with respect to the conduct of the business of Bay State and
Industries pending the Merger, see "THE MERGER--Conduct of Business Pending the
Merger."
CONDITIONS TO THE MERGER
The obligations of Industries and Bay State 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 Bay State Shareholders; (ii) receipt of all required
governmental and regulatory consents and approvals; (iii) the expiration or
termination of the applicable waiting period under the HSR Act; (iv) the
absence of any order or injunction that would restrain, enjoin or prohibit the
consummation of the Merger; (v) the approval of the listing on the NYSE of the
Industries Shares issuable in the Merger upon official notice; (vi) the
effectiveness of the Registration Statement; (vii) the material accuracy of the
representations and warranties of the respective parties as set forth in the
Merger Agreement; (viii) the performance of all material obligations of the
respective parties that are required to be performed under the Merger
Agreement; (ix) receipt by each of Industries and Bay State of tax opinions
from their respective tax counsel; and (x) the redemption of Bay State's common
share purchase rights. See "THE MERGER--Conditions to the Merger."
OTHER ACQUISITION PROPOSALS
In the Merger Agreement, Bay State 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
12
<PAGE>
reasonably expected to lead to, any bona fide proposal with respect to a
merger, consolidation, share exchange or similar transaction involving Bay
State or any of its subsidiaries, any purchase of all or any substantial
portion of the assets or shares of Bay State or any of its subsidiaries or any
other business combination involving Bay State or any of its subsidiaries (an
"Acquisition Proposal"). However, the Merger Agreement does not prohibit Bay
State 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 Bay State Board makes a good faith
determination based upon the advice of outside counsel that failure to take
such action could reasonably be expected to result in a breach of its fiduciary
duties to shareholders under applicable law, (ii) Bay State provides reasonable
notice to Industries that it is taking such action and (iii) such person or
entity enters into a confidentiality agreement with Bay State as provided in
the Merger Agreement. See "THE MERGER--Other Acquisition Proposals."
TERMINATION; TERMINATION FEES
The Merger Agreement may be terminated at any time prior to the Effective
Time (i) by the mutual written consent of Bay State and Industries or (ii) by
either party upon written notice if (a) the Bay State Shareholders fail to
approve the Merger Agreement, (b) the Merger is not completed by December 31,
1998 (however, this termination date will be extended to June 30, 1999 under
certain conditions described under "THE MERGER--Termination; Termination
Fees"), (c) the Merger is permanently enjoined by an order, decree or ruling or
other act of any governmental agency or regulatory body, court, agency,
commission, division, department, public body or other authority (a
"Governmental Entity"), (d) on or after December 31, 1998, if, by such date,
none of the following conditions has occurred: the Alternative Merger has
become legally possible, the SEC has approved (or the SEC staff has recommended
that the SEC approve) the Preferred Merger or under the 1935 Act, SEC approval
of the Preferred Merger is no longer required, (e) the Bay State Board
concludes that failure to withdraw or modify its approval of the Merger
Agreement or the Merger or to pursue an Acquisition Proposal could reasonably
be expected to result in a breach of its fiduciary duties to shareholders under
applicable law or (f) 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
either Industries or Bay State as a result of a material breach by the other of
any representation, warranty or obligation thereunder, the breaching party will
pay costs and expenses up to $10,000,000 to the non-breaching party as
liquidated damages within 60 days of such termination. The Merger Agreement
further provides that, if the Merger Agreement is terminated by Industries or
Bay State because the Bay State Board concludes that failure to modify or
withdraw its approval or recommendation of the Merger Agreement or the Merger,
to approve or recommend an unsolicited Acquisition Proposal or to enter into an
agreement with respect to such Acquisition Proposal could reasonably be
expected to result in a breach of its fiduciary duties to shareholders under
applicable law and at the time of such termination, there shall have been made
an Acquisition Proposal, Bay State will pay Industries $10,000,000 as
liquidated damages within 30 days of the date of such termination and will pay
Industries an additional $15,000,000 as liquidated damages upon the
consummation of the transactions contemplated by such Acquisition Proposal (or
an Acquisition Proposal accepted in lieu thereof) if such consummation occurs
within two and one-half years of the termination of the Merger Agreement. The
Merger Agreement also provides that, if the Merger Agreement is terminated by
Industries following a failure to hold the Special Meeting or to obtain the
vote required for approval of the Merger Agreement or following a material
breach by Bay State of its covenants, representations or warranties and at the
time of any such termination an Acquisition Proposal shall have been made, Bay
State will pay Industries $10,000,000 within 30 days of the Merger Agreement's
termination. If Bay State has made the payment specified in the immediately
preceding sentence and within two and one-half years consummates a transaction
contemplated by such Acquisition Proposal (or an Acquisition Proposal accepted
in lieu thereof), Bay State will pay Industries an additional $15,000,000 upon
such consummation. See "THE MERGER--Termination; Termination Fees."
13
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the management of Bay State and the Bay State Board who
have interests in the Merger in addition to their interests as Bay State
Shareholders participated in the negotiation of the terms of the Merger
Agreement. The Bay State Board considered these interests in reaching its
conclusion that the Merger Agreement and the transactions contemplated thereby
are fair to and in the best interests of Bay State and its shareholders,
customers and employees and the communities which it serves.
Bay State Directors and Officers. In the event the Preferred Merger occurs,
the Board of Directors of the Surviving Corporation (the "Surviving Corporation
Board") shall consist of 10 directors, consisting of three officers of
Industries, three officers of Bay State and four of Bay State's current outside
directors, and the officers of the Surviving Corporation shall consist of the
officers of Bay State at the Effective Time. In the event the Alternative
Merger occurs, Bay State will operate as a division of Northern Indiana, and
the officers of Bay State in place immediately prior to the Effective Time will
manage the division. The officers managing the operations of Bay State will be
the same whether the Preferred Merger or the Alternative Merger is effected.
See "THE MERGER--Interests of Certain Persons in the Merger--Bay State
Directors and Officers."
Election to Industries' Board of Directors. The Merger Agreement provides
that Industries will take such action as may be necessary to cause the number
of directors comprising the Industries Board of Directors ("Industries' Board")
at the Effective Time to be sufficient to permit the appointment of one
director of Bay State to be mutually determined by Industries and Bay State to
serve as a director of Industries. See "THE MERGER--Interests of Certain
Persons in the Merger--Election to Industries' Board."
Bay State Severance Agreements. Bay State has entered into severance
agreements with 16 officers and senior managers of Bay State, including Roger
A. Young, Joel L. Singer, Thomas W. Sherman, William L. Glascock and James D.
Simpson, which will become operative upon the occurrence of certain events. See
"THE MERGER--Interests of Certain Persons in the Merger--Bay State Severance
Agreements."
Employment and Noncompetition Agreements. Industries has entered into letter
agreements with each of Roger A. Young and Thomas W. Sherman to terminate their
severance agreements with Bay State and to enter into employment and
noncompetition agreements with, in the case of the Preferred Merger, the
Surviving Corporation, and in the case of the Alternative Merger, Northern
Indiana upon completion of the Merger. See "THE MERGER--Interests of Certain
Persons in the Merger--Employment and Noncompetition Agreements."
Bay State Stock Accumulation Plan for Outside Directors. Certain shares of
common stock of Bay State granted to non-employee directors of Bay State who
participate in the Stock Accumulation Plan will vest and become payable
pursuant to the terms of the Stock Accumulation Plan upon the occurrence of
certain events. See "THE MERGER--Interests of Certain Persons in the Merger--
Bay State Stock Accumulation Plan for Outside Directors."
1997 Bay State Stock Performance Sharing Plan. Certain "performance shares"
granted pursuant to the 1997 Bay State Stock Performance Sharing Plan, and/or
its predecessor, the Bay State Key Employee Long-Term Incentive Plan, will vest
and become payable upon the occurrence of certain events. See "THE MERGER--
Interests of Certain Persons in the Merger--1997 Bay State Stock Performance
Sharing Plan."
Director and Officer Indemnification and Insurance. Pursuant to the Merger
Agreement, Industries has agreed that, from and after the Effective Time, the
Surviving Corporation will indemnify and hold harmless each person eligible for
indemnification by Bay State or its subsidiaries (as determined by Bay State's
or its applicable subsidiary's organizational documents), including the Bay
State Board members, against any costs or expenses or other liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, to the fullest extent that Bay State or such
subsidiary is permitted under applicable law or its organizational documents.
In addition, the Merger Agreement provides that Industries will cause to be
maintained Bay State's existing officers' and directors' liability insurance
coverage ("D&O Insurance") for a period of six years after the
14
<PAGE>
Effective Time for all persons who are covered persons under Bay State's D&O
Insurance, so long as the annual premium therefor does not exceed 200% of the
last annual premium paid prior to the date of the Merger Agreement (the
"Current Premium"); provided, however, that if the existing D&O Insurance
expires, is terminated or canceled during such six-year period, Industries will
use all reasonable efforts to obtain as much D&O Insurance as can be obtained
for the remainder of such period for a premium not in excess (on an annualized
basis) of 200% of the Current Premium. See "THE MERGER--Interests of Certain
Persons in the Merger--Director and Officer Indemnification and Insurance."
EFFECTIVE TIME OF THE MERGER
The Effective Time will occur at the time Articles of Merger are filed with
the Secretary of the Commonwealth of Massachusetts or, with respect to the
Alternative Merger only, when Articles of Merger are also filed with the
Secretary of State of any other jurisdiction as may be required or, in either
case, at such later date as provided in the Articles of Merger. Such filing or
filings, as the case may be, 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."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO CERTAIN SHAREHOLDERS
The Merger will qualify as a tax-free reorganization for federal income tax
purposes within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). No gain or loss will be recognized by Industries
or Bay State, and no gain or loss will be recognized by any Bay State
Shareholder 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 Bay State to the effect that
the Merger will constitute a tax-free reorganization. See "THE MERGER--Material
Federal Income Tax Consequences to Certain Shareholders."
EACH BAY STATE SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER,
INCLUDING THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
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 BAY STATE
Industries is incorporated under the laws of Indiana. Bay State is
incorporated under the laws of Massachusetts. Bay State 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."
OPERATION OF BAY STATE AFTER THE MERGER
After the Effective Time, if the Preferred Merger has been effected, the
Surviving Corporation will change its name to "Bay State Gas Company," remain a
wholly owned subsidiary of Industries and conduct Bay State's gas utility
business, subject to regulation to the same extent Bay State's gas utility
business is now regulated by applicable regulatory agencies. Bay State's
subsidiaries will continue to be legally separate corporations, and Bay State's
regulated subsidiaries will continue to be fully subject to regulation to the
extent now regulated by applicable regulatory agencies. The Surviving
Corporation will maintain corporate offices in Westborough, Massachusetts.
After the Effective Time, Bay State's current subsidiaries may remain as
subsidiaries of the Surviving Corporation or may become direct subsidiaries of
Industries or of another Industries subsidiary. If the Alternative Merger is
effected, Bay State and Northern will have been merged into Northern Indiana,
which will remain a wholly owned subsidiary of Industries. See "THE MERGER--
Operation of Bay State after the Merger."
15
<PAGE>
MARKET PRICES AND DIVIDENDS
Industries. Industries Shares are listed and traded on the NYSE, the PSE and
the CSE. On December 16, 1997, Industries' Board declared a cash dividend of
$0.48 per share (on a pre-split basis) on the Industries Shares and thereafter,
authorized a two-for-one stock split of Industries Shares. The cash and stock
dividend was paid on February 20, 1998 to holders of record of Industries
Shares on January 30, 1998. All references in this Proxy Statement/Prospectus
to the number of Industries Shares, including per share amounts and market
prices, have been adjusted for the stock split unless otherwise indicated. The
table below indicates the high and low sales prices of Industries Shares, as
reported in The Wall Street Journal's NYSE Composite Transactions Report, and
the dividends declared per share, during the periods indicated.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW DECLARED
--------- --------- --------
<S> <C> <C> <C>
1996
First Quarter................................. $19 9/16 $18 $0.210
Second Quarter................................ 20 1/8 17 5/8 0.210
Third Quarter................................. 20 1/16 18 1/16 0.210
Fourth Quarter................................ 19 15/16 17 15/16 0.225
1997
First Quarter................................. 20 1/8 19 0.225
Second Quarter................................ 21 1/16 19 7/16 0.225
Third Quarter................................. 21 9/32 20 11/32 0.225
Fourth Quarter................................ 24 15/16 21 1/16 0.240
1998
First Quarter................................. 28 1/2 24 11/16 0.240
Second Quarter (through April 17, 1998)....... 28 1/4 26 5/8 --
</TABLE>
On December 17, 1997, the last full trading day prior to the public
announcement of execution of the Merger Agreement, the closing sale price for
Industries Shares, as reported in The Wall Street Journal's NYSE Composite
Transactions Report, was $47 5/16 (on a pre-split basis). On April 17, 1998,
the last full trading day for which information was available prior to the
printing of this Proxy Statement/Prospectus, the closing sale price for
Industries Shares, as reported in The Wall Street Journal's NYSE Composite
Transactions Report, was $27 1/8.
Bay State. Bay State Shares are listed on the NYSE and the BSE. The table
below indicates the high and low sales prices of Bay State Shares, as reported
in The Wall Street Journal's NYSE Composite Transactions Report, and the
dividends declared per share, during the periods indicated.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW DECLARED
------- --------- --------
<S> <C> <C> <C>
1996
First Quarter................................... $29 7/8 $26 1/2 $0.375
Second Quarter.................................. 28 3/4 26 1/8 0.385
Third Quarter................................... 28 7/8 25 3/8 0.385
Fourth Quarter.................................. 30 5/8 26 3/4 0.385
1997
First Quarter................................... 28 1/4 25 1/8 0.385
Second Quarter.................................. 27 5/8 25 3/8 0.395
Third Quarter................................... 30 3/8 26 1/4 0.395
Fourth Quarter.................................. 37 1/2 28 1/16 0.395
1998
First Quarter................................... 38 1/8 36 15/16 0.395
Second Quarter (through April 17, 1998)......... 38 1/8 37 9/16 --
</TABLE>
16
<PAGE>
On December 17, 1997, the last full trading day prior to the public
announcement of execution of the Merger Agreement, the closing sale price for
Bay State Shares, as reported in The Wall Street Journal's NYSE Composite
Transactions Report, was $31 5/8. On April 17, 1998, the last full trading day
for which information was available prior to the printing of this Proxy
Statement/Prospectus, the closing sale price for Bay State Shares, as reported
in The Wall Street Journal's NYSE Composite Transactions Report, was $37 13/16.
The pro forma equivalent market value of a Bay State Share is equal to the
amount to be paid for each such share in the Merger and is thus equal to $40.00
per share. The market prices of Industries Shares and Bay State Shares are
subject to fluctuation. As a result, Bay State Shareholders are urged to obtain
current market quotations for Industries Shares and Bay State Shares.
SELECTED FINANCIAL DATA
The following tables present certain selected consolidated financial data for
Industries and Bay State on an historical basis. This summary has been derived
from, and should be read in conjunction with, the consolidated financial
statements of Industries and Bay State incorporated by reference in this Proxy
Statement/Prospectus.
Industries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues...... $2,586,541 $ 1,987,948 $ 1,769,308 $ 1,768,029 $ 1,737,259
Net income.............. 190,849 176,734 175,465 163,987 156,140
Basic earnings per
average common share... 1.54 1.44 1.36 1.24 1.15
Diluted earnings per
average common share... 1.53 1.43 1.35 1.23 1.15
Total assets(a)......... 4,937,033 4,288,883 3,999,520 3,947,138 3,912,324
Long-term obligations
and redeemable
preferred and
preference stock(a).... 1,726,766 1,188,352 1,274,379 1,281,395 1,295,962
Cash dividends declared
per common share....... 0.92 0.86 0.80 0.74 0.68
Book value per
share(a)............... 10.17 9.20 9.00 8.67 8.31
Bay State(b)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues...... $ 489,931 $ 433,103 $ 431,572 $ 443,249 $ 413,574
Net income.............. 24,577 25,897 27,029 23,164 21,269
Basic earnings per
average common share... 1.80 1.91 2.00 1.73 1.64
Diluted earnings per
average common share... 1.79 1.89 1.99 1.72 1.62
Total assets(a)......... 793,446 756,090 665,656 654,881 629,593
Long-term obligations
and redeemable
preferred and
preference stock(a).... 238,945 221,510 219,644 198,293 191,392
Cash dividends declared
per common share....... 1.57 1.53 1.49 1.45 1.41
Book value per
share(a)............... 17.84 17.58 17.16 16.65 16.15
</TABLE>
- --------
(a) At end of period.
(b) Unaudited.
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following summary presents selected unaudited comparative per share data
for Industries Shares and Bay State Shares on an historical basis and per share
data for Industries on a pro forma basis and for Bay State on a pro forma
equivalent basis assuming the Merger had been effective as of January 1, 1997.
The data presented should be read in conjunction with the historical
consolidated financial statements of Industries and Bay State, and the related
notes thereto, incorporated by reference in this Proxy Statement/Prospectus.
The
17
<PAGE>
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>
12 MONTHS ENDED
DECEMBER 31, 1997
--------------------------------
HISTORICAL PRO FORMA(1)(2)(4)(5)
---------- ---------------------
<S> <C> <C>
Industries
Book value per share......................... $10.17 $11.52
Cash dividends declared per common share..... 0.915 0.915
Basic earnings per average common share...... 1.54 1.43
Diluted earnings per average common share.... 1.53 1.43
Dividend payout ratio........................ 58% 64%
<CAPTION>
12 MONTHS ENDED
DECEMBER 31, 1997
--------------------------------
PRO FORMA
HISTORICAL EQUIVALENT(3)(4)
---------- ---------------------
<S> <C> <C>
Bay State
Book value per share......................... $17.84 $16.83
Cash dividends declared per common share..... 1.57 1.34
Basic earnings per average common share...... 1.80 2.09
Diluted earnings per average common share.... 1.79 2.09
</TABLE>
- --------
(1) The pro forma per share data for Industries were prepared based on the
assumptions that the purchase price is $551 million, that the Industries
Share Price is $27.38, and that the consideration paid by Industries in the
Merger will be comprised 50% of Industries Shares and 50% of cash and
further assumes that holders of Bay State employee stock options will have
their options replaced with options to acquire Industries Shares. For
purposes of computing unaudited per share data for Industries on a pro
forma basis, the purchase price in excess of the fair value of the net
assets of Bay State was allocated to utility plant in service of Bay State
and Northern and to goodwill for all other Bay State 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 50% of Industries Shares and 50% of
cash, and further assumes that holders of Bay State employee stock options
will have their options replaced with options to acquire Industries Shares.
Changing this assumption to contemplate that the purchase price will be
comprised 100% of Industries Shares would increase Industries' pro forma
book value per share amount by $1.09 and would not affect pro forma basic
and diluted earnings per average common share for the year ended December
31, 1997.
(3) The pro forma equivalent per share data for Bay State assume a ratio of
1.461 of an Industries Share for each Bay State Share converted into
Industries Shares, based upon an assumed Industries Share Price of $27.38.
No pro forma equivalent per share data is provided with respect to Bay
State 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 Bay State reflects amortization of the purchase price in
excess of the fair value of the net assets of Bay State increased by the
estimated liabilities of approximately $10.6 million to reflect payments to
be made to certain senior executives of Bay State pursuant to severance
agreements. See "THE MERGER--Interests of Certain Persons in the Merger."
Such amount was allocated to utility plant in service of Bay State and to
goodwill for all Bay State subsidiaries. Also included for Bay State are
adjustments to reflect the non-recurring profit from the sale of a
subsidiary and the one time charge for restructuring costs.
(5) The pro forma per share cash dividend paid is assumed to be $0.915. The pro
forma dividend payout ratio would be 64% if the purchase price is comprised
100% of Industries Shares.
18
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is first being mailed to Bay State
Shareholders on or about April 24, 1998 and is accompanied by the Notice of
Special Meeting and a form of proxy that is solicited by the Bay State Board
for use at the Special Meeting to be held on May 27, 1998, at 10:30 a.m.,
local time, at the office of Bay State, 300 Friberg Parkway, Westborough,
Massachusetts, and at any adjournments or postponements thereof.
MATTERS TO BE CONSIDERED
At the Special Meeting, Bay State Shareholders will be asked to consider and
vote upon proposals (i) to approve the Merger Agreement and the transactions
contemplated thereby and (ii) to transact such other business as may properly
come before the Special Meeting.
RECORD DATE; QUORUM; VOTING RIGHTS
The Bay State Board has fixed April 24, 1998 as the Record Date for
determination of Bay State Shareholders entitled to notice of and to vote at
the Special Meeting. Accordingly, only holders of record of Bay State Shares
at the close of business on that date will be entitled to notice of and to
vote at such Special Meeting. As of April 17, 1998, there were 13,525,014 Bay
State Shares issued and outstanding.
In order to establish a quorum for the Special Meeting, a majority of the
votes entitled to be cast must be represented in person or by a valid proxy.
Each Bay State Share entitled to vote at the Special Meeting entitles its
holder to one vote. The proposal to approve the Merger Agreement will require
for approval the affirmative vote of two-thirds of the outstanding Bay State
Shares. Any other matters will be determined by the affirmative vote of a
majority of the outstanding Bay State Shares entitled to vote.
Previously outstanding Bay State Preferred Shares will have no voting rights
with respect to the Merger Agreement or the transactions contemplated thereby.
On January 23, 1998, Bay State provided a notice of redemption to holders of
record of Bay State Preferred Shares, and effective March 1, 1998 all Bay
State Preferred Shares were redeemed and are no longer outstanding.
Directors, executive officers and affiliates of Bay State beneficially owned
approximately 823,955 Bay State Shares as of such date, approximately 5.96% of
the Bay State Shares outstanding on such date. It is currently expected that
each such director and executive officer of Bay State will vote the Bay State
Shares owned beneficially by him or her for approval of the Merger.
PROXIES; REVOCATION OF PROXIES; SOLICITATION OF PROXIES
The accompanying form of proxy may be used by a Bay State Shareholder
whether or not such holder attends the Special Meeting in person. The proxy
may be revoked by such holder at any time prior to its use at the Special
Meeting. There is no specific procedure or requirement under Bay State's
Articles of Organization or By-Laws or under Massachusetts law with respect to
the manner in which proxies may be revoked. All shares represented by valid
proxies received pursuant to this solicitation, and not revoked before such
proxies are exercised, will be voted in the manner specified therein. If no
voting directions are given, the proxies will be voted FOR the approval of the
Merger Agreement and the transactions contemplated thereby and, at the
discretion of the persons named in such proxies, on any other matter that may
properly come before the Special Meeting, including any adjournment or
adjournments thereof. Proxy cards that are not signed or that are not returned
are treated as not voted for any purpose. With respect to the proposal to
approve the Merger Agreement, abstentions and broker non-votes will have the
same effect as voting against the proposal. The Bay State Board is not
currently aware of any proposal that may properly come before the Special
Meeting other than those set forth in the Notice of Special Meeting.
19
<PAGE>
The entire cost of soliciting the proxies from Bay State Shareholders will
be borne by Bay State; provided, however, that Industries and Bay State have
each agreed to pay one-half of the printing, mailing and filing costs of this
Proxy Statement/Prospectus and related materials. In addition to the
solicitation of the proxies by mail, Bay State will request banks, brokers and
other record holders to send proxies and proxy material to the beneficial
owners of Bay State Shares and secure their voting instructions. Bay State
will reimburse such record holders for their reasonable expenses in so doing.
Bay State has also made arrangements with Innisfree M&A Incorporated to assist
it in soliciting proxies and has agreed to pay fees for such services not
expected to exceed $20,000 plus expenses. If necessary, Bay State may also use
several of its directors, officers and regular employees, who will not be
specially compensated, to solicit proxies from Bay State Shareholders either
personally or by telephone, telegram, facsimile, special delivery letter or by
other means.
The Special Meeting may be adjourned one or more times to another date
and/or place for any purpose (including, without limitation, for the purpose
of soliciting additional proxies).
20
<PAGE>
THE COMPANIES
INDUSTRIES
Industries is an Indiana corporation, incorporated on September 22, 1987,
which serves as an energy/utility based holding company providing electric
energy, natural gas and water for residential, commercial and industrial uses
in Indiana through its six wholly owned regulated subsidiaries: Northern
Indiana Public Service Company ("Northern Indiana"), Kokomo Gas and Fuel
Company ("Kokomo Gas"), Northern Indiana Fuel and Light Company, Inc.
("NIFL"), Crossroads Pipeline Company ("Crossroads"), Indianapolis Water
Company and Harbour Water Corporation. Industries' non-utility subsidiaries
include IWC Resources Corporation ("IWCR"), NIPSCO Development Company, Inc.
("Development"), NI 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 2,200,000. Northern Indiana serves approximately 662,500
customers with gas and approximately 416,300 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 33,500 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 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 33,400 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 FERC 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.
IWCR is a holding company which owns and operates seven subsidiaries,
including two regulated water utility companies, Indianapolis Water Company
and Harbour 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 over 300 square miles which includes
areas in Marion, Hancock, Hamilton, Hendricks, Boone and Morgan counties in
central Indiana. At December 31, 1997, the Water Companies were providing
service to approximately 246,600 customers.
In addition to the Water Companies, IWCR 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. IWCR, 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. IWCR, through IWC Services, is the majority (52%) partner in the
White River Environmental Partnership ("WREP"), which entered into a 10-year
contract, effective January 1998, to operate and maintain the two advanced
wastewater treatment facilities as well as the collection system for the City
of Indianapolis. WREP is actively seeking new markets and opportunities for
contract management services pursuant to expanded governmental privatization
efforts.
For more information about Industries, reference is made to Industries' most
recent financial report on Form 10-K, which is incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE."
21
<PAGE>
BAY STATE
Bay State was incorporated in 1974 as a Massachusetts corporation. Bay
State's predecessor companies' operations began in 1847. Consecutive quarterly
dividends have been paid by these entities or Bay State since 1853. Bay State
is primarily a gas distribution utility that provides local gas sales and
service in the greater Brockton, Lawrence, and Springfield, Massachusetts
areas. Bay State also offers additional energy products and services to its
customers and invests in energy ventures. For the fiscal year ended September
30, 1997, approximately 93% of all revenues are generated from providing local
transportation and natural gas sales with 82% of these annual revenues coming
from Bay State's Massachusetts service area. Bay State has seven principal
subsidiaries. Northern Utilities, Inc. ("Northern") is a gas distribution
utility operating in the Portland and Lewiston areas in Maine and the
Portsmouth area in New Hampshire. Granite State Gas Transmission, Inc.
("Granite") is an interstate gas transmission and supply company operating in
the states of Maine, New Hampshire, Massachusetts, and Vermont. Granite has
four wholly owned subsidiaries, Natural Gas Development Inc., a corporation
established to invest in the Portland Natural Gas Transmission System, a
proposed natural gas transmission pipeline in northern New England, Bay State
Energy Enterprises, Inc., which is currently inactive, EnergyUSA, Inc.
("EnergyUSA"), a corporation established to provide non-regulated energy
products and services, and EnergyEXPRESS, Inc., which markets non-regulated
commodities to commercial and residential customers. EnergyUSA itself has a
number of subsidiaries engaged in the provision of energy-related services.
Granite has caused LNG Development Corp. to be formed as a Massachusetts
corporation for the purpose of investing in the proposed liquefied natural gas
storage facility in Wells, Maine.
For more information about Bay State, reference is made to Bay State's most
recent Annual Report on Form 10-K, which is incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
22
<PAGE>
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 Preferred Merger. The Merger Agreement provides that, subject to the
approval of the Merger Agreement by the Bay State Shareholders, the approval
of the SEC and the satisfaction or waiver of certain other conditions, the
Preferred Merger will be effected and Bay State will be merged with and into
Acquisition, which will be the Surviving Corporation. The Surviving
Corporation will continue to conduct Bay State's gas utility business under
the name "Bay State Gas Company" as a wholly owned subsidiary of Industries.
No vote of Industries' shareholders is required in connection with the Merger
Agreement and the transactions contemplated thereby.
The Alternative Merger. If SEC approval of the Preferred Merger under the
1935 Act is not secured in a timely manner, Industries and Bay State have
agreed to pursue an alternative form of transaction, the Alternative Merger,
simultaneously with the Preferred Merger, provided that the Alternative Merger
is permissible under the laws applicable to Bay State, Northern and
Industries. In the Alternative Merger, which would not be subject to SEC
approval under the 1935 Act, Bay State would be merged into Northern Indiana
(Industries' largest utility subsidiary), followed immediately by the merger
of Northern (Bay State's wholly owned subsidiary) into Northern Indiana. Bay
State and Industries have agreed to seek the state corporate law and
regulatory consents, approvals and modifications required to accomplish the
Alternative Merger, and, in appropriate submissions to the various regulatory
bodies, to do so simultaneously with the effort to secure the consents and
approvals required for the Preferred Merger. The Merger Agreement provides
that in the event the Alternative Merger can be accomplished and the Preferred
Merger cannot be accomplished, appropriate technical amendments to the Merger
Agreement would be made. No such amendment, however, would reduce the value of
the consideration to be paid to Bay State Shareholders, which will remain the
same whether the Alternative Merger or the Preferred Merger is effected. No
vote of Industries' shareholders is required in connection with the Merger
Agreement and the transactions contemplated thereby.
Assuming other conditions are satisfied, Industries and Bay State have
agreed that they will use their best efforts to secure the consents and
approvals necessary to consummate the Merger through the period ending
June 30, 1999. From and after December 31, 1998, however, either party may
terminate the Merger Agreement without the payment of termination fees to the
other, if (a) the SEC has not approved the Preferred Merger under the 1935
Act, (b) the SEC staff has not recommended that the SEC approve the Preferred
Merger under the 1935 Act, and (c) the Alternative Merger is not legally
permitted.
At the Effective Time, each outstanding Bay State Share will be converted
into (i) a multiple (rounded to the nearest ten-thousandth of a share) of
Industries Shares pursuant to the Exchange Ratio or (ii) at the election of
the Bay State Shareholder, the right to receive $40.00 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) $40.00 by (ii) the Industries Share Price, which is
the average of the closing prices of the Industries Shares, as reported in The
Wall Street Journal's NYSE Composite Transactions Report, for the 20 trading
days immediately preceding the second trading day prior to the Effective Time.
BACKGROUND OF THE MERGER
Both Industries' and Bay State's managements have been continuously
monitoring the trend toward the growth of national energy service providers as
well as the consolidation and integration of the electric and gas utility
industries and analyzing how to best position their respective companies to
take advantage of these changes. Having successfully started implementation of
the collaborative restructuring and unbundling of gas
23
<PAGE>
utility operations at Bay State, in the fall of 1996, Bay State's management
retained the services of Barr Devlin to review the strategic options available
to Bay State given this restructuring, and recommend actions to enhance
shareholder value. Throughout the latter half of 1996 and early 1997, Bay
State's management, Barr Devlin and LeBoeuf, Lamb, Greene & MacRae, L.L.P.
("LeBoeuf"), Bay State's regular legal counsel, evaluated various strategic
alternatives for Bay State given the rapidly deregulating and consolidating
New England utility market in which Bay State operates and Bay State's desire
to remain competitive in this market. The strategic alternatives considered
included potential business combinations with companies both within and
outside the New England region as well as stand-alone strategies for Bay
State. As a result of this strategic review, Bay State concluded that its
competitive position in this market over the long term would be enhanced if it
were part of a larger utility system. The Bay State Board was kept informed of
these efforts and indicated support for management's continued evaluation of
strategic alternatives and preliminary discussions with other companies.
Although Bay State's management had discussions with companies other than
Industries, such discussions were terminated for various reasons, including
the length of time that would likely be involved before consummation of
certain prospective transactions, regulatory issues and the view of Bay
State's management that certain transactions would not have been sufficiently
advantageous to shareholders and other constituents of Bay State.
In the spring of 1997, at the request of Bay State's management, a
representative of Barr Devlin contacted Gary L. Neale, the Chief Executive
Officer of Industries, and suggested that Bay State would like to discuss the
potential strategic advantages to a business combination with Industries. Bay
State's management made this request based on its familiarity with Industries'
management through prior business relationships and industry associations, its
respect for the ability of Industries' management to develop a competitive
strategy for the future, the belief that Industries might be interested in
expanding its gas utility operations beyond the Midwest market and the belief
that a transaction with Industries could be beneficial to shareholders,
ratepayers and employees of Bay State. Following an initial indication of
interest from Industries, a meeting of Industries' and Bay State's management
was held at Industries' corporate headquarters on May 8, 1997 to discuss each
company's respective strategic goals. A subsequent meeting of Industries' and
Bay State's management together with representatives of Schiff Hardin & Waite
("Schiff"), Industries' regular legal counsel, Barr Devlin and LeBoeuf, was
held in Chicago on June 24, 1997 to consider the potential benefits of a
business combination between the two companies and the potential structures
for such a transaction. At these meetings, it was determined that the two
companies' strategic goals were compatible and that there were sufficient
benefits to a business combination transaction to warrant further study.
Throughout the summer and early fall, both parties analyzed the benefits and
legal and regulatory issues associated with such a transaction and held
regular discussions with each other. At meetings during this period, the Bay
State Board was updated regularly on the status of these discussions and
directed Bay State's management to continue such conversations.
On October 1, 1997, Industries' and Bay State's management, together with
their legal counsel and representatives from Barr Devlin, met in Boston to
determine if a mutually desirable transaction could be agreed upon. At that
time, discussions centered on the understanding that (i) Industries was open
to the idea of negotiating a price that would give shareholders of Bay State a
premium to its market price, with an option to be paid either in cash or
Industries Shares, (ii) both companies concluded that the strategic growth
opportunities in both gas utility and non-utility operations made the
transaction extremely appealing and should begin as soon as possible, (iii)
both parties believed that the most desirable structure for a transaction
between them would result in Bay State and its subsidiaries becoming
independent subsidiaries of Industries but recognized that regulatory
imperatives may require the combination of Bay State and Northern with
Northern Indiana and that such a structure would still be beneficial to both
companies, and (iv) the management of Industries and Bay State fit together
well. Preliminary discussions between the senior management of both companies
continued following this meeting. On October 27, 1997, the two companies
signed a confidentiality and standstill agreement and began to exchange
financial, operating, legal and regulatory information with each other and to
negotiate a merger agreement. These efforts, as well as efforts to clarify the
status of regulatory barriers to the preferred transaction structure,
continued throughout November and early December. On November 24, 1997, a
special meeting of the Bay State Board was held, with representatives of Barr
Devlin and LeBoeuf present, at which this potential transaction and other
strategic options, including remaining independent, were discussed. In
24
<PAGE>
particular, Barr Devlin discussed current changes in the electric and gas
utility industry in the United States and Bay State's position in the evolving
market both as a stand-alone company and combined with Industries. Barr Devlin
also provided some analysis of Industries' performance and prospects relative
to its competitors. The Bay State Board indicated that further discussions
with Industries were desirable.
On December 2, 1997, at a regularly scheduled meeting of Industries' Board,
Industries' management reviewed the business operations of Bay State, the key
issues relevant to the proposed transaction and the then current draft of the
proposed merger agreement. At that time, Industries' Board and Industries'
management assessed the potential acquisition of Bay State from financial,
strategic and operating viewpoints. Following that assessment, the Industries'
Board approved a resolution authorizing Industries' management to enter into a
merger agreement with Bay State to acquire Bay State for consideration valued
at between $35 and $40 per Bay State Share. On December 11, 1997, the Bay
State Board met to review the status of the negotiations. At that time, the
Bay State Board and the management of Bay State, Barr Devlin and LeBoeuf
discussed Industries' operations, assessed the transaction from a financial,
strategic and operating viewpoint and described the then current draft of the
proposed merger agreement. Barr Devlin also reviewed the nature of the
analysis they would perform in order to arrive at the conclusion as to the
fairness of the consideration that would be offered to Bay State Shareholders
in the proposed transaction.
During the week of December 15, 1997, an understanding with respect to
potentially mutually agreeable positions on the principal issues was reached.
At the December 16, 1997 regularly scheduled meeting of Industries' Board,
Gary Neale apprised Industries' Board of the status of the drafting and
execution of a proposed merger agreement. On the afternoon of December 17,
1997, the documentation was finalized and the Bay State Board held a special
meeting at which following discussions with senior management, Barr Devlin and
LeBoeuf (including discussion of the terms of the Merger Agreement), and after
having received the oral opinion of Barr Devlin as to the fairness of the
consideration to be received, the Bay State Board discussed the proposal and
voted unanimously to recommend approval of the Merger Agreement and related
transactions to Bay State's shareholders. On the morning of December 18, 1997,
Bay State and Industries executed the Merger Agreement and the Merger was
publicly announced.
BAY STATE'S REASONS FOR THE MERGER AND RECOMMENDATION OF THE BAY STATE BOARD
The Bay State Board believes that the combination of Bay State and
Industries offers significant financial and strategic benefits to Bay State,
its shareholders, customers, employees and the communities in which it does
business, including the following:
. Bay State, its customers, shareholders and employees will benefit from
the combined company's greater flexibility and capacity in financing its
operations and its enhanced ability to take advantage of future strategic
opportunities in the competitive marketplace. In particular, these
strengths should allow EnergyUSA to provide an expanded list of energy
services in the deregulated market at a faster rate.
. Bay State Shareholders will receive $40.00 in value as a result of the
Merger, to be paid either in cash, Industries Shares or a combination
thereof, which represents a 35% premium over the average trading price of
Bay State Shares over the 30 trading days prior to the announcement of
the Merger.
. Bay State's and Northern's customers will benefit from being part of a
stronger utility holding company system and from access to more
comprehensive customer services that these companies will be able to
offer as a result of the combination with Industries.
. The Merger and resulting growth in local utility and non-utility business
should provide increased employment opportunities for Bay State
employees. The Merger will also give Bay State access to the expanded
management resources and expertise of Industries, including expertise in
electric and water utility operations during a period of convergence
among various utility services.
The Bay State Board believes that the Merger Agreement and the transactions
contemplated thereby are advisable and in the best interests of Bay State and
its shareholders, customers and employees and offer Bay State better prospects
for the future than would be available if Bay State were to remain a stand-
alone entity.
25
<PAGE>
In its deliberations with respect to the Merger, the Bay State Board
considered the following factors: (i) Industries' and Bay State's respective
businesses, operations, assets, management, geographic locations and
prospects; (ii) current industry, economic, market and regulatory conditions
and trends that encourage consolidation to create new business strategies and
earnings growth; (iii) the financial strength and resources of the combined
company; (iv) opportunities for enhanced relationships with customers arising
out of the ability of the combined company to offer a broader spectrum of
utility and non-utility services with increased resources for service
improvements; (v) Industries' and Bay State's strategic fit and compatible
corporate cultures and visions of the future of the energy business; (vi) the
likely impact of the Merger on Bay State employees; (vii) the expectation that
the Merger will be treated as a reorganization under section 368(a) of the
Code; (viii) the opinion of Bay State's financial advisors that the
consideration to be received in the Merger, as a whole, is fair, from a
financial point of view, to Bay State Shareholders; (ix) the assessment of the
ability to consummate the Merger successfully, including, in particular, the
ability to obtain required regulatory approvals on a timely basis; (x) the
potential need for, and impact of, the Alternative Merger; (xi) the terms and
conditions of the Merger Agreement, which provide for certain representations,
warranties and conditions to closing; and (xii) a comparison of the benefits
of the Merger with remaining a stand-alone company or entering into marketing
alliances or other business combinations with third parties. See "THE MERGER--
Background of the Merger."
The foregoing discussion of the information and factors considered by the
Bay State Board is not intended to be exhaustive but includes the material
factors considered by the Bay State Board. In reaching its determination to
approve the Merger Agreement and related transactions and to recommend its
approval by the Bay State Shareholders, the Bay State Board did not assign any
relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
In light of the considerations set forth above, the Bay State Board believes
that the Merger presents an excellent strategic opportunity for Bay State. The
Bay State Board also believes that, particularly in light of the compatibility
of the corporate cultures and visions of the future of the energy business,
Industries is the best company among potential candidates for a business
combination involving Bay State.
THE BAY STATE BOARD, BY THE UNANIMOUS VOTE OF ITS DIRECTORS, HAS APPROVED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT
THE TERMS OF THE MERGER AGREEMENT ARE IN THE BEST INTERESTS OF THE BAY STATE
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE BAY STATE SHAREHOLDERS VOTE
TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF FINANCIAL ADVISOR TO BAY STATE
On September 1, 1996, Bay State entered into an engagement letter with Barr
Devlin pursuant to which Barr Devlin was retained to act as Bay State's
financial and strategic advisor with respect to assisting Bay State in
developing and implementing future strategic and financial courses of action
including a potential business combination. Barr Devlin delivered its oral
opinion to the Bay State Board on December 17, 1997, which was confirmed in
writing by opinions dated December 18, 1997 and the date of this Proxy
Statement/Prospectus, to the effect that, on and as of the dates of such
opinions, and based upon assumptions made, matters considered, and limits of
the review, as set forth in the opinions, the Consideration (as defined in
such opinions) is fair, from a financial point of view, to Bay State
Shareholders. A copy of the opinion of Barr Devlin dated the date hereof is
attached to this Proxy Statement/Prospectus as Annex B and is incorporated
herein by reference. The December 18, 1997 opinion is substantially identical
to the opinion attached hereto. BAY STATE SHAREHOLDERS ARE URGED TO READ
CAREFULLY THE OPINION DATED THE DATE HEREOF IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW UNDERTAKEN BY BARR
DEVLIN.
In connection with rendering its opinion dated the date of this Proxy
Statement/Prospectus, Barr Devlin: (i) reviewed the Annual Reports, Forms 10-K
and the related financial information for the three-year period ended
September 30, 1997, of Bay State; (ii) reviewed the Annual Reports, Forms 10-K
and the related financial information for the three-year period ended December
31, 1996, and the Forms 10-Q and the related unaudited
26
<PAGE>
financial information for the quarterly periods ended March 31, 1997, June 30,
1997 and September 30, 1997, of Industries; (iii) reviewed certain other
filings with the SEC and other regulatory authorities made by Bay State,
Industries and certain of Bay State's and Industries' subsidiaries during the
last three years, including proxy statements, FERC Forms 2, FERC Forms 1,
Forms 8-K and registration statements; (iv) reviewed certain internal
information, including financial forecasts, relating to the business,
earnings, capital expenditures, cash flow, assets and prospects of Bay State
and Industries furnished to Barr Devlin by Bay State and Industries,
respectively; (v) conducted discussions with members of senior management of
Bay State and Industries concerning their respective businesses, regulatory
environments, prospects, strategic objectives and certain operating benefits
which might be realized for the benefit of Industries following the Merger;
(vi) reviewed the historical market prices and trading activity for Bay State
Shares and Industries Shares and compared them with those of certain publicly
traded companies which Barr Devlin deemed to be relevant; (vii) compared the
results of operations of Bay State and Industries with those of certain
companies which Barr Devlin deemed to be relevant; (viii) compared the
proposed financial terms of the Merger with the financial terms of certain
business combinations which Barr Devlin deemed to be relevant; (ix) analyzed
the valuation of Bay State Shares and Industries Shares using various
valuation methodologies which Barr Devlin deemed to be appropriate; (x)
considered the pro forma capitalization, earnings and cash flow of Industries
following the Merger; (xi) compared the pro forma earnings per share,
dividends per share, capitalization ratios and payout ratio of Industries
following the Merger with each of the corresponding current and projected
values for Bay State and Industries on a stand-alone basis; (xii) reviewed the
Merger Agreement; (xiii) reviewed the Registration Statement, including this
Proxy Statement/Prospectus dated the date hereof; and (xiv) 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 opinions.
In rendering its fairness opinions, Barr Devlin relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it
by Bay State and Industries and has further relied upon the assurances of
management of Bay State and Industries that they are not aware of any facts
that would make such information inaccurate or misleading. With respect to the
financial projections of Bay State and Industries, Barr Devlin relied upon the
assurances of management of Bay State and Industries that such projections
were reasonably prepared and reflected the best currently available estimates
and judgments of the respective managements of Bay State and Industries, as to
the future financial performance of Bay State, Industries and the combined
enterprise, individually and collectively, and as to the projected outcomes of
legal, regulatory and other contingencies. In arriving at its opinion, Barr
Devlin did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Bay State
or Industries, nor did Barr Devlin make any physical inspection of the
properties or assets of Bay State or Industries.
In arriving at its fairness opinions, Barr Devlin assumed that the Merger
will be treated for federal income tax purposes as a reorganization of the
type described in Section 368(a) of the Code and the regulations thereunder
and that Bay State and Bay State Shareholders who exchange their shares solely
for Industries Shares will recognize no gain or loss for federal income tax
purposes as a result of the consummation of the Merger. Barr Devlin also
assumed that the Merger will be accounted for using the purchase method of
accounting. Bay State did not authorize Barr Devlin to solicit, and it did not
solicit, any indications of interest from any third party with respect to the
purchase of all or a part of Bay State. Barr Devlin's fairness opinions are
necessarily based upon financial, stock market and other conditions and
circumstances existing and disclosed to it as of the respective dates of the
opinions. Barr Devlin's fairness opinions are directed to the Bay State Board
and the fairness of the Consideration to Bay State Shareholders from a
financial point of view, do not address any other aspect of the Merger and do
not constitute a recommendation to any shareholder as to how such shareholder
should vote at the Bay State Special Meeting of shareholders. Although Barr
Devlin evaluated the fairness of the Consideration from a financial point of
view to Bay State Shareholders, the specific Consideration was determined by
Bay State and Industries through arm's length negotiations. Bay State did not
place any limitations upon Barr Devlin with respect to the procedures followed
or factors considered by Barr Devlin in rendering its fairness opinions.
27
<PAGE>
Barr Devlin advised Bay State 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 opinions, 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 Bay State; rather, Barr Devlin made its determination
as to the fairness of the Consideration to Bay State Shareholders 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
portion or 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 opinions. 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 Bay State's
and Industries' 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 fairness opinions and preparing its various
written and oral presentations to the Bay State Board, 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. The results of the analyses described in
this summary were discussed with the Bay State Board at its meeting on
December 17, 1997. Barr Devlin derived implied valuation ranges for Bay State
Shares based upon what these analyses, when considered in light of the
judgment and experience of Barr Devlin, suggested about the relative value of
the Bay State Shares. Barr Devlin's opinions are based upon its consideration
of the collective results of all such analyses, together with the other
factors referred to in its opinions. In concluding that the Consideration is
fair, from a financial point of view, to Bay State Shareholders and in its
discussions with the Bay State Board, Barr Devlin noted that $40.00 is within
each range of reference values set forth below, which were derived from the
analyses performed by it. In connection with its opinion dated the date
hereof, Barr Devlin performed certain procedures to update its analyses made
for its December 18, 1997 opinion and reviewed with the managements of Bay
State and Industries the assumptions upon which such analyses were based. The
results of such analyses were substantially the same as those for the December
18, 1997 opinion of Barr Devlin.
Stock Trading History. Barr Devlin reviewed the performance of the per share
market prices and trading volumes of Bay State Shares and Industries Shares
and compared such per share market price movements to movements in (i) the
Standard and Poor's Utility Index, (ii) an index of selected local gas
distribution utilities or their holding companies and (iii) relative to each
other to provide perspective on the current and historical stock price
performance of Bay State and Industries. This analysis was utilized to provide
historical background for the manner in which the public trading market had
valued Bay State Shares and Industries Shares in absolute terms and relative
to each other.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Barr Devlin compared selected financial information and ratios
for Bay State with the corresponding financial information and ratios for a
group of selected local gas distribution utilities or their holding companies
which were deemed by Barr Devlin to be comparable to Bay State (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 industries in which Bay State
operates. The Comparable Companies consisted of NICOR Inc., KeySpan Energy
Corporation, Peoples Energy Corporation, Washington Gas Light Company, AGL
Resources Inc., ONEOK Inc., Piedmont Natural Gas Company, Inc., WICOR, Inc.,
Eastern Enterprises, Atmos Energy Corporation, New Jersey Resources
Corporation, Indiana Energy, Inc., Laclede Gas Company, Southern Union Company
and CTG Resources, Inc.
28
<PAGE>
In evaluating the current market value of Bay State 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 available to common stock for the latest
12-month period ended June 30, 1997 (the "LTM Period"), (b) projected net
income available to common stock for the 12-month periods ended September 30,
1997 and September 30, 1998, (c) book value of common equity for the most
recently available fiscal quarter ended June 30, 1997 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 and minority interests, minus cash and cash equivalents) as a
multiple of (a) earnings before interest and taxes ("EBIT") for the LTM Period
and (b) earnings before interest, taxes, depreciation and amortization
("EBITDA") for the LTM Period. Barr Devlin also incorporated the estimated
present value of certain operating benefits which might be realized for the
benefit of Industries following the Merger. This analysis produced reference
values of $34.97 to $43.38 per Bay State Share with a midpoint of $39.17.
Because of the inherent differences between the operations of Bay State and
the Comparable Companies, Barr Devlin believed that a purely quantitative
comparable company analysis alone 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 Bay State. Moreover, Barr Devlin observed that comparable
company analysis by itself does not reflect the incremental strategic value to
Industries of a controlling interest in Bay State.
Discounted Cash Flow Analysis. To determine an implied Consideration range
based upon a discounted cash flow analysis, Barr Devlin prepared and reviewed
the results of unleveraged discounted cash flow analyses for Bay State for the
fiscal years 1998 through 2002 (the "Projection Period") as revised by Barr
Devlin to reflect certain adjustments it deemed appropriate. The purpose of
the discounted cash flow analysis was to determine the present value of the
businesses of Bay State. To calculate the present value of a business using a
discounted cash flow analysis, the projected unleveraged free cash flows
(including certain operating benefits) for each year during the Projection
Period, together with the estimated value of the business in the final year of
the Projection Period, are discounted to the present. Barr Devlin estimated
terminal values for Bay State by applying multiples to (i) the projected EBIT
for fiscal year 2002, (ii) the projected EBITDA for fiscal year 2002, (iii)
the projected book value of common equity as of fiscal year-end 2002 and (iv)
the projected net income for fiscal year 2002. The multiples applied were
based on analyses of the corresponding multiples of certain public companies
comparable to Bay State. For the purposes of these analyses, the terminal
multiple ranges used were, 9.5x-10.5x with respect to EBIT, 7.0x-8.0x with
respect to EBITDA, 1.6x-1.9x with respect to book value and 14.5x-15.5x with
respect to net income. The annual cash flows and terminal value were then
discounted to present value using discount rates that ranged from 8.75 percent
to 9.75 percent. This analysis produced reference values of $35.27 to $47.31
per Bay State Share with a midpoint of $41.29.
Comparable Transaction Analysis. Barr Devlin reviewed certain proposed or
completed transactions between and among regulated natural gas distribution
companies, electric utilities and electric and gas utilities, or their
respective holding companies deemed by Barr Devlin to be comparable to the
Merger (the "Comparable Transactions"). The Comparable Transactions were
selected because they were strategic combinations of regulated gas
distribution utility companies and/or electric and/or electric and gas utility
companies (or their holding companies). The Comparable Transactions included
ESELCO, Inc./Wisconsin Energy Corporation, IWCR Resources Corporation/NIPSCO
Industries, Inc., PanEnergy Corp/Duke Power Company, Lykes Energy, Inc./TECO
Energy, Inc., NorAm Energy Corp./Houston Industries Incorporated, United
Cities Gas Company/Atmos Energy Corporation, Portland General
Corporation/Enron Corp., Washington Energy Company/Puget Sound Power & Light
Company, Wisconsin Southern Gas Company, Inc./Wisconsin Energy Corporation,
Louisiana General Services, Inc./Citizens Utilities Company and Virginia
Natural Gas, Inc./Consolidated Natural Gas Company.
Barr Devlin calculated the implied equity consideration for each of the
Comparable Transactions as a multiple of each company's respective (i) latest
12-month net income available to common stock, (ii) projected
29
<PAGE>
net income available to common stock for the current fiscal year, (iii) latest
12-month cash flow and (iv) book value of common equity for the most recently
available fiscal quarter preceding the transaction. Barr Devlin also
calculated the premium paid over unaffected public market stock price (in the
case of publicly traded companies) for each of Comparable Transactions. Upon
applying ranges of values for these benchmarks to each corresponding Bay State
statistic, this analysis produced reference values of $36.38 to $43.58 per Bay
State Share with a midpoint of $39.98.
Pro Forma Merger Analysis. Barr Devlin analyzed certain pro forma effects to
the Bay State Shareholders and holders of Industries Shares resulting from the
Merger for the period 1999 through 2002 assuming the Consideration for each
Bay State Share is comprised of 50 percent cash and 50 percent Industries
Shares. This analysis was based on the respective forecasts of the managements
of Bay State and Industries, as revised by Barr Devlin to reflect certain
adjustments deemed appropriate and certain operating benefits that might be
realized for the benefit of Industries following the Merger. This analysis
showed accretion to Bay State Shareholders in earnings per share, dilution in
near-term dividends per share and accretion in earnings per share to holders
of Industries Shares (assuming Industries Shares continue to trade at current
levels).
Barr Devlin was selected as Bay State's financial advisor because Barr
Devlin and principals of Barr Devlin have a long history of association in the
investment banking and gas and electric utility industries. Barr Devlin is an
investment banking firm specializing in strategic and merger advisory services
to the gas and electric 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 gas, electric and energy industries and are constantly
engaged in the valuation of businesses and securities in those industries. On
January 12, 1998, Barr Devlin announced its intent to enter into a strategic
business combination with Societe Generale. Upon completion of the business
combination Barr Devlin became the SG Barr Devlin division of Societe
Generale.
Pursuant to the terms of Barr Devlin's engagement, Bay State has agreed to
pay Barr Devlin for its services in connection with the business combination,
(i) an initial financial advisory progress fee of $934,469 paid upon execution
of the Merger Agreement, (ii) a second financial advisory progress fee
estimated at $934,469 payable upon the approval of the Merger Agreement by the
Bay State Shareholders, and (iii) a transaction fee based on the aggregate
consideration to be received by Bay State Shareholders in connection with the
Merger at the Effective Time, ranging from 0.72% of such aggregate
consideration (for a transaction with an aggregate consideration of $500
million) to 0.65% of such aggregate consideration (for a transaction with an
aggregate consideration of $600 million). All financial advisory progress fees
and an additional $150,000 would be credited against any transaction fee
payable to Barr Devlin. The transaction fee that will be payable to Barr
Devlin is currently estimated to be approximately $3.7 million. Bay State 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
Bay State, and to indemnify Barr Devlin against certain liabilities, including
liabilities under the federal securities laws, relating to or arising out of
its engagement.
Barr Devlin has rendered from time to time various investment banking and
other financial advisory services to Bay State and Industries for which Barr
Devlin received customary compensation. Since September 1, 1996, Barr Devlin
has earned compensation from Bay State with respect to such services of
approximately $225,000 (excluding compensation with respect to its services
related to the Merger) and approximately $900,000 with respect to such
services other than the Merger from Industries.
INDUSTRIES' REASONS FOR THE MERGER
Industries believes that the Merger offers significant opportunities for
revenue enhancement and strategic financial benefits to Industries and its
shareholders (including those Bay State Shareholders who will receive
Industries Shares in the Merger) as well as benefits to the customers,
employees and the communities of both Industries and Bay State and its
subsidiaries, including:
. The Merger will provide Industries with access to customers in New
England and opportunities for Industries, its shareholders and employees
to participate in the growing New England energy market through Bay
State, a company with which customers in the region are familiar.
30
<PAGE>
. The Merger will enable the combined companies to offer their customers
access to more comprehensive products and services than either company
alone could offer. The natural gas business, experience and expertise of
Bay State will complement the natural gas and electricity assets,
experience and expertise of Industries, giving the combined companies
improved capabilities in the delivery of a complete range of energy
products and services and enabling them to build a marketing strategy for
their customers' total energy needs rather than relying solely on their
traditional product offerings.
. The combined base of electric and gas assets resulting from the Merger
will enhance the marketing and delivery of complementary energy products
and services through assured energy supplies, broad knowledge of a wide
range of energy products, greater credibility with customers and
opportunities to coordinate the business activities of each company's
power and gas marketing ventures.
. The larger asset base and wider range of energy products and services
resulting from the Merger will provide the combined companies with a
broader range of strategic choices and, in the case of Industries, will
reduce its dependence upon its electric utility operations and sales of
gas and electricity to large industrial customers.
. The Merger will bring together Bay State's management team, which has
successfully operated its company during a period of deregulation in
multiple states, increased competition and rapid change in the gas
industry, with Industries' management team, which has widely recognized
skills and experience in the delivery of energy products and services.
The entrepreneurial skills of Bay State are also expected to complement
Industries' strength in the operation of electric, gas and water
businesses in a deregulating market.
CASH ELECTIONS; ALLOCATION AND PRORATION
Each record holder of Bay State Shares may make a Cash Election with respect
to all or any portion of such holder's Bay State Shares. However, the Cash
Election Maximum may not exceed an amount determined by dividing (A) the
dollar number equal to the difference between (i) one-half the product of (x)
$40.00 multiplied by (y) the aggregate number of Bay State Shares outstanding
at 5:00 p.m., New York City time, on the second day prior to the Effective
Time less (ii) the dollar amount of the Special Dividend, if any, paid by Bay
State and such other dollar amounts as may be reasonably determined by LeBoeuf
and Schiff to enable the Merger to qualify as a tax-free reorganization by (B)
$40.00. 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) $40.00 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 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
Bay State 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 delivered in respect of Cash Election Shares and will deliver in lieu
thereof such number of Industries 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. For tax consequences of a Cash Election, see "--Material Federal
Tax Consequences to Certain Shareholders."
Promptly after the Effective Time, the Paying 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 Shares as described above. AS A RESULT OF
ANY SUCH PRORATION, A BAY STATE SHAREHOLDER MAKING A CASH ELECTION MAY NOT
RECEIVE CASH FOR ALL OF THE BAY STATE SHARES SUCH BAY STATE SHAREHOLDER HAS
ELECTED
31
<PAGE>
TO RECEIVE BUT MAY RECEIVE BOTH CASH AND INDUSTRIES SHARES. A BAY STATE
SHAREHOLDER MAKING A CASH ELECTION WILL NOT BE ABLE TO ALTER ANY SUCH
PRORATION.
For example, if the Effective Time had occurred on April 17, 1998, the
maximum number of Bay State Shares that could have been converted entirely
into cash would have been 6,762,507 (50% of the total number of outstanding
Bay State Shares). The maximum number of shares that actually may be converted
entirely into cash at the Effective Time will depend on the number of Bay
State Shares outstanding and eligible to be converted in the Merger, any
amount paid prior to the Effective Time by Bay State as a Special Dividend (as
defined in "--Bay State Dividends Prior to the Effective Time of the Merger"),
any amount of cash paid by Bay State for its capital stock or options on its
capital stock in connection with the Merger and any other amount which, based
on the advice of tax counsel, must be subtracted from the amount of cash
payable to Bay State Shareholders in the Merger consistent with the proposed
tax treatment thereof.
CASH ELECTION PROCEDURE
All Cash Elections must be made on the Form of Election (or a complete
facsimile thereof) to be mailed to Bay State Shareholders approximately a
month before the anticipated Effective Time. Holders of record of Bay State
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 Bay State
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 the Paying Agent and accompanied by the certificate(s)
representing the Bay State Shares as to which the election is being made (or
accompanied 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 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 Industries (or the
Paying Agent) in such matters shall be conclusive and binding. Neither
Industries 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 will also make all computations and all such computations shall
be conclusive and binding on the holders of Bay State Shares. A Bay State
Shareholder who does not submit a Form of Election that is received by the
Paying Agent by the Election Deadline will be deemed not to have properly made
a Cash Election. If Industries or the Paying 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 Bay State Shares covered
by such ineffective Cash Election will be converted into Industries Shares.
Industries and Bay State will each use its best efforts to mail,
approximately one month prior to the Effective Time, the Form of Election to
all persons who are record holders of Bay State Shares and shall thereafter
make the Form of Election available to all persons who become record holders
of Bay State Shares subsequent to the date the Form of Election was mailed
until the date that is no later than the seventh business day before the
Election Deadline. A Form of Election must be received by the Paying Agent by
5:00 p.m., New York City time on the fourth business day before the
anticipated Effective Time (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.
NO DISSENTERS' RIGHTS
Under Chapter 164 of the General Laws of the Commonwealth of Massachusetts
(the "MGL"), Bay State Shareholders do not have dissenters' rights in
connection with the Merger.
32
<PAGE>
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 Shares to the Paying Agent, for
the benefit of the holders of Bay State Shares, when and as required for
exchanges of certificates representing Bay State Shares. Promptly after the
Effective Time, Industries will require the Paying Agent to mail a form of
transmittal letter to the holders of certificates representing Bay State
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 Shares (and cash in lieu of any fractional Industries Shares and
any unpaid dividends and distributions).
BAY STATE SHARE CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
CARD. IF YOU WISH TO MAKE A CASH ELECTION, YOU MUST RETURN THE FORM OF
ELECTION (WHICH WILL BE MAILED TO YOU APPROXIMATELY ONE MONTH PRIOR TO THE
EFFECTIVE TIME), TOGETHER WITH THE CERTIFICATE(S) REPRESENTING YOUR BAY STATE
SHARES OR A VALID GUARANTEE OF DELIVERY THEREOF, TO THE PAYING AGENT PRIOR TO
THE ELECTION DEADLINE. A LETTER OF TRANSMITTAL FOR BAY STATE SHAREHOLDERS WHO
DO NOT MAKE CASH ELECTIONS WILL BE PROVIDED FOLLOWING THE EFFECTIVE TIME.
If a certificate representing Bay State Shares has been lost, stolen,
mislaid or destroyed, the Paying Agent will issue the certificate representing
the Industries Shares and/or the cash into which such Bay State 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
Shares with a record date after the Effective Time will be paid to the holder
of any certificate representing Bay State Shares until such certificate has
been surrendered for exchange. Such dividends or other distributions will be
paid, without interest, to holders of certificates representing Bay State
Shares after surrender of such certificates.
NO FRACTIONAL SHARES
No fractional Industries Shares will be issued pursuant to the Merger. In
lieu of issuing fractional shares, Bay State Shareholders 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.
BAY STATE DIVIDENDS PRIOR TO THE EFFECTIVE TIME OF THE MERGER
Bay State will be entitled to declare and pay regular quarterly dividends,
which may be increased at a rate consistent with Bay State's past practice
until the Effective Time. In addition to these quarterly dividends, in the
event the Effective Time has not occurred on or before December 17, 1998, Bay
State may be entitled to declare a dividend (the "Special Dividend") to be
paid at or immediately prior to the Effective Time. The Special Dividend may
not exceed an amount per share equal to the amount determined by multiplying
the number of days between December 17, 1998 and the Effective Time and the
"Daily Rate." The Daily Rate shall mean the dollar amount per share that
results from dividing (A) the difference between (x) Bay State's publicly
reported earnings per share (normalized for the effects of weather) for the 12
months ended as of the end of the most recently completed quarter for which
earnings have been publicly reported prior to the Effective Time (adjusted to
eliminate the effect of any extraordinary items or other mutually agreed-upon
nonrecurring items) and (y) the greater of (i) the aggregate amount of Bay
State's regular cash dividends per share paid during the same 12-month period
or (ii) $1.58 by (B) 365; provided, however, that in no event shall the Daily
Rate exceed $0.00219.
IMPACT OF STOCK SPLITS, ETC.
In the event of any change in Industries 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.
33
<PAGE>
REGULATORY MATTERS
The Merger will not proceed in the absence of the requisite regulatory
approvals. There can be no assurance that such regulatory approvals will be
obtained and, if the Merger is approved, there can be no assurance as to the
date of any such approval. There can also be no assurance that such approvals
will not contain one or more conditions or requirements that cause such
approvals to fail to satisfy the conditions set forth in the Merger Agreement.
See "THE MERGER--Conditions to the Merger."
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 Bay State will file notification and report forms
under the HSR Act with the FTC and the Antitrust Division within the next few
months.
The 1935 Act. Industries is currently a holding company exempt from all
provisions under the 1935 Act except Section 9(a)(2) and Section 10 under
Section 3(a)(1) pursuant to Rule 2 of the 1935 Act. Industries is required to
obtain SEC approval under Section 9(a)(2) of the 1935 Act in connection with
the Preferred Merger. Section 9(a)(2) of the 1935 Act requires an entity
owning, directly or indirectly, 5% or more of the outstanding voting
securities of a public utility company (as defined in the 1935 Act) to obtain
the approval of the SEC under Section 10 of the 1935 Act prior to acquiring a
direct or indirect interest in 5% or more of the voting securities of any
additional public utility companies. Industries currently holds in excess of
5% of the voting securities of three public utility companies and, in the
Preferred Merger, will be acquiring 5% or more of the voting securities of Bay
State and Northern, both public utility companies within the meaning of the
1935 Act.
Under the applicable standards of the 1935 Act, the SEC is directed to
approve the Preferred Merger unless it finds that (i) the Preferred Merger
would tend towards detrimental interlocking relations or a detrimental
concentration of control, (ii) the consideration to be paid in connection with
the Preferred Merger is not reasonable, (iii) the Preferred Merger would
unduly complicate the capital structure of the Industries' holding company
system or would be detrimental to the proper functioning of Industries'
holding company system or (iv) the Preferred Merger would violate applicable
state law. To approve the Preferred Merger, the SEC must also find that the
Preferred Merger would tend towards the development of an integrated public
utility.
Under the Alternative Merger, Industries does not need to obtain the
approval of the SEC under the 1935 Act because, following the Alternative
Merger, Bay State and Northern will be combined into Northern Indiana, and
Industries already holds the voting securities of Northern Indiana. Under
either structure, Industries intends to continue to claim an exemption under
Section 3(a)(1) pursuant to Rule 2 from all provisions of the 1935 Act except
Section 9(a)(2). NIPSCO intends to file an application for approval of the
Preferred Merger under the 1935 Act with the SEC as soon as practicable.
Industries' claim of exemption under Section 3(a)(1) could be questioned or
challenged by the SEC.
Federal Power Act. Section 203 of the Federal Power Act requires approval of
FERC before a public utility can sell, lease or otherwise dispose of all its
jurisdictional facilities, or any part thereof having a value in excess of
$50,000, or merge or consolidate such facilities, directly or indirectly, with
those of any other person, or purchase, acquire or take any security of any
other public utility. Because Bay State currently has a subsidiary power
marketer that is considered a "public utility" that owns or will own
"jurisdictional facilities" under the Federal Power Act, FERC's approval under
Section 203 would be required before Industries and Bay State could consummate
the Merger. Section 203 provides that FERC is required to grant its approval
if the Merger is found to be "consistent with the public interest." In the
event Bay State should dispose of its power marketer in a FERC-approved manner
prior to the Merger, however, Section 203 approval would not be required.
In December 1996, FERC issued a Policy Statement which updated and clarified
its procedures, criteria and policies concerning its analysis of mergers under
Section 203. In this policy statement, the FERC announced that it would
generally take into account three factors in such analysis: the effect on
competition, the effect on rates and the effect on regulation. Bay State
intends to make appropriate filings with respect to the Merger with the FERC
as soon as practicable following the Special Meeting.
34
<PAGE>
In accordance with the terms of their respective authorizations from the
FERC to sell electric power at wholesale in interstate commerce at market
based rates under section 205 of the Federal Power Act, Northern Indiana and
the power-marketing affiliates of Industries and Bay State intend to file any
required notifications of a "change in status" with FERC to inform FERC of the
Merger Agreement and advise FERC that Northern Indiana and the power-marketing
affiliates of both Industries and Bay State will not deal with one another
except under specified circumstances during the pendency of the Merger.
Pending FERC approval of the Merger under Section 203, if required, and
related action under Section 205, the authorizations under which Northern
Indiana and the power-marketing affiliates of both Industries and Bay State
engage in market-based sales are expected to remain effective.
Massachusetts. Bay State is a public utility company subject to the
jurisdiction of the MDTE under Chapter 164 of the MGL. Pursuant to Section 96
of Chapter 164 of the MGL, the MDTE is empowered to determine whether a merger
involving a public utility is consistent with the public interest. An
application for approval of the Merger must be filed with the MDTE within four
months after the passage by Bay State and Industries of votes authorizing the
Merger. On March 20, 1998, Bay State and Industries filed a joint petition
with the MDTE for approval of the Merger, including both the Preferred Merger
and the Alternative Merger as soon as practicable.
New Hampshire. Northern is a public utility subject to the jurisdiction of
the NHPUC. Pursuant to 34 N.H. Rev. Stat. Ann. 374:33 ("NHRSA"), the NHPUC
must approve the indirect acquisition of 10 percent or more of Northern's
stock by Industries, a public utility holding company within the meaning of
this provision, as lawful, proper and in the public interest. In the event it
is determined that the Alternative Merger will be the structure of the Merger,
the passage of legislation authorizing transactions of this type is necessary.
On March 20, 1998, Northern, Bay State and Industries filed a joint petition
with the NHPUC for approval of the Merger, including both the Preferred Merger
and the Alternative Merger, as soon as practicable.
Maine. Northern is a public utility subject to the jurisdiction of the MPUC.
Pursuant to Section 708 of the Maine Revised Statutes, any merger, transfer of
ownership or control of an affiliated interest ("Reorganization"), which would
include Bay State's interest, is subject to the approval of the MPUC unless
exempted by rule or order of the MPUC. The MPUC may not approve a
Reorganization unless the applicant establishes that such Reorganization is
consistent with the interests of the utility's ratepayers and investors. On
March 20, 1998, Northern, Bay State and Industries filed a joint petition with
the MPUC for approval of the Merger, including both the Preferred Merger and
the Alternative Merger as soon as practicable.
STOCK EXCHANGE LISTINGS
It is a condition to the Merger that the Industries Shares to be issued in
the Merger be authorized for listing on the NYSE, subject to official notice
of issuance.
REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT
The Merger Agreement contains customary representations and warranties by
the parties, certain of which are qualified by a Material Adverse Effect
standard (as defined below). Bay State represents and warrants to Industries
as to: (i) organization, qualification and capitalization and similar
corporate matters; (ii) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related transactions; (iii)
required regulatory and statutory approvals; (iv) compliance with applicable
laws and agreements; (v) reports and financial statements filed with
governmental authorities and the accuracy of information contained therein;
(vi) the absence of certain events, changes or effects with regard to itself
or any of its subsidiaries; (vii) properties; (viii) employee matters; (ix)
tax matters; (x) environmental matters; (xi) litigation; (xii) regulation as a
utility; (xiii) the Bay State Shareholder vote required to approve the Merger
Agreement and the transactions contemplated thereby; (xiv) brokers; (xv) the
fairness opinions of Barr Devlin; (xvi) material contracts; (xvii) and
commodity derivatives and credit exposure. Industries represents and warrants
to Bay State as to: (i) organization, qualification and capitalization and
similar corporate matters; (ii) authorization, execution, delivery,
35
<PAGE>
performance and enforceability of the Merger Agreement and related
transactions; (iii) required regulatory and statutory approvals; (iv) reports
and financial statements filed with governmental authorities and the accuracy
of information contained therein; (v) the absence of certain events, changes
or effects; (vi) certain employee matters; (vii) tax matters; (viii)
environmental matters; (ix) regulation as a utility; and (x) brokers.
As to each company, "Material Adverse Effect" is defined to mean a material
adverse effect on the business, assets, liabilities, results of operations,
financial condition or prospects of the company and its subsidiaries taken as
a whole.
CONDUCT OF BUSINESS PENDING THE MERGER
Bay State. The Merger Agreement provides that, pending the consummation of
the Merger or the earlier termination of the Merger Agreement, except as
expressly contemplated by the Merger Agreement or any joint venture into which
Bay State and Industries may enter or except to the extent that Industries may
consent in writing: Bay State will and will cause its subsidiaries to conduct
its business in the ordinary course consistent with past practice and to use
commercially reasonable efforts to preserve their business organizations,
goodwill and relationships with regulators, customers, suppliers and others
having business dealings with them and to keep available the services of its
current officers and key employees. In addition to the foregoing, Bay State
has also agreed (as to itself and its subsidiaries) to certain limitations on
its ability to: (i) declare dividends and other distributions on, split,
reclassify, repurchase or redeem, shares of its capital stock other than the
redemption of preferred stock according to its terms; (ii) issue or pledge
shares of its capital stock, except pursuant to existing stock plans; (iii)
make capital expenditures in excess of amounts budgeted; (iv) make
acquisitions of businesses or dispose of assets with a value in excess of $2
million in the aggregate; (v) liquidate, dissolve, merge or otherwise
reorganize; (vi) make additional investments in joint ventures or
partnerships; (vii) make changes in employee compensation and benefit plans;
(viii) incur indebtedness outside the ordinary course of business; (ix) enter
into material leases or financial derivatives contracts, except for gas
hedging purposes; (x) discharge liabilities outside the ordinary course of
business; (xi) amend its organizational documents; (xii) make changes in its
accounting methods or rates or standards of service; (xiii) construct
additional gas transmission, delivery or storage capacity; (xiv) modify
material contracts; (xv) discharge material claims, liabilities or
obligations; (xvi) change its 1935 Act status; (xvii) make or rescind material
elections relating to taxes, except as required by law; (xviii) take any
action that would jeopardize the qualification of the Merger as a tax-free
reorganization; and (xix) take certain other actions, in each case pending the
consummation of the Merger or earlier termination of the Merger Agreement,
except as expressly contemplated by the Merger Agreement, any joint venture
between Bay State and Industries or to the extent Industries may consent in
writing.
Pursuant to the Merger Agreement, pending consummation of the Merger, Bay
State will and will cause its management and that of its subsidiaries to
consult on a regular basis and in good faith with the employees and
representatives of Industries concerning Bay State's and its subsidiaries'
businesses.
Industries. During the period from the date of the Merger Agreement until
the Effective Time or the earlier termination of the Merger Agreement,
Industries will and will cause its subsidiaries to conduct their respective
businesses so that the character of the business of Industries and its
subsidiaries taken as a whole will not be fundamentally altered.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligations of Bay State and Industries to consummate the Merger are subject
to the satisfaction or waiver of the following conditions: (i) the Bay State
Shareholders shall have approved the Merger Agreement and the transactions
contemplated thereby; (ii) Bay State and Industries shall have made all such
filings, and obtained all permits, authorizations, consents or approvals,
required by any Governmental Entity to consummate the transactions
contemplated by the Merger Agreement, and that the orders issued by any
Governmental Entity shall have no conditions that would have a Material
Adverse Effect on either Bay State or Industries; (iii) the waiting period
(and any extension thereof)
36
<PAGE>
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 Shares
issuable to Bay State Shareholders 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; and (vii) the common share purchase rights issued
pursuant to the Bay State Shareholder Rights Plan dated as of November 15,
1989, between Bay State and The First National Bank of Boston, as rights
agent, shall have been redeemed.
Additional Conditions to Bay State's Obligation to Effect the Merger. The
obligation of Bay State to effect the Merger is further subject to the
satisfaction or waiver of the following additional conditions: (i) certain
representations and warranties of Industries and Acquisition contained in the
Merger Agreement shall be true and correct in all material respects; (ii)
Industries 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; and (iii) Bay State shall have received a tax opinion of LeBoeuf 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 Bay
State Shareholders will not be subject to federal income tax on the receipt of
Industries Shares in exchange for Bay State Shares pursuant to the Merger,
except that the Bay State Shareholders who exchange their Bay State Shares for
Industries Shares and cash, or only cash, will recognize gain, if any, in the
Merger but not in excess of the amount of cash received.
Additional Conditions to Industries' Obligation to Effect the Merger. The
obligation of Industries to effect the Merger is further subject to the
satisfaction or waiver of the following additional conditions: (i) the
representations and warranties of Bay State contained in the Merger Agreement
shall be true and correct in all material respects, (ii) Bay State 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 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 Bay State as a consequence of the Merger, and (iv)
Bay State and its subsidiaries shall have received consents to the Merger
under certain loan agreements.
OTHER ACQUISITION PROPOSALS
In the Merger Agreement, Bay State 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 Bay State 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 Bay State Board
makes a good faith determination based upon the advice of outside counsel that
failure to take such action could reasonably be expected to result in a breach
of its fiduciary duties to shareholders under applicable law, (ii) Bay State
provides reasonable notice to Industries that it is taking such action and
(iii) such person or entity enters into a confidentiality agreement with Bay
State 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
Bay State Shareholders: (i) by mutual written consent of Industries and Bay
State; (ii) by either Industries or Bay State upon written notice (a) if the
Merger is not approved by the Bay State Shareholders at the Special Meeting,
(b) if the Merger is not consummated or certain assurances with respect to the
Preferred Merger and Alternative Merger structures have not been received on
or before December 31, 1998 (which in the former case will be extended to June
30, 1999 if all conditions to closing
37
<PAGE>
the Merger, other than the receipt of certain regulatory approvals, shall have
been satisfied on December 31, 1998 (unless the failure to consummate the
Merger is the result of a willful and material breach of the Merger Agreement
by the party seeking to terminate the Merger Agreement, with respect to either
date)), (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) if Bay State receives
an Acquisition Proposal and the Board of Directors of Bay State concludes that
failure 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 could reasonably be
expected to result in a breach of its fiduciary duties to shareholders under
applicable law; (ii) by Bay State in the event of a material breach of any
representation or warranty of Industries or Industries' failure to comply in
any material respect with its covenants or agreements and Industries' failure
to cure such breach within 20 days of its receipt of notice from Bay State; or
(iii) by Industries in the event of a material breach of any representation or
warranty of Bay State or Bay State's failure to comply in any material respect
with any of its covenants or agreements and Bay State's failure to cure such
breach within 20 days of its receipt of notice from Industries.
In the event of termination of the Merger Agreement by either Bay State 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 Bay State, 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 either Industries or Bay State 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. The Merger Agreement further provides that, if
the Merger Agreement is terminated by Industries or Bay State because Bay
State receives an Acquisition Proposal and the Bay State Board concludes that
failure 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 could reasonably be
expected to result in a breach of its fiduciary duties to shareholders under
applicable law, Bay State will pay Industries $10,000,000 as liquidated
damages within 30 days of the date of such termination and will pay Industries
an additional $15,000,000 as liquidated damages upon the consummation of the
transactions contemplated by such Acquisition Proposal, or an Acquisition
Proposal entered into in lieu thereof, if such consummation occurs within two
and one-half years of the termination of the Merger Agreement. The Merger
Agreement also provides that, if the Merger Agreement is terminated by
Industries following a failure to hold the Special Meeting or to obtain the
vote required for approval of the Merger or Alternative Merger or upon a
material breach by Bay State of its covenants, representations or warranties,
and an Acquisition Proposal has been made, Bay State will pay Industries
$10,000,000; provided that Bay State will not be obligated to pay Industries
$10,000,000 if no Acquisition Proposal has been made. If Bay State has made
the payment specified in the immediately preceding sentence and within two and
one-half years consummates a transaction contemplated by such Acquisition
Proposal, or an Acquisition Proposal entered into in lieu thereof, Bay State
will pay Industries an additional $15,000,000.
EXPENSES
Industries, Acquisition and Bay State 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 Bay
State.
AMENDMENT, EXTENSION AND WAIVER
As indicated above, the Merger Agreement has been amended and restated and
may hereafter be further amended by the parties thereto by written agreement
prior to the Effective Time, provided that after the approval of the Merger by
the Bay State Shareholders, no amendment may be made that would reduce the
value of the
38
<PAGE>
consideration to be issued upon conversion of Bay State Shares pursuant to the
Merger or otherwise adversely affect the rights of the Bay State Shareholders
without the approval of such shareholders.
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.
TREATMENT OF BAY STATE OPTIONS AND CERTAIN CONTRACTS
As of April 17, 1998, Bay State employees held options to purchase 588,915
Bay State Shares pursuant to the Bay State Key Employee Stock Option Plan
("KESOP"). With respect to the outstanding options, all options are currently
exercisable except for options to purchase 71,943 Bay State Shares, which are
held by employees of a recently acquired subsidiary of EnergyUSA. Half of
these unvested options would vest according to their terms in November 1998,
with the remaining half vesting in November 1999.
The Merger Agreement provides that each option granted by Bay State to
acquire Bay State Shares that is outstanding at the Effective Time will remain
outstanding after the Effective Time, will be assumed by Industries and will
be exercisable upon the same terms and conditions as under the applicable Bay
State stock option plan and option agreement, except that such stock option
will be exercisable for such whole number of Industries Shares (rounded down)
into which the Bay State Shares subject to such option immediately prior to
the Effective Time would have been converted and the option price per share
will be appropriately adjusted.
Pursuant to the Merger Agreement, Industries has agreed to honor all
existing severance agreements of Bay State and all union contracts in
accordance with their terms as in effect on the date of the Merger Agreement.
Bay State will terminate its Dividend Reinvestment Plan as soon as reasonably
practicable and at least two months prior to the Effective Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Bay State Directors and Officers. In the event the Preferred Merger occurs,
from and after the Effective Time, the Surviving Corporation Board shall
consist of the following members: Gary L. Neale, Stephen P. Adik, Jeffrey W.
Yundt, Roger A. Young, Joel L. Singer, Thomas W. Sherman, and four other
members from among the existing Bay State Board, to be mutually determined by
Industries and Bay State. The officers of the Surviving Corporation shall
consist of the officers of Bay State at the Effective Time. In the event the
Alternative Merger occurs, Bay State will operate as a division of Northern
Indiana, and the officers of Bay State in place immediately prior to the
Effective Time will manage the division. The officers managing the operations
of Bay State will be the same whether the Preferred Merger or the Alternative
Merger is effected.
Election to Industries' Board. The Merger Agreement provides that Industries
will take such action as may be necessary to cause the number of directors
comprising the Industries' Board at the Effective Time to be sufficient to
permit the appointment of one director of Bay State to be mutually determined
by Industries and Bay State to serve as a director of Industries.
Bay State Severance Agreements. Bay State has entered into severance
agreements (the "Severance Agreements") with 16 of its officers and senior
managers. The Severance Agreements become operative upon a Change in Control
of Bay State (as defined below) and continue in effect for one, two or three
years (depending on the type of Severance Agreement) after such Change in
Control or, if the Change in Control is based on shareholder approval of a
merger transaction, after consummation of such merger. Six employees have
Severance Agreements with 3-year terms (the "Three-Year Severance
Agreements"), eight employees have Severance Agreements with 2-year terms (the
"Two-Year Severance Agreements") and two employees have Severance Agreements
with 1-year terms (the "One-Year Severance Agreements"). Each of the Severance
Agreements
39
<PAGE>
provides for payments and certain other benefits to the officer if the
officer's employment is terminated by the officer after a Constructive
Discharge (as defined below) or is terminated by Bay State or by the Surviving
Corporation, as the case may be, for any reason other than death, disability
or cause at any time during the period that begins on the date of a Change in
Control and ends either 12, 24 or 36 months (depending on the type of
Severance Agreement) after the closing of the transaction giving rise to such
Change in Control. Severance payments include: (i) a lump sum payment equal to
the present value of 12, 24 or 36 (depending on the type of Severance
Agreement) months of the monthly salary and bonus being paid to the officer at
the time of termination; (ii) a lump sum payment equal to the actuarial value
of the excess of (x) the aggregate of the benefits payable under the Bay State
Retirement Plan and the Bay State Supplemental Executive Retirement Plan or
any other related excess benefit plan (the "Retirement Plans"), assuming one,
two or three (depending on the type of Severance Agreement) years of
participation in the Retirement Plans and assuming the officer continued to be
compensated at the same rate as just prior to termination, over (y) the actual
benefit payable to the officer under the Retirement Plans; (iii) a lump sum
equal to the present value of the expected employer contributions for one, two
or three (depending on the type of Severance Agreement) years to the officer's
account under the Bay State 401(k) Plan; and continuation of welfare plan
benefits, including medical, dental and death benefits and perquisites for
one, two or three (depending on the type of Severance Agreement) years.
The Three-Year Severance Agreements provide that the employee is entitled to
a tax gross-up payment if it is determined that any payment (including the
value of any benefits) from Bay State to the employee would be subject to the
excise tax imposed by Section 4999 of the Code. The One-Year and Two-Year
Agreements provide that payments and benefits payable there under will be
reduced so that no such taxes are incurred.
"Change in Control" is defined in the Severance Agreements as, among other
things, approval by the Bay State Shareholders of any consolidation or merger
of Bay State in which Bay State is not the continuing or surviving corporation
other than a consolidation or merger in which holders of Bay State's common
stock immediately prior to the consolidation or merger have substantially the
same proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger as immediately before. The
Merger will constitute such a transaction and therefore the shareholder
approval of the Merger Agreement would constitute a Change in Control for
purposes of the Severance Agreements. A qualifying termination of an
employee's employment after Bay State Shareholder approval, but before
consummation of the Merger, could result in distribution of payments and
benefits under the Severance Agreements even if the Merger is not consummated.
If the transaction is abandoned, terminations after the date of abandonment
would not result in distribution of payments and benefits under the Severance
Agreements.
"Constructive Discharge" is defined in the Severance Agreements as: (i) a
material change by Bay State of the employee's functions, duties or
responsibilities which change would cause the employee's position with Bay
State to become of less dignity, responsibility, importance, prestige or
scope, including, without limitation, a diminution in perquisites to which the
employee is currently entitled, such as office size and status and secretarial
and clerical staff; (ii) assignment or reassignment by Bay State of the
employee to another place of employment more than 50 miles from the employee's
current place of employment; (iii) liquidation, dissolution, consolidation or
merger of Bay State or transfer of all or substantially all of its assets,
other than a merger in which a successor corporation with a net worth at least
equal to that of Bay State assumes the Severance Agreements and all of Bay
State's obligations thereunder; (iv) a reduction in the employee's base
compensation of benefits, unless part of a reduction for all management
employees of Bay State; or (v) a material breach of the Severance Agreement by
Bay State. Employees claiming a Constructive Discharge must give written
notice of the event relied upon either within one year from the occurrence of
the event or before the end of the term of the Severance Agreement, whichever
comes first. Bay State and Industries have agreed that changes in Roger
Young's, Thomas Sherman's and Joel Singer's positions resulting from
consummation of the Merger will result in a Constructive Discharge of these
officers within the meaning of their Severance Agreements. Industries has
entered into letter agreements with Roger Young and Thomas Sherman whereby,
effective upon consummation of the Merger, their Severance Agreements will be
replaced by the employment and noncompetition agreements discussed below.
If the employment of all 16 officers with Severance Agreements had been
terminated as of the date of this Proxy Statement/Prospectus, the estimated
aggregate cost to Bay State under the Severance Agreements would
40
<PAGE>
not have exceeded $19,000,000. Neither Bay State nor Industries has any
current intention to take any action which would result in a Constructive
Discharge of any of the 16 officers other than Roger Young, Thomas Sherman and
Joel Singer.
Employment and Noncompetition Agreements. Industries has entered into letter
agreements with each of Roger Young and Thomas Sherman to terminate their
Severance Agreements with Bay State and to enter into employment and
noncompetition agreements with, in the case of the Preferred Merger, the
Surviving Corporation and, in the case of the Alternative Merger, Northern
Indiana upon consummation of the Merger. For purposes of this section, the
term the "Company" shall refer to Acquisition or Northern Indiana, as the case
may be. At the Effective Time, these agreements will supersede all prior
agreements, understandings or commitments between Bay State and each of the
above-named executives with respect to the terms and conditions of such
executive's employment with Bay State or any successor thereto. The material
terms and conditions of these agreements, as agreed in principle, are
described below.
The employment agreement between the Company and Roger Young (the "Young
Agreement") will become effective at the Effective Time and remain in effect
for a period of nine months (the "Young Term"). Pursuant to the Young
Agreement, Mr. Young will serve as a senior executive officer of the Company,
under the Preferred Merger or, under the Alternative Merger, in a position
with similar authority and responsibility with a division thereof. The Young
Agreement will provide that, during his employment period, Mr. Young will
receive a base payment of $614,549 in lieu of his current base salary and
target bonus with Bay State, plus a performance bonus of 3.75% (capped at
$1,600,000) of Industries' earnings before extraordinary items, losses and
discontinued operations, interests, taxes, depreciation and amortization for
fiscal year 1999 ("Young Performance Bonus"). The Young Agreement will further
provide that the Young Performance Bonus (with the exception of compensation
payable under the Stock Performance Sharing Plan (as defined below)), together
with the consideration payable to Mr. Young under his noncompetition
agreement, as discussed below, will be in lieu of any payment due under the
Severance Agreement between Bay State and Mr. Young. The Young Agreement will
also provide for Mr. Young to elect to defer the receipt of compensation. The
Young Agreement provides that Mr. Young is entitled to tax gross-up payment if
it is determined that any payment from Acquisition to Mr. Young would be
subject to the excise tax imposed by Section 4999 of the Code.
If Mr. Young's employment is terminated before the end of the Young Term for
any reason other than by the Company for cause or by Mr. Young (other than due
to reassignment more than 50 miles from his current place of employment), Mr.
Young will be entitled to the payment of his salary through the end of the
Young Term and the full Young Performance Bonus. The Young Agreement prohibits
Mr. Young from disclosing, during the Young Term and at any time thereafter,
without the prior written consent of Industries, any confidential matters to
anyone outside of Industries or its subsidiaries or their predecessors for as
long as such matters remain confidential and not generally known to the
public. The Young Agreement also provides that Mr. Young will be indemnified
under the Company's by-laws and covered by its officer's liability insurance
policies to the extent that the Company provides such coverage for its other
officers.
Pursuant to the Noncompetition Agreement to be entered into by the Company
and Mr. Young, Mr. Young will agree not to compete with Industries or its
subsidiaries or any of their predecessors or to solicit their employees during
the term of his employment with the Company and for a period of three years
thereafter in consideration for $2,800,000 to be paid following the
termination of his employment. The Noncompetition Agreement will also provide
for Mr. Young to elect to defer receipt of any compensation payable
thereunder.
The employment agreement between the Company and Thomas Sherman (the
"Sherman Agreement") will become effective at the Effective Time and remain in
effect for a period of 12 months (the "Sherman Term"). Pursuant to the Sherman
Agreement, Mr. Sherman will serve as a senior financial officer of the Company
under the Preferred Merger, or, under the Alternative Merger, in a position
with similar authority and responsibility with a division thereof. The Sherman
Agreement will provide that, during the Sherman Term, Mr. Sherman will receive
a base payment of 301,131 in lieu of his current base salary and target bonus
with Bay State, plus a performance bonus of 1.0% (capped at $425,000) of
Industries' earnings before extraordinary items, losses and
41
<PAGE>
discontinued operations, interests, taxes, depreciation and amortization for
fiscal year 1999 ("Sherman Performance Bonus"). The Sherman Agreement will
further provide that the Sherman Performance Bonus (with the exception of
compensation payable under the Stock Performance Sharing Plan), together with
the consideration payable to Mr. Sherman under his noncompetition agreement,
as discussed below, will be in lieu of any payment due under the Severance
Agreement between Bay State and Mr. Sherman. The Sherman Agreement will also
provide for Mr. Sherman to elect to defer the receipt of compensation. The
Sherman Agreement provides that Mr. Sherman is entitled to a tax gross-up
payment if it is determined that any payment from the Company to Mr. Sherman
would be subject to the excise tax imposed by Section 4999 of the Code.
If Mr. Sherman's employment is terminated before the end of the Sherman Term
for any reason other than by the Company for cause or by Mr. Sherman (other
than due to reassignment more than 50 miles from his current place of
employment), Mr. Sherman will be entitled to the payment of his salary through
the end of the Sherman Term and the full Sherman Performance Bonus. The
Sherman Agreement prohibits Mr. Sherman from disclosing, during the term of
the Sherman Agreement and at any time thereafter, without the prior written
consent of Industries, any confidential matters to anyone outside of
Industries or its subsidiaries or their predecessors for as long as such
matters remain confidential and not generally known to the public. The Sherman
Agreement also provides that Mr. Sherman will be indemnified under the
Company's by-laws and covered by officer's liability insurance policies to the
extent that the Company provides such coverage for its other officers.
Pursuant to the Noncompetition Agreement to be entered into by the Company
and Mr. Sherman, Mr. Sherman will agree not to compete with Industries or its
subsidiaries or any of their predecessors or to solicit their employees during
the term of his employment with the Company and for a period of three years
thereafter in consideration for $600,000 to be paid following the termination
of his employment. The Noncompetition Agreement will also provide for Mr.
Sherman to elect to defer receipt of any compensation payable thereunder.
Bay State Stock Accumulation Plan for Outside Directors. The Bay State Stock
Accumulation Plan for Outside Directors (the "Stock Accumulation Plan") is
designed to align the interests of the members of the Bay State Board who are
not employees of Bay State or its subsidiaries ("Outside Directors") more
closely with the interests of Bay State Shareholders by paying a portion of
their compensation in Bay State Shares. Outside Directors are paid an annual
base retainer in consideration of their service on the Bay State Board. Each
person who is an Outside Director on January 1, 1997 and on each anniversary
thereof and who has not elected to opt out of the Stock Accumulation Plan is
paid his or her annual retainer in Bay State Shares, purchased by Bay State on
the open market. For purposes of the Stock Accumulation Plan, the term
"retainer" does not include meeting fees, travel expenses, fees for service on
Board committees, or additional retainers for service as chairman of the Bay
State Board. Unless Outside Directors are otherwise exempted from
participation in the Stock Accumulation Plan by the Compensation Committee of
the Bay State Board, the retainer is credited to the directors' stock accounts
(the "Stock Accounts") once annually at the time of Bay State's Annual Meeting
of Shareholders. The shares are held by Bay State and the participants Stock
Accounts are credited. Dividends accruing on such shares are payable in cash.
Generally, a participant is not vested in a particular retainer payment and
dividends attributable thereto until completion of two years of service from
such retainer payment date. However, under the terms of the Stock Accumulation
Plan, upon death, disability, attainment of age 65 with at least five years of
service on the Bay State Board, opting out of the Stock Accumulation Plan, or
the occurrence of a "Change in Control" of Bay State, including approval of
the Merger Agreement by the Bay State Shareholders, shares of common stock
credited to a participant's Stock Account immediately vest. Several members of
the Bay State Board have received awards of Bay State Shares under the Stock
Accumulation Plan, which are not currently exercisable and which would vest
upon shareholder approval of the Merger.
Bay State Stock Performance Sharing Plan. The Bay State Stock Performance
Sharing Plan (the "Stock Performance Sharing Plan") provides long-term stock-
based incentives to certain employees of Bay State. Annual awards are made at
the discretion of the Bay State Board in the form of performance shares
("Performance Shares") which, upon vesting in accordance with the Stock
Performance Sharing Plan, may be
42
<PAGE>
exchanged for (i) a cash payment in an amount equal to the closing price for
Bay State's Shares on the day before the date of vesting; provided, however,
that, except as set forth below, such cash payment will only be made on the
condition that the recipient immediately invest all of the payment in Bay
State Shares; and (ii) an additional cash payment equal to the dividends which
would have been paid on all such shares between the date of grant and the date
of vesting. The requirement of purchasing Bay State Shares does not apply to
payments under the Stock Performance Sharing Plan made as a result of a change
of control of Bay State. The Performance Shares awarded to a participant in
any year vest at the end of the three-consecutive year period beginning on the
date the award is granted (a "Performance Period"), depending on Bay State's
total return to shareholders for the Performance Period. Under the terms of
the Stock Performance Sharing Plan, upon the occurrence of a "Change in
Control" of Bay State, including approval of the Merger Agreement by Bay State
Shareholders, each participant is entitled to payment of fifty percent of the
Performance Shares awarded to him or her for the Performance Period in which
the Change in Control occurs. Participants in the Stock Performance Sharing
Plan that received awards under the Stock Performance Sharing Plan and its
predecessor, the Bay State Key Employee Long-Term Incentive Plan, all of which
are not currently exercisable and/or subject to forfeiture, fifty percent of
which would vest upon approval of the Merger Agreement by Bay State
Shareholders. Because such approval constitutes change of control under the
Stock Performance Sharing Plan, the awards that will vest as a result of such
approval are not required to be used to purchase Bay State Shares.
Director and Officer Indemnification and Insurance. Pursuant to the Merger
Agreement, Industries has agreed that, from and after the Effective Time, the
Surviving Corporation will indemnify and hold harmless each present and former
director and officer of Bay State or any of its subsidiaries 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 Bay State or such
subsidiary is permitted under applicable law or its organizational documents.
In addition, the Merger Agreement provides that Industries will cause to be
maintained Bay State's existing D&O Insurance coverage for a period of six
years after the Effective Time for all persons who are covered persons under
Bay State's D&O Insurance, so long as the annual premium therefor does not
exceed 200% of the last annual premium paid prior to the date of the Merger
Agreement (the "Current Premium"); provided, however, that if the existing D&O
Insurance expires, is terminated or canceled during such six-year period,
Industries will use all reasonable efforts to obtain as much D&O Insurance as
can be obtained for the remainder of such period for a premium not in excess
on an annualized basis of 200% of the Current Premium.
PORTLAND NATURAL GAS TRANSMISSION SYSTEM
NI Energy Services Development Corp., a wholly owned subsidiary of
Industries ("NESDC"), has acquired 50% of Bay State's equity interest (the
"Equity Interest") in Portland Natural Gas Transmission System ("PNGTS"), a
Maine general partnership. Bay State's wholly owned subsidiary Natural Gas
Development, Inc. ("NGDI") is a partner in PNGTS which was established to
develop a natural gas transmission pipeline in northern New England. In
connection with NESDC's acquisition of 50% of the Equity Interest, NESDC
loaned Granite, NGDI's direct parent company, approximately $4,800,000 to
finance certain capital contributions of NGDI due to PNGTS (the "Bridge
Note"). In consideration for 50% of the Equity Interest, NESDC paid NGDI one-
half of the book value of the Equity Interest less the outstanding principal
amount and interest of the Bridge Note. Industries and Bay State have also
agreed that if the Merger is not consummated, NESDC will pay NGDI an amount
equal to (a) the difference, if any, between one-half of the fair market value
of the Equity Interest and one-half of the book value of the Equity Interest
(b) plus interest on such difference at the rate of 9% per year from the date
NESDC acquires 50% of the Equity Interest through a mutually agreed upon date
subsequent to the termination of the Merger Agreement.
43
<PAGE>
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved by the requisite vote of the holders of
Bay State 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 the Commonwealth of Massachusetts or,
with respect to the Alternative Merger only, when Articles of Merger are also
filed with the Secretary of State of any other jurisdiction that may be
required or, in either case, at such later date as provided in the Articles of
Merger. The filing or filings, as the case may be, of Articles of Merger will
be made as soon as practicable after all conditions to the Merger Agreement
have been satisfied or waived.
OPERATION OF BAY STATE AFTER THE MERGER
After the Effective Time, if the Preferred Merger has been effected, the
Surviving Corporation will change its name to "Bay State Gas Company," remain
a wholly owned subsidiary of Industries and conduct Bay State's gas utility
business, subject to regulation to the same extent Bay State's gas utility
business is now regulated by applicable regulatory agencies. Bay State's
subsidiaries will continue to be legally separate corporations, and Bay
State's regulated subsidiaries will continue to be fully subject to regulation
to the extent now regulated by applicable regulatory agencies. The Surviving
Corporation will maintain corporate offices in Westborough, Massachusetts.
After the Effective Time, Bay State's current subsidiaries, including Northern
and Granite, may remain as subsidiaries of the Surviving Corporation or may
become direct subsidiaries of Industries or of another Industries subsidiary.
If the Alternative Merger is effected, Bay State and Northern will have been
merged into Northern Industries which will remain a wholly owned subsidiary of
Industries.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO CERTAIN SHAREHOLDERS
The discussion below contains a summary of the respective tax opinions of
LeBoeuf and Schiff on the material federal income tax consequences of the
Merger, which opinions are filed as an exhibit to the Registration Statement
of which this Proxy Statement/Prospectus is a part. The opinions filed with
the Registration Statement do not satisfy the waivable tax opinion condition
for consummation of the Merger. See "--Conditions to the Merger." Together,
LeBoeuf and Schiff have opined on all material federal income tax consequences
of the Merger, except for the matters specifically addressed below. The
discussion is based upon the Code, applicable Treasury Regulations thereunder
and administrative rulings and judicial authority as of the date hereof. All
of the foregoing are subject to change, possibly with retroactive effect, and
any such change could affect the continuing validity of the discussion. The
discussion assumes that Bay State Shareholders hold such shares as a capital
asset. Further, the discussion does not address the tax consequences that may
be relevant to a particular Bay State Shareholder subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, persons who are not treated as
United States persons under the Code (including the effects of the Foreign
Investment in Real Property Tax Act on such persons who are not treated as
United States persons under the Code) and Bay State Shareholders who acquired
their Bay State Shares through the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan. This discussion does
not address any consequences arising under the laws of any state, locality or
foreign jurisdiction, nor does it address the effect of the Merger on Bay
State or Industries in respect of any asset as to which unrealized gain is
required to be recognized for U.S. federal income tax purposes at the end of
each taxable year under a mark-to-market system.
Neither Bay State nor Industries has requested a ruling from the Internal
Revenue Service ("IRS") with regard to any of the federal income tax
consequences of the Merger, and the opinions of counsel as to such federal
income tax consequences referred to below will not be binding on the IRS.
Tax Opinion. The consummation of the Merger is conditioned upon the receipt
by Bay State and Industries of additional opinions of LeBoeuf and Schiff prior
to the Effective Time. Schiff is 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 Bay State will recognize gain or
loss as a result of the Merger. Although it is the opinion of Schiff that the
Alternative Merger
44
<PAGE>
will constitute a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly, neither Industries nor Bay State will recognize
gain or loss as a result of the Alternative Merger, there is a remote risk
that the IRS could assert that the merger of Northern with and into Northern
Indiana was for consideration consisting of a combination of stock and cash in
the same proportion as the aggregate proportion of stock and cash received by
the holders of Bay State Shares in the merger of Bay State with and into
Northern Indiana. If the merger of Northern with and into Northern Indiana
were determined to be in exchange for stock and cash as aforesaid, such merger
would be fully taxable. In such case, Northern would be treated as having sold
its assets to Northern Indiana for stock and cash having a fair market value
equal to the fair market value of such assets and would recognize gain, if
any, equal to the difference between Northern's tax basis in such assets and
the fair market value of such stock and cash. There are no federal income tax
regulations, court decisions or published IRS rulings bearing directly on this
issue.
LeBoeuf is of the opinion, subject to the assumptions set forth below being
true and correct as of the Effective Time, that Bay State Shareholders that
exchange their shares solely for Industries Shares will not recognize gain or
loss in the Merger and Bay State Shareholders that exchange their shares for
Industries 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.
Although the requirement for receipt of the additional tax opinions is
waivable by the parties, it is expected that such opinions will be received
and that the requirement will not be waived by either party. In the event that
(i) either Industries or Bay State waives this condition and (ii) the related
change in tax consequences is material to Bay State Shareholders, Bay State
will furnish a supplement to this Proxy Statement/Prospectus to its
Shareholders disclosing such waiver and all related material matters, and
proxies will be resolicited.
The foregoing opinions are based upon (i) certain representations of Bay
State, Acquisition, Northern Indiana (in the case of the Alternative Merger),
certain shareholders and Industries which are in form and substance reasonably
satisfactory to counsel (ii) the assumption that the Merger will be
consummated in accordance with its terms, and (iii) the assumption that in the
event the Preferred Merger is not possible and the Alternative Merger is
chosen, the Merger Agreement is not materially amended such that its terms and
conditions do not meet the requirements of a reorganization pursuant to
Section 368(a) of the Code. If LeBoeuf or Schiff is unable to issue its
opinion as a result of the Merger possibly failing to satisfy the continuity
of interest requirements relating to reorganizations described in Section
368(a) of the Code, the number of Industries 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."
This concludes the summary of the opinions of counsel with regard to the
material federal income tax consequences of the Merger. The discussion below
describes further federal income tax considerations of relevance to certain
Bay State Shareholders in connection with the Merger.
Bay State Shareholders--General. As discussed below, the federal income tax
consequences of the Merger to a Bay State Shareholder depend on whether such
holder receives cash or Industries Shares or some combination thereof in
exchange for such holder's Bay State Shares.
Only Industries Shares Received. Except as discussed below with respect to
cash received in lieu of a fractional Industries Share, a Bay State
Shareholder that receives only Industries Shares in the exchange of such
holder's Bay State Shares will not recognize gain or loss. The adjusted tax
basis of the Industries Shares received in the Merger will be the same as the
adjusted tax basis Bay State Shares exchanged therefor decreased by the basis
of any fractional share interest for which cash is received in the Merger. The
holding period of the Industries Shares received will include the holding
period of Bay State Shares exchanged therefor.
Only Cash Received. A Bay State Shareholder that receives solely cash in the
Merger in exchange for such holder's Bay State Shares will either recognize
capital gain or loss measured by the difference between the
45
<PAGE>
amount of cash received and the adjusted tax basis of the Bay State Shares
exchanged therefor or dividend income, as provided in Section 302 of the Code.
See "--Additional Considerations" below.
Industries Shares and Cash Received. Except as discussed below with respect
to cash received in lieu of a fractional Industries Share, a Bay State
Shareholder 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 Bay State Shares, receives both Industries Shares and cash in
the exchange for Bay State 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 Shares
received plus the amount of any cash received minus the adjusted tax basis of
the Bay State Shares exchanged), if any, but only to the extent of the amount
of any cash received. A Bay State Shareholder will either recognize capital
gain or dividend income, as provided in Section 302 of the Code. See "--
Additional Considerations" below.
The adjusted tax basis of the Industries Shares received will be the same as
the adjusted tax basis of the Bay State 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 Shares received will include
the holding period of the Bay State Shares exchanged therefor.
Additional Considerations. It is possible that, under certain circumstances,
the gain recognized by a Bay State Shareholder could be treated as dividend
income rather than capital gain unless the requirements of Section 302 of the
Code are satisfied. In order to determine whether those requirements are
satisfied, a shareholder is treated as having received solely Industries
Shares in the Merger (instead of the cash actually received) and then having
received cash from Industries in a hypothetical redemption of those shares.
The hypothetical redemption will satisfy the requirements under Section 302 of
the Code if it either (i) is "not essentially equivalent to a dividend" or
(ii) has the effect of a "substantially disproportionate" redemption of
Industries Shares. Whether such hypothetical redemption of Industries Shares
is "not essentially equivalent to a dividend" depends on the individual facts
and circumstances of each shareholder but in any event must result in a
meaningful reduction of a shareholder's proportionate stock interest in
Industries. Generally, in the case of a Bay State Shareholder whose stock
interest in Industries (relative to the total number of Industries Shares
outstanding) is minimal and who exercises no control over the affairs of
Industries, any actual reduction in proportionate interest will be treated as
"meaningful" and the hypothetical redemption shall be treated as giving rise
to capital gain. Alternatively, the hypothetical redemption of the Industries
Share will be "substantially disproportionate" if (i) the ratio which the
Industries Shares (and any other Industries voting stock) owned by the
shareholder after the hypothetical redemption bears to all of the voting stock
of Industries at such time is less than 80% of the ratio which the Industries
Shares (and any other Industries voting stock) hypothetically owned by the
shareholder after the Merger but before the redemption bears to all of the
voting stock of Industries at such time and (ii) the shareholder owns less
than 50 percent of the combined voting power of all of the voting stock of
Industries outstanding immediately after the hypothetical redemption.
Shareholders should consult their tax advisors regarding the application of
the foregoing tests and the consequences of not satisfying such tests. In
addition, in applying the foregoing tests, there must be taken into account
not only actual ownership of stock but also stock constructively owned by a
shareholder by reason of certain attribution rules under Section 318 of the
Code. Under these rules, a shareholder is treated as owning the stock owned by
certain family members, stock subject to an option to acquire such stock,
stock owned by certain estates and trusts of which the shareholder is a
beneficiary, and stock owned by certain affiliated entities. BECAUSE OF THE
COMPLEXITY OF THESE RULES, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS.
Fractional Shares. If a Bay State Shareholder receives cash in lieu of a
fractional Industries Share in the Merger, such cash amount will be treated as
received in exchange for the fractional Industries Share. Gain or
46
<PAGE>
loss recognized as a result of that exchange will be equal to the cash amount
received for the fractional Industries Share reduced by the proportion of the
holder's adjusted tax basis in the Bay State Shares exchanged and allocable to
the fractional Industries Share.
THE DISCUSSION ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX
ASPECTS OF THE MERGER OR ALL SPECIFIC FACTUAL CIRCUMSTANCES THAT MAY BE
RELEVANT TO THE TAX SITUATION OF EACH BAY STATE SHAREHOLDER. THE DISCUSSION IS
BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT
DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. EACH BAY STATE
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
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
purchase price in excess of the fair value of the net assets acquired will be
allocated to utility plant in service of Bay State and Northern and to
goodwill for all other Bay State subsidiaries.
RESALES OF INDUSTRIES SHARES ISSUED IN THE MERGER; AFFILIATES
All Industries Shares issued in the Merger will be freely transferable,
except that Industries Shares received by persons who are deemed to be
"affiliates" (as that term is defined under the Securities Act) of Bay State
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 Bay State) 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 Bay State or Industries generally include individuals or
entities that control, are controlled by, or are under common control with Bay
State or Industries, respectively, and may include certain officers, directors
and principal shareholders of such corporations.
Affiliates may not sell the Bay State 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 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 Shares sold by an affiliate during any
three-month period may not exceed the greater of 1% of the outstanding
Industries Shares or the average weekly trading volume in Industries 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 Bay State affiliate has held the Industries
Shares for at least two years. Industries Shares held by persons who are or
become affiliates of Industries will be subject to additional restrictions on
sale.
DESCRIPTION OF INDUSTRIES CAPITAL STOCK
GENERAL
The authorized capital stock of Industries, as of April 17, 1998, consists
of 400,000,000 Industries Shares, of which 123,168,448 shares were issued and
outstanding and 20,000,000 preferred shares, of which no shares
47
<PAGE>
were issued and outstanding. The description of the material aspects of
Industries' capital stock set forth herein does not purport to be complete and
is qualified in its entirety by reference to Industries' articles of
incorporation and by-laws, as well as by applicable statutory or other law.
Upon issuance and delivery of Industries Shares pursuant to the Merger
Agreement, such shares will be fully paid and nonassessable.
INDUSTRIES COMMON STOCK
Voting. Each holder of Industries Shares will be entitled to one vote per
share on each matter submitted to a vote at a meeting of shareholders.
Dividends. The holders of Industries Shares will be entitled to receive
dividends when and as declared by Industries' Board, subject to any rights of
holders of any preferred shares of Industries.
Liquidation. In the event of any liquidation, dissolution or winding up of
Industries, the holders of Industries Shares will be entitled to receive the
remaining assets after payment to the holders of preferred shares of the
preferential amounts, if any, to which they are entitled.
Preemptive Rights. Holders of Industries Shares are not entitled, as a
matter of right, to subscribe for, purchase or receive any new or additional
issue of Industries capital stock or securities convertible to capital stock
of Industries.
Listing and Transfer Agent. Industries Shares are listed on the NYSE, PSE
and CSE. The transfer agent and registrar for Industries Shares is Harris
Trust and Savings Bank.
COMPARATIVE SHAREHOLDER RIGHTS
The rights of holders of Bay State Shares and Industries Shares are
currently governed by Chapter 164 of the MGL and certain sections of Chapter
156B of the MGL incorporated by reference into Chapter 164 (hereinafter
references to "Chapter 164" shall include the provisions of Chapter 156B which
Chapter 164 makes applicable to corporations subject to Chapter 164) and the
Indiana Business Corporation Law (the "Indiana BCL"), respectively, and the
respective articles of incorporation and by-laws of each corporation ("Bay
State's Articles" and "Industries' Articles" and "Bay State's By-Laws" and
"Industries' By-Laws," respectively). Upon consummation of the Merger, holders
of Bay State Shares will become holders of Industries Shares, and their rights
will be governed by the Indiana BCL, Industries' Articles and Industries' By-
Laws. A summary of certain material differences between the rights of holders
of Bay State Shares and the holders of Industries Shares is set forth below.
The following does not purport to be a comprehensive description of the
differences between the corporate and public utility laws of Indiana and
Massachusetts, or between the rights of Bay State Shareholders and holders of
Industries Shares, and is qualified in its entirety by reference to the
Indiana BCL, Chapter 164, all other Indiana and Massachusetts laws and the
governing documents of Industries and Bay State.
COMMON AND PREFERRED SHARES
Industries' Articles authorize the issuance of 400,000,000 Industries
Shares, of which 123,168,448 shares were issued and outstanding as of April
17, 1998, and the issuance of 20,000,000 preferred shares, none of which were
issued and outstanding as of April 17, 1998. Preferred shares of Industries
may be issued in series having such rights and preferences as may be
designated by Industries' Board. As of the date hereof, Industries has one
series of 2,000,000 preferred shares designated Series A Junior Participating
Preferred Shares, reserved for issuance in connection with Industries' Share
Purchase Rights Plan. See "--Share Purchase Rights Plans" below. There are no
restrictions on the issuance of additional Industries preferred shares.
48
<PAGE>
Bay State's Articles authorize the issuance of 36,000,000 Bay State Shares,
150,000 shares of cumulative preferred stock, $50 par value per share, and
200,000 shares of cumulative preferred stock, $100 par value per share. The
Bay State Preferred Shares may be issued in series having such rights and
preferences as may be designated by the Bay State Board. At the close of
business on April 17, 1998, 13,525,014 Bay State Shares, no shares of
cumulative preferred stock, $50 par value per share, and no shares of
cumulative preferred stock, $100 par value per share, were issued and
outstanding. At the close of business on April 17, 1998, Bay State had
1,588,666 Bay State Shares reserved for issuance pursuant to its KESOP, Stock
Performance Sharing Plan and Dividend Reinvestment Plan and 13,525,014 Bay
State Shares reserved for issuance in connection with Bay State's Shareholder
Rights Agreement. See "--Share Purchase Rights Plans" below. Except as
provided for in the Merger Agreement, there are no restrictions on the
issuance of additional Bay State Preferred Shares.
Pursuant to the Merger Agreement, all outstanding Bay State Preferred Shares
were redeemed by Bay State effective March 1, 1998, and are no longer
outstanding.
GENERAL VOTING RIGHTS
Common Shares. Holders of Industries Shares and Bay State Shareholders are
entitled to one vote for each share held of record upon any matter submitted
to a vote of Industries shareholders and Bay State Shareholders, respectively.
Preferred Shares. Industries' Articles and Bay State'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 applicable state law. The
resolutions establishing Industries' Series A Junior Participating Preferred
Shares provide that the holders of such shares, when issued and outstanding,
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 Power. Upon consummation of the Merger, based on the number of shares
outstanding as of April 17, 1998, assuming the exercise of all outstanding Bay
State options and assuming the consideration paid by Industries in the Merger
was comprised of 50% Industries Shares and 50% cash, Bay State Shareholders
would hold approximately 9.9 million (or 7.4%) of the approximately 133
million Industries Shares. Following the Merger, Bay State Shareholders will
therefore not possess the same relative voting power on matters put to a vote
of the shareholders of Industries as that possessed in regard to Bay State
prior to the Merger. Neither Bay State's Articles nor Industries' Articles
permits cumulative voting in the election of directors.
CERTAIN BUSINESS COMBINATIONS AND SHARE PURCHASES
Chapters 110D and 110F of the MGL and Chapters 42 and 43 of the Indiana BCL
regulate, respectively, "control share acquisitions" of securities of, and
"business combinations" with, certain Massachusetts and Indiana corporations,
including, in some instances, Bay State or Industries. The Merger qualifies
for exemptions from the requirements of Chapters 110D and 110F.
In both the Massachusetts and Indiana statutes, a "control share
acquisition" is deemed to occur when a person accumulates beneficial ownership
of shares of a corporation subject to the statute which, when added to all
other shares of such corporation beneficially owned by such person, would
entitle such person, upon acquisition of such shares, to vote or direct the
voting of shares of such corporation having voting power in the election of
directors within any of the following ranges of voting power: (i) one-fifth or
more but less than one-third of all voting power; (ii) one-third or more but
less than a majority; or (iii) a majority or more of all voting power. Shares
acquired in a control share acquisition have the same voting rights as all
other shares of the same class or series of the corporation only to the extent
authorized by the affirmative vote of the holders of a majority of all of the
shares entitled to vote generally in the election of directors, excluding
shares held by the acquiring person, any officer of such corporation or any
employee of such corporation who is also a director of the corporation. The
acquiring person may cause a special shareholder meeting to be held to
consider whether the acquiring person can vote its shares. If no such request
for a shareholders' meeting is made, consideration of the
49
<PAGE>
voting rights of the acquiring person's shares must be taken up at the next
special or annual shareholders' meeting of the corporation. In the event the
acquiring person fails to file a statement requesting such a meeting or the
remaining shareholders vote not to accord voting rights to the acquiring
person's shares, the corporation may redeem all of the acquiring person's
shares for fair value. In Indiana such a redemption must be authorized in the
corporation's articles or bylaws before a control share acquisition has
occurred. Industries' By-Laws authorize such a redemption. If voting rights
are accorded to the acquiring person and the acquiring person acquires
beneficial ownership of a majority of the shares of the corporation entitled
to vote on the election of directors, each shareholder of record who has not
voted in favor of according the acquiring person such voting rights may demand
payment and an appraisal for his or her stock at fair value. Regardless of the
foregoing, full voting rights will be restored to the shares of an acquiring
person upon the transfer of beneficial ownership of such shares to another
person unless such transfer itself constitutes a control share acquisition.
Chapter 110F of the MGL regulates "business combinations" involving certain
Massachusetts corporations and an "interested person." An "interested person"
is deemed to be, subject to certain limitations, either (i) a person who
acquires 5% or more of the outstanding voting stock of such corporation, or
(ii) an affiliate of such corporation who owned 5% or more of the outstanding
voting stock within the three year period immediately preceding the date of
the business combination, and the affiliates of such person. A "business
combination" includes a merger, consolidation and sale or other disposition of
either 10% or more of the aggregate market value of the assets of the
corporation and its subsidiaries or of the outstanding stock of the
corporation, to or with an interested person; any transaction resulting in the
issuance or transfer to an interested person of any stock, of the corporation
or its subsidiaries (except pursuant to certain exchanges or conversions of
securities into stock dividends, distributions or exchange offers made to all
holders of stock, or issuances or transfers of stock by the corporation); any
transaction involving the corporation or its subsidiaries which would result
in increasing the proportionate share of the stock of the corporation or its
subsidiaries owned by an interested person; and any receipt by an interested
person of the benefit (except proportionately as a shareholder) of loans,
guarantees or other financial benefits. The corporation may not engage in any
business combination with an interested person for a period of three years
following the date such shareholder became an interested person, unless prior
to that date the board of directors approved either the business combination
or the transaction which resulted in the shareholder becoming an interested
person; or unless one of two exceptions is satisfied: (i) upon consummation of
the transaction which resulted in the shareholder becoming an interested
person, the interested person owned at least 90% of the corporation's
outstanding voting stock, excluding shares held by directors who are also
officers and employee stock plans in which employee participants do not have
the right to determine confidentially whether the shares will be tendered in a
tender offer or exchange offer, or (ii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized by
the affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested person. This prohibition does not apply to a
business combination when such combination is proposed prior to the
consummation or abandonment of, and subsequent to the public announcement of,
a merger, sale of 50% or more of the aggregate market value of the
consolidated assets, or a tender offer for 50% or more of the aggregate market
value of the outstanding stock of the corporation; if it is with or by a
person who either was not an interested person during the previous three years
or who became an interested person with board approval; and is approved or not
opposed by a majority of the current directors who were also directors prior
to any person becoming an interested shareholder during the previous three
years.
A Massachusetts corporation may elect not to be governed by the control
share acquisition or business combination provisions if the shareholders of
the corporation approve an amendment to its articles of organization or its
bylaws exempting the corporation from the coverage of such provisions. Bay
State has not adopted such an amendment.
Chapter 43 of the Indiana BCL regulates "business combinations" involving
certain Indiana corporations with a class of voting shares registered pursuant
to the Exchange Act and an "interested shareholder." An "interested
shareholder" is deemed to be, subject to certain limitations, (i) a person who
is the beneficial owner of 10% or more of the voting power of the outstanding
voting shares of the corporation; or (ii) an affiliate or associate of the
corporation who at any time within the five-year period immediately preceding
the date of the
50
<PAGE>
business combination was the beneficial owner of 10% or more of the voting
power of the then outstanding shares of the corporation. A "business
combination" includes a merger, sale, lease, exchange, mortgage, pledge,
transfer, or other disposition of 10% or more of the assets, outstanding stock
or earning power of the corporation, to or with an interested shareholder; any
transaction resulting in the issuance or transfer to an interested shareholder
of any stock of the corporation or its subsidiaries having 5% or more of the
aggregate market value of all outstanding shares (except pursuant to the
exercise of certain warrants or rights to purchase shares, or pro rata
dividends or distributions); any proposal for liquidation or dissolution by
the interested shareholder; any transaction involving the corporation or its
subsidiaries which would result in increasing the proportionate share of the
stock of the corporation or its subsidiaries owned by an interested
shareholder; and any receipt by an interested shareholder of the benefit
(except proportionately as a shareholder) of loans, guarantees or other
financial benefits. The corporation may not engage in any business combination
with an interested shareholder for a period of five years following the date
such shareholder became an interested shareholder, unless prior to that date
the board of directors approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder. Subsequent to the expiration of the five year prohibition, a
combination will be allowed only if (i) prior to the interested shareholder's
share acquisition date, the board of directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, (ii) the combination is approved by disinterested
shareholders or (iii) shareholders, other than the interested shareholder,
receive certain amounts and types of consideration in the event a business
combination with the interested shareholder that has not been approved takes
place after the expiration of the five-year period.
A corporation may elect not to be governed by the business combination
provisions by amendment to its articles of incorporation. Industries has not
adopted such an amendment. Industries' Articles have provisions similar to
those of Chapter 43 of the Indiana BCL. 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 Industries'
Board 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.
The provisions in Chapter 43, the Indiana BCL and Industries' Articles, in
effect, encourage a party seeking to control Industries, in advance of the
party becoming an interested shareholder, to negotiate and reach an agreement
with Industries' Board as to the terms of its proposed business combination.
Without such a prior agreement with Industries' Board, it could take over five
years for a party who is an interested shareholder 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, takeovers that might be favored by
a majority of Industries' 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 than are likely to be offered in takeovers initiated without
advance negotiations.
Massachusetts corporations subject to Chapter 164 may merge or consolidate
with one another, or may sell and convey their properties to another
corporation, provided that such merger, consolidation or sale, and the terms
thereof, have been approved, at meetings called therefor, by vote of the
holders of at least two-thirds of each class of stock outstanding and entitled
to vote thereon and that the MDTE, after notice and a public hearing, has
determined that such merger, consolidation or sale, and the terms thereof, are
consistent with the public interest.
DIVIDENDS AND REPURCHASE OF STOCK
The Indiana BCL provides that the board of directors may authorize and a
corporation may make distributions to its shareholders unless (i) the articles
of incorporation restrict the directors' power or, (ii) after
51
<PAGE>
giving effect to a distribution, the corporation would not be able to pay its
debts as they become due in the usual course of business or the corporation's
total assets would be less than the sum of its total liabilities plus the
amount, if any, required to satisfy preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Industries' Articles provide that Industries' Board may declare
dividends on Industries Shares subject to the preferential rights of the
preferred shareholders, if any.
Under Chapter 164, directors of a corporation who vote to authorize any
distribution by the corporation to its stockholders which is in violation of
the corporation's articles of organization shall be liable to the corporation
for the amount by which such distribution exceeds that which could have been
made without violation, but only to the extent such excess distribution is not
repaid to the corporation. If the corporation is insolvent or is rendered
insolvent by the making of any distribution, the directors who voted to
authorize such distribution shall be liable to the corporation for the amount
of such distribution which exceeds that which could have been made without
rendering the corporation insolvent, to the extent such distribution, or such
excess, is not repaid to the corporation. The directors who authorized any
such distribution shall not be liable if such distribution could have been
made without violating the articles of organization or rendering the
corporation insolvent at the time when such distribution was authorized,
although subsequent payment of such distribution or any part thereof causes
such violation or insolvency. In addition, Chapter 164 provides that a stock
dividend may not be declared. The Bay State Articles provide that the Bay
State Board may declare dividends on Bay State Shares, subject to the
preferential rights of the preferred shareholders, if any.
BOARD OF DIRECTORS
The Indiana BCL provides that the articles of incorporation may provide for
staggering the terms of directors by dividing the directors into two or three
groups, having terms of two or three years, respectively. Industries' Articles
provide that Industries' Board shall consist of ten persons and be divided
into three classes serving staggered three-year terms. As a result,
approximately one-third of Industries' Board is elected each year.
The articles of organization of a corporation organized under Chapter 164
may require the division of the board of directors into classes. Under Chapter
164, there is no restriction on the number of classes or on the number of
directors in each class, although no class may be elected for a period shorter
than one year, or a period longer than five years and the term of office of at
least one class shall expire in each year. The Bay State By-Laws provide that
the Bay State Board consists of from 8 to 13 directors (as of the date hereof,
there are 10 directors), who are divided into three classes serving staggered,
three-year terms. As a result, approximately one-third of the Bay State Board
is elected each year.
The existence of Industries' and Bay State's staggered boards of directors
requires a substantial shareholder to negotiate with the existing board before
attempting a takeover of Industries or Bay State 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
Bay State's Board, and ultimately the shareholders of Industries or Bay State,
to negotiate with potential acquirors from a strong position and protects
Industries' or Bay State'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 Bay State's Board may discourage takeover bids which a
majority of Industries' or Bay State's shareholders might deem desirable.
The Indiana BCL provides that directors may be removed in any manner
provided in the articles of incorporation and that, unless the articles of
incorporation provide otherwise, any vacancy on the board of directors may be
filled by the directors. Industries' Articles provide that a director of
Industries may only be removed for cause by the directors or shareholders and
that vacancies shall be filled by a majority vote of the remaining directors.
Chapter 164 provides for the removal of directors, with or without cause,
upon the affirmative vote of a majority of the shares entitled to vote in the
election of directors, with certain exceptions and, unless the articles
52
<PAGE>
of organization provide otherwise, any vacancy on the board of directors may
be filled in the manner prescribed in the by-laws or, in the absence of such a
by-law, by the directors. The Bay State By-laws provide that vacancies on the
Bay State Board may be filled by the vote of a majority of the remaining
directors.
The Indiana BCL and Chapter 164 both provide that a director shall perform
his duties in good faith and in a manner he or she reasonably believes is in
the best interests of the corporation and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
Chapter 164 further provides that a director in determining what he or she
reasonably believes to be in the best interests of the corporation may
consider the interests of the corporation's employees, shareholders, creditors
and customers, the economy of the state, region and nation, community and
societal considerations, and the long-term and short-term interests of the
corporation and its stockholders, including the possibility that these
interests may best be served by the continued independence of the corporation.
The Indiana BCL provides for consideration of similar factors and the Indiana
General Assembly has reaffirmed within the statute its intent to allow
directors the full discretion to weigh the factors as they deem appropriate
and to protect both directors and the validity of corporate action taken by
them in the good faith exercise of their business judgment after reasonable
investigation.
SPECIAL MEETINGS OF SHAREHOLDERS
The Indiana BCL provides that a corporation with more than fifty
shareholders must hold a special meeting on call of its board of directors or
the person or persons authorized to call a meeting by the articles of
incorporation or by-laws. Industries' By-Laws provide that Industries'
Chairman, President or Board may call a special meeting of shareholders and
that Industries' Chairman must call a special meeting of shareholders upon the
written request of a majority of Industries' Board or the holders of at least
25% of the outstanding voting stock.
Under Chapter 164, special meetings of stockholders may be called by the
president or the board of directors of the corporation, and, unless otherwise
provided in the articles of organization or by-laws, by the clerk, or in the
case of the death, incapacity or refusal of the clerk, by another officer upon
written application of stockholders holding a specified percentage of the
capital stock of the corporation. In addition, Chapter 164 provides that a
special meeting of stockholders of certain public corporations may be called
only upon the written application of one or more stockholders who hold at
least 40% in interest of the capital stock entitled to vote thereat, unless
otherwise provided in the articles of organization or by-laws. The Bay State
By-Laws provide that Bay State's Chairman, President, or a majority of the Bay
State Board 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 10% of the outstanding voting stock.
ACTION BY WRITTEN CONSENT
Under the Indiana BCL and Chapter 164, any action required to be taken at
meeting of shareholders may be taken without a meeting if all such
shareholders entitled to vote on the matter consent to the action in writing
and the written consents are filed with the records of the meetings of
shareholders.
DISSENTERS' OR APPRAISAL RIGHTS
Shareholders of (i) corporations subject to Chapter 164 or (ii) corporations
subject to the Indiana BCL, if the shares held are registered on a United
States securities exchange or traded on NASDAQ, do not have statutory
dissenters' or appraisal rights, except in certain circumstances in connection
with "control share acquisitions," as discussed above. See "--Certain Business
Combinations and Share Purchases."
INSPECTION RIGHTS
The Indiana BCL provides that a shareholder of a corporation is entitled to
inspect certain records of the corporation (including the shareholder list) if
the shareholder gives the corporation at least five days written notice of the
shareholder's demand, the demand is made in good faith and for a proper
purpose, the shareholder
53
<PAGE>
describes the purpose and the records the shareholder desires to inspect, and
the records are directly connected with the shareholder's purpose. The
corporation may impose a reasonable charge for copies of any documents
provided to the shareholder.
As a corporation organized under Chapter 164, Bay State is required to make
available for inspection to all its shareholders its articles of organization,
by-laws, records of all meetings of incorporators and shareholders and the
stock and transfer records containing the shareholder list.
SHAREHOLDER PROPOSALS
Industries' By-Laws provide that nominations for election to Industries'
Board and the proposal of business to be considered by the shareholders at an
annual meeting of shareholders may be made by any shareholder of record who
gives notice to Industries prior to the date set forth for such notice in the
Industries' proxy statement for the preceding annual meeting of shareholders.
The notice must contain, for director nominees, the information required
pursuant to Regulation 14A of the Exchange Act in regard to such nominees, or
for business proposed to be brought before the meeting, a brief description of
the business and, in either case, certain information regarding the
shareholder making the proposal.
There are no provisions in the Bay State Articles or By-Laws or in Chapter
164 that require an equivalent advance notice for shareholders to propose
business or nominate candidates for election to the Bay State Board in order
for such matters to be brought before a meeting of Bay State Shareholders.
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 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 Shares favors such
changes.
Chapter 164 provides that an amendment to the articles of organization of a
corporation subject to Chapter 164, effecting (i) a change in the par value of
the shares of its capital stock; (ii) an increase of its capital stock of any
class then authorized or a reduction of any such class of stock; or (iii) a
change of its corporate name, may be authorized at a meeting duly called for
that purpose by vote of the majority of each class of stock outstanding and
entitled to vote thereon and, in the case of (i), above, provided that the
MDTE shall approve the change in par value upon application of the corporation
filed within thirty days after the shareholder vote authorizing the change. An
amendment to the articles of organization of a corporation subject to Chapter
164 effecting (i) an alteration of, addition to, or change in, the business
for which it was incorporated (provided, however, that such a corporation may
not engage in any business not authorized by Chapter 164, and provided further
that a gas company may not be authorized to engage in the business of an
electric company and an electric company may not be authorized to engage in
the business of a gas company unless the MDTE, after notice and a public
hearing, certifies to the Secretary of State that the public convenience will
be promoted thereby), or (ii) any other change in its articles of organization
(provided that such change would have been permitted to be included in or
deleted from the articles of organization of the corporation as originally
filed) may be authorized at a meeting duly called for the purpose by vote of
two thirds of each class of stock outstanding and entitled to vote thereon,
except if such amendment would adversely affect the rights of any class of
stock, the vote of two-thirds of such class, voting separately, is also
necessary to authorize such amendment. In this regard, any series of a class
which is adversely affected in a manner different from other series of the
same class is treated, together with any other series of the same class
adversely affected in the same manner, as a separate class.
54
<PAGE>
AMENDMENT OF BY-LAWS
Industries' By-Laws and Bay State's 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, Bay State's By-Laws provide they may be altered, amended or repealed
at any meeting of the stockholders by vote of the holders of two-thirds or
more of the stock entitled to vote at such meeting. Notwithstanding the
foregoing, Bay State's Board may not make, amend or repeal Bay State's By-Laws
with respect to any provision that by law or by Bay State's Articles requires
action by the shareholders.
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 Share.
Each Industries 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).
Each Industries Right entitles the holder to buy one-two-hundredth of a
share of Series A Junior Participating Preferred Stock at a price of $30 per
one-two-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 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
Shares. The Industries Rights will expire on March 12, 2000.
Chapter 164 authorizes a corporation subject to Chapter 164 to issue rights
or options which contain restrictions or conditions which are intended to
prevent hostile takeover attempts. Chapter 164 authorizes the creation and
issuance of rights or options that preclude or limit the exercise, transfer,
receipt or holding of such rights or options by any person owning or offering
to acquire a specified number or percentage of the outstanding stock or other
securities of the corporation, or any transferees of any such persons, or that
preclude or limit such actions based on such other factors, including the
nature or identity of such persons, as the directors determine to be
reasonable and in the best interests of the corporation.
In November 1989, Bay State adopted a Rights Agreement ("Bay State's Rights
Plan") and issued, as a dividend, one common share purchase right (a "Bay
State Right") for each outstanding Bay State Share. Each Bay State Share
issued since the date of that dividend also includes one Bay State Right.
Each Bay State Right entitles the holder to buy one Bay State Share at a
price of $70 per Bay State Share, subject to adjustment. The Bay State Rights
will be exercisable only if a person or group acquires 20% or more of the
outstanding Bay State Shares or announces a tender or exchange offer following
which it would hold 20% or more of the outstanding Bay State Shares. In the
event that Bay State is acquired in a merger or other business combination or
50% or more of its assets or earning power is sold, each holder of a Bay State
Right will receive, upon exercise, common stock of the acquiring company with
a market value of two times the exercise price of the Bay State Right. If a
person or group acquires 20% or more of the outstanding Bay State Shares
(other than pursuant to a tender offer for all of the Bay State Shares for
cash, which purchase increases such person's ownership to 80% or more), each
holder of a Bay State Right (other than Rights owned by such person, which
will be void), shall receive, upon exercise, Bay State Shares with a market
value of two times the exercise price of the Bay State Right. Bay State may
redeem the Bay State Rights at the price of $.01 per Bay State Right prior to
the acquisition by a person or group of 20% or more of the outstanding Bay
State Shares. The Bay State Rights will expire on November 30, 1999.
55
<PAGE>
Pursuant to the Merger Agreement, as long as the Merger Agreement is in
effect, Bay State shall take all action necessary to redeem the Bay State
Rights prior to the Effective Time.
Industries' Rights Plan and Bay State's Rights Plan, may impede or prevent
takeovers that in some circumstances might be beneficial to Industries' and
Bay State's shareholders, respectively. The plans would not impede or prevent
most change of control transactions approved by the existing directors and are
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
or Bay State, respectively. They may have, however, the overall effect of
making it more difficult to acquire and exercise control over Industries or
Bay State, respectively 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 shares.
INDEMNIFICATION OF DIRECTORS
The Indiana BCL provides that a corporation may indemnify a director against
liability incurred in any action, suit or proceeding if the director's conduct
was in good faith and the director reasonably believed that an act, in his
official capacity, was in the corporation's best interests or that, in all
other cases, his conduct was at least not opposed to the corporation's best
interests and with respect to criminal proceedings, the director has
reasonable cause to believe his conduct was lawful or no reasonable cause to
believe his conduct was unlawful. Unless limited by a corporation's articles
of incorporation, a corporation shall indemnify a director, against expenses,
when the director is wholly successful on the merits or otherwise in the
defense of a proceeding to which he is a party because of his position as a
director. In addition, a corporation may advance a director certain expenses
in advance of the final disposition of a proceeding. Industries' Articles
provide that each director and officer of the corporation shall be indemnified
by the corporation to the fullest extent permitted by law and Industries' By-
Laws contain further non-exclusive indemnification provisions.
Under Chapter 164, indemnification may be provided to any director, officer,
employee or agent of a corporation to whatever extent specified in or
authorized by the corporation's organizational documents or by a vote adopted
by the holders of a majority of the shares of stock entitled to vote on the
election of directors. Except as the corporation's organizational documents
may require, indemnification of any persons referred to in the preceding
sentence who are not directors may be provided to the extent authorized by the
directors. No indemnification may be provided for any person with respect to
any matter as to which that person has been adjudicated in any proceeding not
to have acted in good faith in the reasonable belief that his or her action
was in the best interest of the corporation.
Bay State's By-Laws provide that no director shall be personally liable to
Bay State or its shareholders for monetary damages for breach of fiduciary
duty as a director, notwithstanding any provision of law imposing such
liability. This provision, however, does not eliminate such liability to the
extent such liability is imposed by applicable law for any breach of the
director's duty of loyalty to Bay State or its shareholders; for acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; for authorizing certain distributions to
shareholders if Bay State has become insolvent; for approving certain loans to
officers or directors of Bay State that are not repaid and that were not
approved by a majority of disinterested directors or for any transaction from
which the director derived an improper personal benefit.
LEGAL OPINION
The legality of the Industries Shares to be issued pursuant to the Merger
has been passed upon for Industries by Schiff Hardin & Waite, 7300 Sears
Tower, Chicago, Illinois 60606. Schiff has advised Industries that attorneys
representing Industries in this transaction own 5,000 Industries Shares.
56
<PAGE>
EXPERTS
The consolidated financial statements and schedules of Industries and its
subsidiaries incorporated by reference in this Proxy Statement/Prospectus from
Industries' 1997 Annual Report on Form 10-K 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.
The consolidated financial statements of Bay State and its subsidiaries
incorporated by reference in this Proxy Statement/Prospectus from Bay State's
1997 Annual Report on Form 10-K, as amended by Form 10-K/A filed on December
17, 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.
BAY STATE SHAREHOLDER PROPOSALS
Any proposal submitted by a Bay State Shareholder for inclusion in the proxy
material for the 1999 annual meeting must be received by Bay State at its
corporate office in Westborough, Massachusetts, not later than 120 days prior
to December 8, 1998.
57
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
NIPSCO INDUSTRIES, INC.
AND
BAY STATE GAS COMPANY
DATED AS OF DECEMBER 18, 1997
AND
AMENDED AND RESTATED AS OF MARCH 4, 1998
A-i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER.............................................................. A-1
1.1 The Merger........................................................ A-1
1.2 The Alternative Merger............................................ A-1
1.3 Closing........................................................... A-2
1.4 Effective Time.................................................... A-2
1.5 Articles of Organization.......................................... A-2
1.6 By-Laws........................................................... A-2
1.7 Directors......................................................... A-2
1.8 Officers.......................................................... A-2
ARTICLE II
CONVERSION OF SHARES.................................................... A-3
2.1 Conversion of Acquisition Shares.................................. A-3
2.2 Conversion of Company Shares...................................... A-3
2.2.1 Outstanding Shares of Company Common Stock.................... A-3
2.2.2 Cash Election................................................. A-3
2.2.3 Cash Election Shares.......................................... A-3
2.2.4 Form of Election.............................................. A-3
2.2.5 Deemed Non-Election........................................... A-4
2.2.6 Election Deadline............................................. A-4
2.2.7 Treasury Shares............................................... A-4
2.2.8 Adjustment Per Tax Opinion.................................... A-4
2.2.9 Adjustments to Prevent Dilution............................... A-4
2.3 Exchange of Certificates and Related Matters...................... A-4
2.3.1 Paying Agent.................................................. A-4
2.3.2 Letter of Transmittal......................................... A-5
2.3.3 Exchange Procedures........................................... A-5
2.3.4 Distributions with Respect to Unexchanged Shares.............. A-5
2.3.5 No Further Ownership Rights in Company Shares................. A-6
2.3.6 No Fractional Shares.......................................... A-6
2.3.7 Termination of Paying Agent................................... A-6
2.3.8 No Liability.................................................. A-6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... A-6
3.1 Organization, Standing and Corporate Power........................ A-6
3.2 Capital Structure................................................. A-7
3.3 Subsidiaries...................................................... A-7
3.4 Authority; Noncontravention....................................... A-8
3.5 SEC Documents and Financial Statements............................ A-9
3.6 Absence of Certain Changes or Events.............................. A-9
3.7 Real and Personal Property........................................ A-10
3.8 Employee Matters; ERISA........................................... A-10
3.9 Taxes............................................................. A-13
3.9.1 Filing of Timely Tax Returns.................................. A-13
3.9.2 Payment of Taxes.............................................. A-13
3.9.3 Tax Reserves.................................................. A-13
3.9.4 Tax Liens..................................................... A-13
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.9.5 Withholding Taxes............................................. A-13
3.9.6 Extensions of Time for Filing Tax Returns..................... A-13
3.9.7 Waivers of Statute of Limitations............................. A-13
3.9.8 Expiration of Statute of Limitations.......................... A-14
3.9.9 Audit, Administrative and Court Proceedings................... A-14
3.9.10 Powers of Attorney............................................ A-14
3.9.11 Tax Rulings................................................... A-14
3.9.12 Availability of Tax Returns................................... A-14
3.9.13 Tax-Sharing Agreements........................................ A-14
3.9.14 Code Section 341(f)........................................... A-14
3.9.15 Code Section 168.............................................. A-14
3.9.16 Code Section 481 Adjustments.................................. A-14
3.9.17 Code Section 6661 and 6662.................................... A-14
3.9.18 Code Section 280G............................................. A-14
3.9.19 NOLS.......................................................... A-14
3.9.20 Credit Carryovers............................................. A-15
3.9.21 Code Section 338 Elections.................................... A-15
3.9.22 Acquisition Indebtedness...................................... A-15
3.9.23 Intercompany Transactions..................................... A-15
3.9.24 Liability for Others.......................................... A-15
3.10 Compliance with Applicable Laws.................................. A-15
3.11 Environmental Protection......................................... A-15
3.12 Litigation....................................................... A-17
3.13 Labor Relations.................................................. A-17
3.14 Intellectual Property............................................ A-18
3.15 No Default....................................................... A-19
3.16 Regulation as a Utility.......................................... A-19
3.17 Insurance........................................................ A-19
3.18 Voting Requirements.............................................. A-19
3.19 Brokers.......................................................... A-19
3.20 Opinion of Financial Advisor..................................... A-19
3.21 Change in Business Relationships................................. A-19
3.22 Material Contracts............................................... A-20
3.23 Commodity Derivatives and Credit Exposure Matters................ A-20
3.24 No Omissions..................................................... A-20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NIPSCO................................ A-20
4.1 Organization, Standing and Corporate Power........................ A-21
4.2 Nipsco Capital Structure.......................................... A-21
4.3 Subsidiaries...................................................... A-21
4.4 Authority; Noncontravention....................................... A-21
4.5 Nipsco SEC Documents and Financial Statements..................... A-22
4.6 Absence of Certain Changes or Events.............................. A-23
4.7 Employee Matters; ERISA........................................... A-23
4.8 Taxes............................................................. A-23
4.8.1 Filing of Timely Tax Returns.................................. A-23
4.8.2 Payment of Taxes.............................................. A-23
4.9 Environmental Matters............................................. A-23
4.9.1 Environmental Matters......................................... A-23
4.10 Brokers........................................................... A-24
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.11 No Omissions...................................................... A-24
4.12 Regulation as a Utility........................................... A-24
4.13 Compliance........................................................ A-24
ARTICLE V
ADDITIONAL AGREEMENTS................................................... A-24
5.1 Preparation of Registration Statement and Proxy Statement......... A-24
5.1.1 Registration Statement; Proxy Statement....................... A-24
5.1.2 Company Information........................................... A-25
5.1.3 Nipsco Information............................................ A-25
5.2 Meeting of the Company's Shareholders............................. A-25
5.3 Affiliates and Certain Shareholders............................... A-26
5.4 Best Efforts...................................................... A-26
5.5 Letter of the Company's Accountants............................... A-26
5.6 Letter of Nipsco's Accountants.................................... A-26
5.7 Access to Information; Confidentiality............................ A-26
5.8 Public Announcements.............................................. A-27
5.9 Acquisition Proposals............................................. A-27
5.10 Fiduciary Duties.................................................. A-27
5.11 Filings; Other Action............................................. A-28
5.11.1 HSR Act....................................................... A-28
5.11.2 Other Regulatory Approvals.................................... A-28
5.11.3 Other Approvals............................................... A-28
5.12 Stock Exchange Listings........................................... A-28
5.13 Indemnification................................................... A-28
5.14 Representation on Nipsco Board.................................... A-29
5.15 Cooperation, Notification......................................... A-29
5.16 Termination of Company Dividend Reinvestment Plan................. A-29
5.17 Federal Income Tax Treatment...................................... A-29
5.18 Termination of Shareholder Rights Plan............................ A-29
5.19 Actions Relating to Acquisition................................... A-29
5.20 Recognition of Existing Contracts................................. A-29
5.21 Redemption of Company Preferred Stock............................. A-29
5.22 Company Stock Options............................................. A-29
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER............... A-30
6.1 Conduct of Business of Company Pending the Merger................. A-30
6.1.1 Ordinary Course of Business................................... A-30
6.1.2 Dividends; Changes in Stock................................... A-30
6.1.3 Issuance of Securities........................................ A-31
6.1.4 Capital Expenditures.......................................... A-31
6.1.5 No Acquisitions............................................... A-31
6.1.6 No Dispositions............................................... A-31
6.1.7 No Dissolution, Etc........................................... A-31
6.1.8 Limitation on Investment in Joint Ventures.................... A-31
6.1.9 Certain Employee Matters...................................... A-31
6.1.10 Indebtedness; Leases.......................................... A-32
6.1.11 Governing Documents........................................... A-32
6.1.12 Accounting.................................................... A-32
6.1.13 Rate Matters.................................................. A-32
6.1.14 Gas Transmission and Storage.................................. A-32
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.1.15 Contracts..................................................... A-33
6.1.16 Insurance..................................................... A-33
6.1.17 Permits....................................................... A-33
6.1.18 Discharge of Liabilities...................................... A-33
6.1.19 1935 Act...................................................... A-33
6.1.20 Tax Matters................................................... A-33
6.1.21 Tax Status.................................................... A-33
6.2 Management of the Company and its Subsidiaries.................... A-33
6.3 Conduct of Business of Nipsco Pending the Merger.................. A-33
6.4 Other Actions..................................................... A-33
ARTICLE VII
CONDITIONS PRECEDENT.................................................... A-34
7.1 Conditions to Each Party's Obligation to Effect the Merger........ A-34
7.1.1 Company Shareholder Approval.................................. A-34
7.1.2 Governmental and Regulatory Consents.......................... A-34
7.1.3 HSR Act....................................................... A-34
7.1.4 No Injunctions or Restraints.................................. A-34
7.1.5 NYSE Listing.................................................. A-34
7.1.6 Registration Statement........................................ A-34
7.1.7 Share Purchase Rights......................................... A-34
7.2 Conditions to Obligations of Nipsco............................... A-34
7.2.1 Representations and Warranties................................ A-34
7.2.2 Performance of Obligations of the Company..................... A-34
7.2.3 Tax Opinion................................................... A-35
7.2.4 Consents and Approvals........................................ A-35
7.3 Conditions to Obligation of the Company........................... A-35
7.3.1 Representations and Warranties................................ A-35
7.3.2 Performance of Obligations of Nipsco.......................... A-35
7.3.3 Tax Opinion................................................... A-35
7.3.4 Consents and Approvals........................................ A-35
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER....................................... A-35
8.1 Termination....................................................... A-35
8.2 Effect of Termination............................................. A-36
8.3 Amendment......................................................... A-37
8.4 Extension; Waiver................................................. A-37
8.5 Procedure for Termination, Amendment, Extension or Waiver......... A-37
ARTICLE IX
SURVIVAL OF PROVISIONS.................................................. A-37
9.1 Survival.......................................................... A-37
ARTICLE X
NOTICES................................................................. A-37
10.1 Notices........................................................... A-37
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XI
MISCELLANEOUS............................................................ A-38
11.1 Entire Agreement................................................... A-38
11.2 Expenses........................................................... A-38
11.3 Counterparts....................................................... A-39
11.4 No Third Party Beneficiary......................................... A-39
11.5 Governing Law...................................................... A-39
11.6 Assignment; Binding Effect......................................... A-39
11.7 Headings, Gender, etc.............................................. A-39
11.8 Invalid Provisions................................................. A-39
</TABLE>
A-vi
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (the "Agreement") is
made and entered into as of the 18th day of December, 1997, and amended and
restated as of the 4th day of March, 1998, by and among NIPSCO Industries,
Inc., an Indiana corporation ("Nipsco"), and Bay State Gas Company, a
Massachusetts 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;
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) of the Internal Revenue Code of 1986, as amended (the "Code");
Whereas, Nipsco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger; and
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 I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.4), the Company shall be merged
with and into a corporation to be organized as a wholly-owned subsidiary of
Nipsco under the laws of the Commonwealth of Massachusetts ("Acquisition")
(the "Merger"), in accordance with the Massachusetts Gas and Electricity Law
(the "MGEL") and Massachusetts Business Corporation Law (the "MBCL"), and the
separate corporate existence of the Company shall cease and Acquisition shall
continue as the surviving corporation (the "Surviving Corporation") under the
laws of the Commonwealth of Massachusetts with all the rights, privileges,
immunities and powers, and subject to all the duties and liabilities, of a
corporation organized under the MGEL and MBCL. The Merger shall have the
effects set forth in the MGEL and MBCL.
1.2 The Alternative Merger.
1.2.1 If at any time prior to December 31, 1998, (a) it becomes possible
under the laws relating to incorporation and to public utilities applicable
to the Company and its wholly owned subsidiary, Northern Utilities, Inc.
("Northern"), to merge the Company into Nipsco's wholly owned subsidiary,
Northern Indiana Public Service Company, followed immediately by the merger
of Northern into Northern Indiana Public Service Company (the "Alternative
Merger") and (b) the Securities and Exchange Commission (the "SEC") has not
approved, nor has the staff of the SEC recommended that the SEC approve,
the application for the Merger under the Public Utility Holding Company Act
of 1935, as amended (the "1935 Act"), then, subject to Section 1.2.3 and
the other terms and conditions of the Agreement, the form of the
transaction contemplated by this Agreement will be revised to provide for
the Alternative Merger, including establishing the consideration to be used
in the merger of Northern into Northern Indiana Public Service Company to
meet the requirements of a tax-free reorganization pursuant to Section 368
of the Code, and the parties shall amend the terms of this Agreement to
make them consistent with the Alternative Merger;
A-1
<PAGE>
provided, however, that so long as the parties are using their best efforts
to consummate the Alternative Merger, the parties may simultaneously
continue to pursue the regulatory approvals necessary for the Merger if it
is practicable to do so in a manner that will not unduly delay the
consummation of the Alternative Merger.
1.2.2 Notwithstanding Sections 1.1 and 1.2.1, if by December 31, 1998,
none of the following conditions has been met: (a) the Alternative Merger
has become legally possible; (b) the SEC has approved the application for
the Merger under the 1935 Act; (c) the SEC staff has recommended that the
SEC approve the application for the Merger under the 1935 Act, or (d) the
1935 Act has been, or subject only to the passage of time up to the time
specified in Section 8.1.2 (iii) will be, repealed or amended in relevant
manner to permit the Merger, then either party may terminate this Agreement
pursuant to Section 8.1.2(iii) of this Agreement.
1.2.3 The parties hereto acknowledge that, in the absence of regulatory
constraints under the 1935 Act, it would be preferable to effect the Merger
and for the Alternative Merger not to be effected. Accordingly, if at the
time all other conditions to the parties' respective obligations to
consummate this Agreement have been satisfied or waived, the 1935 Act has
been, or subject only to the passage of time up to the time specified in
Section 8.1.2 (iii) will be, repealed or amended in relevant manner to
permit the Merger, the parties shall effect the Merger.
1.3 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at
9:00 a.m. on the second business day following the date on which the last of
the conditions set forth in Article VII shall have been fulfilled or waived in
accordance with this Agreement (the "Closing Date"), at the offices of Schiff
Hardin & Waite ("SH&W"), 7200 Sears Tower, Chicago, Illinois 60606, unless the
parties hereto agree to another date, time or place.
1.4 Effective Time. The parties hereto shall file with the Secretary of the
Commonwealth of Massachusetts (the "Massachusetts Secretary") 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 MGEL and the MBCL, and shall make all other
filings or recordings required under the MGEL and the MBCL in connection with
the Merger. The Merger shall become effective upon the filing of the articles
of merger with the Massachusetts Secretary, or at such later time as is
specified in the articles of merger (the "Effective Time").
1.5 Articles of Organization. The articles of organization of Acquisition as
in effect immediately prior to the Effective Time shall be the articles of
organization of the Surviving Corporation (the "Charter"), until duly amended
as provided therein or by applicable law.
1.6 By-Laws. The by-laws of Acquisition, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation (the
"By-Laws") until thereafter amended as provided by law, the By-Laws or the
Charter.
1.7 Directors. The board of directors of the Surviving Corporation from and
after the Effective Time shall be comprised of those individuals listed on
Schedule 1.7 hereto, 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 Charter or By-Laws or as otherwise provided by law.
1.8 Officers. The officers of the Company at the Effective Time shall be the
officers of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualify in the manner provided in the Charter or By-Laws or as otherwise
provided by law.
A-2
<PAGE>
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Acquisition Shares. Each share of common stock of
Acquisition issued and outstanding immediately prior to the Effective Time
shall remain outstanding and unchanged by reason of the Merger as one share of
common stock of the Surviving Corporation.
2.2 Conversion of Company Shares.
2.2.1 Outstanding Shares of Company Common Stock. Subject to the
provisions of this Section 2.2, each share of common stock, par value $3.33
1/3 per share of the Company (the "Company 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 the right to receive
(i) $40.00 in cash (the "Cash Price"), or (ii) such number or fraction
thereof validly issued, fully paid and nonassessable shares of common
stock, 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 2.2.2 or Section
2.2.3. 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.
2.2.2 Cash Election. Subject to the immediately following sentence, each
record holder of Company Shares immediately prior to the Effective Time
shall be entitled to elect to receive cash for all or any part of such
holder's Company Shares (a "Cash Election"). Notwithstanding the foregoing
and subject to Section 2.2.9, the aggregate number of Company Shares that
may be converted into the right to receive cash in the Merger (the "Cash
Election Number") shall not exceed an amount determined by dividing (A) the
dollar number equal to the difference between (i) one-half the product of
(x) the Cash Price multiplied by (y) the aggregate number of Company Shares
outstanding at 5:00 p.m. Eastern Time on the second day prior to the
Effective Time less (ii) the dollar amount of any special dividend paid by
the Company pursuant to the second sentence of Section 6.1.2 and other
dollar amounts as reasonably determined by SH&W, counsel to Nipsco and
Acquisition, and LeBoeuf, Lamb, Greene & MacRae, L.L.P. ("LLG&M"), counsel
to the Company, by (B) 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 Shares who holds such Company 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 Shares held by such
Representative for a particular beneficial owner. To the extent not covered
by a properly given Cash Election, all Company Shares issued and
outstanding immediately prior to the Effective Time shall, except as
provided in Section 2.2.1, be converted solely into Nipsco Shares.
2.2.3 Cash Election Shares. If the aggregate number of Company 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 (a) the Cash Price and (b) 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 (a) the Exchange Ratio and
(b) a fraction equal to one minus the Cash Fraction.
2.2.4 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 Shares ("Company Certificates") as to
which the election is being made (or by an appropriate guarantee of
delivery of such Company Certificate signed by a firm that is a member of
any registered national securities exchange or a member of the National
Association of
A-3
<PAGE>
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 shall 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 shall 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 2.2, and all such computations shall be conclusive and binding on
the holders of Company Shares.
2.2.5 Deemed Non-Election. For the purposes hereof, a holder of Company
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 2.2.6)
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.
2.2.6 Election Deadline. Nipsco and the Company shall each use its best
efforts to cause copies of the Form of Election to be mailed to the record
holders of the Company Shares not less than thirty days prior to the
Effective Time and to make the Form of Election available to all persons
who become record holders of Company Shares subsequent to the date of such
mailing and no later than the close of business on the seventh 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 third business day before the anticipated Effective Time (the
"Election Deadline") in order to be effective. All elections may be revoked
until the Election Deadline in writing by the record holders submitting
Forms of Election.
2.2.7 Treasury Shares. Each Company Share issued and outstanding
immediately prior to the Effective Time that 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.
2.2.8 Adjustment Per Tax Opinion. If, after having made the calculation
under Section 2.2.3, the tax opinions referred to in Sections 7.2.3 and
7.3.3 (the "Tax Opinions") cannot be rendered (as reasonably determined by
SH&W and LLG&M), as a result of the Merger possibly failing to satisfy
continuity-of-interest requirements under applicable federal income tax
principles relating to reorganizations described in 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 the
number of Nipsco Common Shares having 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.
2.2.9 Adjustments to Prevent Dilution. 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 to
eliminate the effects of such event.
2.3 Exchange of Certificates and Related Matters.
2.3.1 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 Company Certificates. From time to time after
completion of the allocation and election procedures in Section 2.2, 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 Shares, when and as
required for exchanges of Company Shares pursuant to Section 2.2.
A-4
<PAGE>
2.3.2 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 Shares that have been
converted pursuant to Section 2.2 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 Company Certificates to the Paying Agent
and shall be in such form and have such provisions as Nipsco reasonably may
specify) and instructions for surrendering such Company Certificates and
receiving the Merger Consideration (as defined in Section 2.3.3) to which
such holder shall be entitled therefor pursuant to Section 2.2.
2.3.3 Exchange Procedures. Upon surrender to the Paying Agent of a
Company Certificate 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 Company
Certificate shall be entitled to receive in exchange therefor (i)
certificates evidencing that number of whole Nipsco Common Shares into
which the Company Shares previously represented by such Company Certificate
are converted in accordance with Section 2.2.1, (ii) the cash to which such
holder is entitled in accordance with Section 2.2.1, (iii) the cash in lieu
of fractional Nipsco Common Shares to which such holder is entitled
pursuant to Section 2.3.6, and (iv) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.3.4 (the Nipsco Common
Shares, dividends, distributions and cash described in clauses (i), (ii),
(iii) and (iv) above being 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
Company Certificate surrendered in exchange therefor is registered on the
record books of the Company, it shall be a condition to such exchange that
the Company Certificate so surrendered shall be properly endorsed or shall
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 Company Certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable. If any Company Certificate shall have been lost,
stolen, mislaid or destroyed, then upon receipt of (a) an affidavit of that
fact from the holder claiming such Company Certificate to be lost, mislaid,
stolen or destroyed, (b) such bond, security or indemnity as the Company or
the Paying Agent may reasonably require, and (c) any other documentation
necessary to evidence and effect the bona fide exchange thereof, the
Exchange Agent shall issue to such holder a certificate representing the
number of shares of Company Shares into which the shares represented by
such lost, stolen, mislaid or destroyed Company Certificate shall have been
converted. After the Effective Time, there shall be no further transfer on
the records of the Company or its transfer agent of any Company
Certificate, and, if any such Company 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 2.3.3, each Company Certificate (other than a certificate
representing Company Shares to be canceled in accordance with Section
2.2.7), 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.
2.3.4 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 Shares
that have been converted pursuant to Section 2.2, and no other part of the
Merger Consideration shall be paid to any such holder, until the surrender
for exchange of such Company Certificate in accordance with this Article
II. Following surrender for exchange of any such Company 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 Shares
represented by such certificate immediately prior to the Effective Time
were converted
A-5
<PAGE>
pursuant to Section 2.2, 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.
2.3.5 No Further Ownership Rights in Company Shares. The Merger
Consideration paid upon the surrender for exchange of Company Certificates
in accordance with the terms of this Article II shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to the
Company 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 that 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 that remain unpaid at the Effective Time.
2.3.6 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 Shares that have been converted pursuant to Section
2.2, and such fractional share interests shall 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 Shares who would otherwise have been entitled to receive a fraction
of a Nipsco Common Share (after taking into account all Company
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.
2.3.7 Termination of Paying Agent. Any portion of cash payable under
Section 2.2 or Nipsco Common Shares held by the Paying Agent that remains
undistributed to the holders of the Company Certificates one year after the
Effective Time shall be delivered to Nipsco, and any holders of Company
Shares who have not theretofore complied with this Article II 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.
2.3.8 No Liability. None of Nipsco, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any Merger
Consideration payable with respect to Company Shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Company Certificates 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 Company
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.4)), any such cash, Company
Shares, dividends or distributions payable in respect of such Company
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 III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Nipsco and Acquisition as
follows:
3.1 Organization, Standing and Corporate Power. The Company is a corporation
duly organized and validly existing under the laws of the Commonwealth of
Massachusetts, has the requisite corporate power and authority to carry on its
business as now being conducted, and 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 the leasing of its properties makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not individually or in the aggregate have a
Company Material Adverse Effect. As used in this Agreement, the term "Company
Material Adverse Effect" means a material adverse effect on the business,
assets, liabilities, results of operations, financial condition or prospects
of the Company and its subsidiaries taken as a whole. The Company has
delivered to Nipsco complete and correct copies of its Articles of
Organization and By-Laws, as amended to the date of this Agreement.
A-6
<PAGE>
3.2 Capital Structure. As of the date hereof, the authorized capital stock
of the Company consists of 36,000,000 Company Shares and 150,000 shares of
cumulative preferred stock, $50 par value per share (the "Company Preferred A
Shares") and 200,000 shares of cumulative preferred stock, $100 par value per
share (the "Company Preferred B Shares"). At the close of business on December
12, 1997 (i) 13,514,094 Company Shares were issued and outstanding; (ii)
44,399 shares of Company Preferred A Shares were issued and outstanding; and
(iii) 26,989 shares of Company Preferred B Shares were issued and outstanding.
The Company has no Company Shares, Company Preferred A Shares or Company
Preferred B Shares reserved for issuance, except that, as of December 12,
1997, there were 1,602,752 Company Shares reserved for issuance pursuant to
the Company's Key Employee Stock Option Plan, Profit Sharing Plan and Stock
Performance Sharing Plan (the "Company Stock Plans") and the Company's
Dividend Reinvestment Plan and 13,514,094 Company Shares reserved for issuance
under the Shareholder Rights Agreement dated as of November 15, 1989 between
the Company and The First National Bank of Boston as rights agent (the
"Shareholder Rights Agreement"). In addition, the Company has reacquired and
holds 1,620 Company Shares in treasury for reissuance pursuant to the Company
Stock Accumulation Plan for Outside Directors. 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 conferring the right to vote (or
convertible into, or exchangeable for, securities conferring the right to
vote) on any matters on which the shareholders of the Company may vote are
issued or outstanding. Section 3.2 of the disclosure schedule dated as of the
date hereof of the Company (the "Company Disclosure Schedule") sets forth the
name of each participant in each of the Company Stock Plans and the number of
Company Shares awarded to such participant as of the date hereof. Except as
set forth above or in Section 3.2 of the Company Disclosure Schedule, the
Company does not have any outstanding option, warrant, subscription or other
right, agreement or commitment that 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 that restricts the transfer of Company
Shares.
3.3 Subsidiaries.
3.3.1 Section 3.3.1 of the Company Disclosure Schedule sets forth the
name of each Subsidiary of the Company and the jurisdiction of its
organization. Each Subsidiary of the Company 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 Company Material Adverse
Effect. Each Subsidiary of the Company 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 qualified or licensed and in good
standing would not individually or in the aggregate have a Company Material
Adverse Effect. A "Subsidiary" of Brass means any corporation or other
entity (including joint ventures, partnerships and other business
associations) in which Brass directly or indirectly owns outstanding
capital stock or other voting securities having the power to elect a
majority of the directors or similar members of the governing body of such
corporation or other entity, or otherwise to direct to the management and
policies of such corporation or other entity.
3.3.2 Section 3.3.2 of the Company 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 3.3.2 of the Company
Disclosure Schedule, the Company is, directly or 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 such 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 such Subsidiary, and there
are no contracts, commitments, understandings or arrangements by which
A-7
<PAGE>
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 such 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 3.3.2 of the Company Disclosure Schedule,
are owned by the Company, or by a 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).
3.4 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 5.2. This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement has been
duly executed and delivered by Nipsco, 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 creditors' 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 3.4 of the Company
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 Organization or By-Laws of the Company or the
comparable documents of any of its Subsidiaries or conflict with the joint
venture agreement or comparable document of any joint venture, partnership or
other business association or entity to which the Company or a Subsidiary is a
party, (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 (the "Company Required
Consents") 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 of America or any political subdivision thereof or therein,
or any order, writ, judgment, injunction, decree, determination or award
currently in effect, except where, in the case of clauses (ii) and (iii)
above, such conflicts, breaches, defaults and similar matters, would not,
individually or in the aggregate, have a Company Material Adverse Effect or
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") that 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 pre-merger 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 of applications for
authorization for the Merger with the Federal Energy Regulatory Commission
(the "FERC"), the Massachusetts Department of Telecommunications and Energy
("MDTE"), the New Hampshire Public Utilities Commission ("NHMPUC") and the
Maine Public Utilities Commission ("MNEPUC"); (c) the filing with the
Securities and Exchange Commission (the "SEC") of a proxy statement (as
defined in Section 5.1.1) to be included in the Registration Statement (as
defined in Section 4.4) 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; (d) the
filing of articles of merger with the Massachusetts Secretary and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business; and (e) such other consents, approvals,
authorizations, filings or notices as
A-8
<PAGE>
are set forth in Section 3.4 of the Company Disclosure Schedule or as, in the
aggregate could not reasonably be expected to have a Company Material Adverse
Effect (collectively, the "Company Required Statutory Approvals").
3.5 SEC Documents and Financial Statements.
3.5.1 Except as set forth in Section 3.5.1 of the Company 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 October 1, 1992 (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.
3.5.2 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).
3.5.3 Except as disclosed in the Company SEC Documents filed and publicly
available prior to December 16, 1997 (the "Filed Company SEC Documents") or
in the Company 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 3.8.1) formerly maintained by the Company or
any of its Subsidiaries or a Company ERISA Affiliate (as defined in Section
3.8.1) on or after January 1, 1992) that have been or, to the knowledge of
the Company, 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 September 30, 1997 (the "Company Base Balance Sheet"),
or included in the notes to the Company Base Balance Sheet, (ii) for normal
and recurring liabilities incurred since September 30, 1997, 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 Company Material Adverse Effect. For purposes
of this Agreement, it is understood that all references to the knowledge of
the Company means solely the knowledge of any one or more of the
individuals listed on Section 3.5.3 of the Company Disclosure Schedule.
3.6 Absence of Certain Changes or Events. Except as disclosed in the Filed
Company SEC Documents or in Section 3.6 of the Company 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
consistent with past practice, and, except as otherwise expressly permitted by
this Agreement, there has not been (i) any change that has had or that could
reasonably be expected to have a Company 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 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
A-9
<PAGE>
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 ordinary
course of business consistent with past 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.
3.7 Real and Personal Property.
3.7.1 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 3.7.1 of the Company 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 Company 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 Company Material Adverse Effect.
3.7.2 Except as otherwise disclosed in Section 3.7.2 of the Company
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 Company 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 Company Material Adverse Effect.
3.8 Employee Matters; ERISA.
3.8.1 Section 3.8.1 of the Company Disclosure Schedule contains a true
and complete list of: (i) each employee benefit plan, program, policy,
agreement or arrangement covering employees, former employees, directors or
former 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 or former officer, employee or director or any consulting
contract with any person who prior to entering into such contract was a
director, officer or employee 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), (c) or (m) (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, investment advisor agreement,
custodial account, agency
A-10
<PAGE>
agreement, or other arrangement that holds the assets of, or serves as a
funding vehicle or source of benefits for, such Company Benefit Plan).
3.8.2 Except as disclosed in Section 3.8.2 of the Company Disclosure
Schedule, all 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 provided for, 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.
3.8.3 Except as disclosed in Section 3.8.3 of the Company 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
within the last three years 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, its terms and all applicable laws, rules and regulations governing
such Plans, including without limitation ERISA and the Code, except for
violations that could not reasonably be expected to have a Company Material
Adverse Effect. To the best knowledge of the Company, (i) no individual or
entity has engaged in any transaction with respect to any Company Benefit
Plan that is a non-exempt prohibited transaction under Section 406 of ERISA
or Section 4495 of the Code, or 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, (ii) no Company Benefit Plan is subject to any
ongoing audit, investigation, or other administrative proceeding of the
Internal Revenue Service (the "IRS"), the Department of Labor (the "DOL"),
or any other federal, state or local Governmental Entity, (iii) 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 DOL's Delinquent Filer
Voluntary Compliance Program), and (iv) no matter is pending relating to
any Company Benefit Plan before any court.
3.8.4 Except as disclosed in Section 3.8.4 of the Company Disclosure
Schedule 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 at any time, and, to the best knowledge of
the Company, there exists no condition or set of circumstances with respect
to any Company Benefit Plan 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 Company Material Adverse
Effect. PBGC has not initiated any proceedings, and there exists no event
or condition which would constitute grounds for initiation of proceedings
by PBGC to terminate any Company Benefit Plan under Section 4042 of ERISA.
3.8.5 Except as disclosed in Section 3.8.5 of the Company 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).
3.8.6 The Company has made or will make 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 annual report (IRS Form 5500 Series) including
financial statements prepared for the most recent three plan years, (iii)
each related trust agreement, insurance contract, annuity contract, service
provider or investment management or advisory agreement (including all
amendments to each such document), (iv) the most recent IRS determination
letter with respect to the qualified status under
A-11
<PAGE>
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 actuarial reports or valuations for the most recent
three plan years.
3.8.7 Except as disclosed in Section 3.8.7 of the Company 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, director or former director thereof or to the
trustee under any "rabbi trust," "secular 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.
3.8.8 Except as disclosed in Section 3.8.8 of the Company 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, as determined by the Plan's
independent enrolled actuary, 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
enrolled 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
or Section 412 of the Code) as of the date hereof. No waiver from the
minimum funding standards of Section 302 of ERISA or Section 412 of the
Code has been obtained, applied for or is contemplated with respect to any
Company Benefit Plan.
3.8.9 Except as disclosed in Section 3.8.9 of the Company Disclosure
Schedule, no Company Benefit Plan is or was at any time 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
at any time within the past five years 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. 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, from any multiemployer plan 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." Neither the Company nor any Subsidiary has incurred or is
aware of any withdrawal liability (as defined in Section 4201 of ERISA)
assessed against any of them with respect to any multiemployer plan.
3.8.10 Except as disclosed in Section 3.8.10 of the Company 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 the 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.
A-12
<PAGE>
3.8.11 Except as disclosed in Section 3.8.11 of the Company Disclosure
Schedule, (i) no event constituting a "reportable event" (within the
meaning of ERISA Section 4043(b) and the regulations issued thereunder) 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 Company Material Adverse Effect.
3.9 Taxes. "Taxes," as used in this Agreement, means any federal, state,
county, local or foreign taxes, charges, fees, levies, or other assessments,
including all net income, gross income, sales and use, ad valorem, transfer,
gains, profits, excise, franchise, real and personal property, gross receipts,
capital stock, production, business and occupation, disability, employment,
payroll, license, estimated, stamp, custom duties, severance or withholding
taxes or charges imposed by any Governmental Entity, and includes any interest
and penalties (civil or criminal) on or additions to any such taxes and any
expenses incurred in connection with the determination, settlement or
litigation of any tax liability. "Tax Return," as used in this Agreement,
means a report, return or other information required to be supplied to a
Governmental Entity with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any of its Subsidiaries, on the one hand, or Nipsco or
any of its Subsidiaries, on the other hand. "Tax Rulings," as used in this
Agreement, shall mean a written ruling of a taxing authority relating to
Taxes. "Closing Agreement," as used in this Agreement, shall mean a written
and legally binding agreement with a taxing authority relating to Taxes.
Except as disclosed in Section 3.9 of the Company Disclosure Schedule, there
are no Tax matters that, individually or in the aggregate, would reasonably be
likely to have a Company Material Adverse Effect.
3.9.1 Filing of Timely Tax Returns. The Company and each of its
Subsidiaries have filed all Tax Returns required to be filed by each of
them under applicable law. All Tax Returns were in all material respects
(and, as to Tax Returns not filed as of the date hereof, will be) true,
complete and correct and filed on a timely basis.
3.9.2 Payment of Taxes. The Company and each of its Subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law)
all Taxes that are currently due and payable except for Taxes for which
reserves have been taken on the Company Balance Sheet.
3.9.3 Tax Reserves. The Company and its Subsidiaries have established
(and until the Closing Date will maintain) on their books and records
reserves adequate to pay all Taxes and reserves for deferred income taxes
in accordance with GAAP.
3.9.4 Tax Liens. There are no Tax liens upon the assets of the Company or
any of its Subsidiaries except liens for Taxes not yet due.
3.9.5 Withholding Taxes. The Company and each of its Subsidiaries have
complied (and until the Closing Date will comply) in all material respects
with the provisions of the Code relating to the payment and withholding of
Taxes, including without limitation the withholding and reporting
requirements under Code Sections 1441 through 1464, 3401 through 3606, and
6041 and 6049, as well as similar provisions under any other laws, and have
within the time and in the manner prescribed by law withheld from employee
wages and paid over to the proper governmental authorities all amounts
required.
3.9.6 Extensions of Time for Filing Tax Returns. Neither the Company nor
any of its Subsidiaries has requested any extension of time within which to
file any Tax Return which Tax Return has not since been filed.
3.9.7 Waivers of Statute of Limitations. Neither the Company nor any of
its Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
A-13
<PAGE>
3.9.8 Expiration of Statute of Limitations. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of the Company and each of its Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the
date hereof, and no deficiency for any Taxes has been proposed, asserted or
assessed against the Company or any of its Subsidiaries that has not been
resolved and paid in full.
3.9.9 Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its
Subsidiaries.
3.9.10 Powers of Attorney. No power of attorney currently in force has
been granted by the Company or any of its Subsidiaries concerning any Tax
matter.
3.9.11 Tax Rulings. Neither the Company nor any of its Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing effect after the Closing Date.
3.9.12 Availability of Tax Returns. The Company and its Subsidiaries have
made available to the Company complete and accurate copies, covering all
open years, of (i) all Tax Returns, and any amendments thereto, filed by
the Company or any of its Subsidiaries, (ii) all audit reports received
from any taxing authority relating to any Tax Return filed by the Company
or any of its Subsidiaries and (iii) any Closing Agreements entered into by
the Company or any of its Subsidiaries with any taxing authority.
3.9.13 Tax-Sharing Agreements. Except as disclosed in Section 3.9.13 of
the Company Disclosure Schedule, there are no agreements relating to the
allocation or sharing of Taxes between or among the Company and any of its
Subsidiaries.
3.9.14 Code Section 341(f). Neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Code Section 341(f) or has
agreed to have Code Section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code Section 341(f)(4))
owned by the Company or any of its Subsidiaries.
3.9.15 Code Section 168. No property of the Company or any of its
Subsidiaries is property that the Company or any such Subsidiary or any
party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code Section 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is tax-
exempt use property within the meaning of Code Section 168.
3.9.16 Code Section 481 Adjustments. Neither the Company nor any of its
Subsidiaries is required to include in income any adjustment pursuant to
Code Section 481(a) by reason of a voluntary change in accounting method
initiated by the Company or any of its Subsidiaries, and, to the best of
the knowledge of the Company, the IRS has not proposed any such adjustment
or change in accounting method.
3.9.17 Code Sections 6661 and 6662. The Company and its Subsidiaries have
or had substantial authority (within the meaning of Section 6661 of the
Code for Tax Returns filed on or before December 31, 1990, and within the
meaning of Section 6662 of the Code for Tax Returns filed after December
31, 1990) for all transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6661 of the Code for Tax
Returns filed on or before December 31, 1990, and within the meaning of
Section 6662 of the Code for Tax Returns filed after December 31, 1990).
3.9.18 Code Section 280G. Except as disclosed in Section 3.9.18 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a
party to any agreement, contract, or arrangement that could reasonably be
expected to result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Code Section 280G.
3.9.19 NOLS. As of December 31, 1997, the Company and its Subsidiaries
had net operating loss carryovers available to offset future income as
disclosed in Section 3.9.19 of the Disclosure Schedule.
A-14
<PAGE>
Section 3.9.19 of the Disclosure Schedule discloses the amount of and year
of expiration of each company's net operating loss carryovers.
3.9.20 Credit Carryovers. As of December 31, 1997, the Company and its
Subsidiaries had tax credit carryovers available to offset future tax
liability as disclosed in Section 3.9.20 of the Company Disclosure
Schedule. Section 3.9.20 of the Company Disclosure Schedule discloses the
amount and year of expiration of each company's tax credit carryovers.
3.9.21 Code Section 338 Elections. No election under Code Section 338 (or
any predecessor provision) has been made by or with respect to the Company
or any of its Subsidiaries or any of their respective assets or properties.
3.9.22 Acquisition Indebtedness. No indebtedness of the Company or any of
its Subsidiaries is "corporate acquisition indebtedness" within the meaning
of Code Section 279(b).
3.9.23 Intercompany Transactions. Neither the Company nor any of its
Subsidiaries has engaged in any intercompany transactions within the
meaning of Treasury Regulations Section 1.1502-13 for which any income or
gain will remain unrecognized as of the close of the last taxable year
prior to the Closing Date.
3.9.24 Liability for Others. Neither the Company nor any of its
Subsidiaries has any liability for Taxes of any person other than the
Company and its Subsidiaries (i) under Treasury Regulations Section 1.1502-
6 (or any similar provision of state, local or foreign law) as a transferee
or successor, (ii) by contract or (iii) otherwise.
3.10 Compliance with Applicable Laws. Except as disclosed in Section 3.10 of
the Company Disclosure Schedule:
3.10.1 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 three years of the date hereof were
properly filed and were in compliance in all material respects with such
laws.
3.10.2 Each of the Company and each of its Subsidiaries has all material
licenses (including, without limitation, utility licenses), permits,
authorizations, franchises and rights ("Licenses") that 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 3.10 of the Company 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 that would reasonably be
expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any such License.
3.10.3 The Company and each of its Subsidiaries 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 FERC, MDPU, NHMPUC and
the MNEPUC, 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.
3.11 Environmental Protection.
3.11.1 Except as disclosed in Section 3.11.1 of the Company 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 3.11.7), except where the failure
to be or to have so been in material compliance, in the aggregate, is not
reasonably likely to have a Company Material
A-15
<PAGE>
Adverse Effect. Except as disclosed in Section 3.11.1 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
received any written notice from any person or Governmental Entity that
alleges that the Company or any of its Subsidiaries is not 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 Company Material Adverse Effect.
3.11.2 Except as disclosed in Section 3.11.2 of the Company 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, except where the failure to obtain such
Environmental Permits, to make such application, to be in such compliance
or to make such expenditures, in the aggregate, would not have a Company
Material Adverse Effect. The Company and each of its Subsidiaries have
taken, or prior to Closing will take, all necessary actions to ensure the
transferability of all Environmental Permits that are required with respect
to their respective businesses, operations and properties.
3.11.3 Except as disclosed in Section 3.11.3 of the Company Disclosure
Schedule or as disclosed in the Company SEC Documents, to the best
knowledge of the Company, no Environmental Claim (as defined in Section
3.11.7) 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 Company Material Adverse Effect and the Company has no knowledge of
any facts likely to give rise to such Environmental Claim.
3.11.4 Except as disclosed in Section 3.11.4 of the Company 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
3.11.7) of Hazardous Materials (as defined in Section 3.11.7) 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 in value 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 Company
Material Adverse Effect.
3.11.5 Except as disclosed in Section 3.11.5 of the Company 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 Company Material Adverse Effect.
3.11.6 To the best knowledge of the Company, the Company has disclosed to
Nipsco all facts and circumstances that are likely to form the basis of an
Environmental Claim or to require expenditures by the Company or any of its
Subsidiaries in order to comply with current or future applicable
Environmental Laws, including but not limited to facts and circumstances
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/or (iii) any other environmental
matters affecting the Company or any of its Subsidiaries; and that are
reasonably likely to have, in the aggregate, a Company Material Adverse
Effect.
A-16
<PAGE>
3.11.7 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 of
non- compliance or violation 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 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 or threatened Release of any
Hazardous Materials.
(b) "Environmental Laws" means all federal, state and local laws,
rules and regulations, and any binding judicial or administrative
interpretation thereof or requirement thereunder 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 that 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).
3.12 Litigation. Except as set forth in the Filed Company SEC Documents or
Section 3.12 of the Company 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, and the Company has no knowledge of any facts likely to give
rise to any such litigation, that, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect or to
materially and adversely affect the Company's ability to consummate the
transactions contemplated hereby. Neither the Company nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
that, individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect. Except as set forth in the Filed Company SEC
Documents or Section 3.12 of the Company Disclosure Schedule, none of the
Company's Subsidiaries whose rates or services are subject to regulation by a
Governmental Entity (i) has rates that 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.
3.13 Labor Relations. Except as set forth in Section 3.13 of the Company
Disclosure Schedule:
3.13.1 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
A-17
<PAGE>
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.
3.13.2 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 Company Material Adverse Effect.
3.13.3 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
Company Material Adverse Effect.
3.13.4 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 Company Material Adverse Effect.
3.13.5 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 noncompliance that could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect.
3.13.6 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 of
organization or articles or certificates of incorporation or by-laws, 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 Company Material Adverse Effect.
3.14 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
Company Material Adverse Effect. Except as set forth in Section 3.14 of the
Company 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
Encumbrances, except for those Encumbrances that would not, individually or in
the aggregate, have a Company 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 Company 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 Company Material Adverse Effect.
A-18
<PAGE>
3.15 No Default. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred that, 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 of organization or articles or
certificate of incorporation or by-laws, (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
violations that in the aggregate would not have a Company 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.
3.16 Regulation as a Utility. The Company is regulated as a gas utility in
the Commonwealth of Massachusetts and in no other state; Northern is regulated
as a gas utility in the states of New Hampshire and Maine. Except as disclosed
in Section 3.16 of the Company Disclosure Schedule, neither the Company nor
any "subsidiary company" or "affiliate" (as such terms are defined in 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 a holding company exempt
under Section 3(a)(2) pursuant to Rule 2 from all provisions of the 1935 Act
except Section 9(a)(2).
3.17 Insurance. Except as disclosed in Section 3.17 of the Company
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 3.17 of the Company 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.
3.18 Voting Requirements. The affirmative vote of the holders of two-thirds
of the outstanding Company Shares, are the only votes 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 (the "Company
Requisite Vote").
3.19 Brokers. Except as relates to the services provided by SG Barr Devlin,
formerly Barr Devlin & Co. Incorporated ("Barr Devlin") as financial advisors
to the Company, 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.
3.20 Opinion of Financial Advisor. The Company has received the opinion of
Barr Devlin, dated the date hereof, to the effect that, as of the date hereof,
the consideration to be received by holders of Company Shares pursuant to the
Merger is fair to such holders from a financial point of view.
3.21 Change in Business Relationships. The Company has no 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 of 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 Company Material Adverse Effect.
A-19
<PAGE>
3.22 Material Contracts. Section 3.22 of the Disclosure Schedule lists each
oral and written contract, commitment or arrangement of which the Company has
knowledge that is of a material nature (or that assumes materiality because of
its continuing nature) and under which the Company or any of its Subsidiaries
is obligated on the date hereof, including the following:
3.22.1 All consulting arrangements and contracts for professional,
advisory and other services, including contracts under which the Company or
any of its Subsidiaries performs services for others;
3.22.2 All leases of real or personal property, other than leases of
personal property whereunder total future rentals are, in each instance,
less than $1,000,000;
3.22.3 All contracts, commitments and agreements for the acquisition,
development or disposition of real or personal property, other than
conditional sales contracts and security agreements whereunder total future
payments are, in each instance, less than $1,000,000;
3.22.4 All contracts relating to the source or supply of gas and other
raw materials essential to the conduct of the business of the Company or
any of its Subsidiaries, including any financial derivatives master
agreements of transactions, confirmations, or futures account opening
agreements and/or brokerage statements evidencing financial hedging or
other trading activities;
3.22.5 All contracts relating to the employment, engagements,
compensation or termination of directors, officers, employees or agents of
the Company or any of its Subsidiaries and all pension, retirement, profit
sharing, stock option, stock purchase, stock appreciation, insurance or
similar plans or arrangements for the benefit of any employees, officers or
directors of the Company or any of its Subsidiaries, including all Company
Benefit Plans (as defined in Section 3.8.1);
3.22.6 All loans, loan commitments, letters of credit or other financial
accommodations or arrangements or evidences of indebtedness, including
modifications or amendments thereof, extended to or for the benefit of the
Company or any of its Subsidiaries;
3.22.7 All union and other labor contracts; and
3.22.8 All other material contracts made other than in the usual or
ordinary course of business of the Company or any of its Subsidiaries to
and which the Company or any of its Subsidiaries is a party or under which
the Company or any of its Subsidiaries is obligated.
3.23 Commodity Derivatives and Credit Exposure Matters. Neither the Company
nor any of its Subsidiaries has quantified on a mark-to-market basis and
calculated with respect to physical and financial position exposure, (a)
natural gas forward price exposure exceeding $5,000, (b) on-system pipeline
transportation (basis) exposure exceeding $5,000, (c) off-system pipeline
transportation (basis) exposure exceeding $5,000 or (d) credit exposure (which
is unsecured and not backed by letters of credit or enforceable guarantees
from A-rated credit providers) to any one counterparty which exceeds
$1,000,000.
3.24 No Omissions. None of the information included in the Company
Disclosure Schedule or in the Company SEC Documents (including, without
limitation, the consolidated financial statements included therein) was, as of
the date such information was included in such Schedule or such Documents,
false or misleading in any material respect or omitted to state a fact therein
necessary to make such information not misleading in any material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NIPSCO
Nipsco hereby represents and warrants to the Company as follows:
4.1 Organization, Standing and Corporate Power. Nipsco is a corporation duly
organized and validly existing under the laws of the State of Indiana. Nipsco
has the requisite corporate power and authority to carry
A-20
<PAGE>
on its business as now being conducted, and Nipsco 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 or licensed would not individually or in the aggregate have a Nipsco
Material Adverse Effect. As used in this Agreement, the term "Nipsco Material
Adverse Effect" means a material adverse effect on the business, assets,
liabilities, results of operations, financial condition or prospects of Nipsco
and its Subsidiaries taken as a whole. Nipsco has delivered to the Company
complete and correct copies of its articles of incorporation and by-laws, as
amended to the date of this Agreement.
4.2 Nipsco Capital Structure.
4.2.1 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 ("Nipsco Preferred Shares"). At the
close of business on December 12, 1997, (i) 62,196,673 Nipsco Common Shares
were issued and outstanding, and (ii) 11,695,436 Nipsco Common Shares were
held as treasury shares. Nipsco has no Nipsco Common Shares or Nipsco
Preferred Shares reserved for issuance, except that, as of December 12,
1997, there were 1,094,900 Nipsco Common Shares reserved for issuance
pursuant to Nipsco's Long-Term Incentive Plans and its Nonemployer Director
Stock Incentive Plan (the "Nipsco Stock Plans") and 2,000,000 Series A
Junior Participating Preferred Shares reserved for issuance pursuant to
Nipsco's Share Purchase Rights Plan. All outstanding shares of capital
stock of Nipsco are, and all Nipsco Common Shares that 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.
No bonds, debentures, notes or other indebtedness of Nipsco conferring the
right to vote (or convertible into, or exchangeable for, securities
conferring the right to vote) on any matters on which the shareholders of
Nipsco may vote are issued or outstanding. Except as set forth above or in
Section 4.2.1 of the disclosure schedule dated as of the date hereof of
Nipsco (the "Nipsco Disclosure Schedule"), Nipsco does not have any
outstanding option, warrant, subscription or other right, agreement or
commitment that either obligates Nipsco to issue, sell or transfer,
repurchase, redeem or otherwise acquire or vote any shares of capital stock
of Nipsco or its Subsidiaries or that restricts the transfer of Nipsco
Common Shares.
4.2.2 Prior to the Effective Time, the authorized capital stock of
Acquisition will consist of 1,000 common shares, without par value, all of
which will be issued and outstanding and owned by Nipsco. All such
outstanding common shares will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
4.3 Subsidiaries. Section 4.3 of the Nipsco Disclosure Schedule sets forth
the name of each of Nipsco's Subsidiaries and the jurisdiction of its
organization. Except as set forth in Schedule 4.3, Nipsco is, directly or
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
Nipsco Subsidiary has any outstanding option, warrant, subscription or other
right, agreement or commitment that obligates either Nipsco or any of its
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
Subsidiaries, or that restricts the transfer of Nipsco Common Shares. All the
outstanding shares of capital stock of each Nipsco Subsidiary 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 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). A "Subsidiary" of Nipsco means any corporation or other
entity (including joint ventures, partnerships and other business
associations) in which Nipsco directly or indirectly owns outstanding capital
stock or other voting securities having the power to elect a majority of the
directors or similar members of the governing body of such corporation or
other entity, or otherwise to direct to the management and policies of such
corporation or other entity.
4.4 Authority; Noncontravention. Nipsco has, and as of the Effective Time
Acquisition will have, 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 the consummation by it of the
transactions
A-21
<PAGE>
contemplated hereby has been duly authorized by all necessary corporate action
on the part of Nipsco. This Agreement has been duly executed and delivered by
Nipsco and, assuming this Agreement has been duly executed and delivered by
the Company, constitutes a valid and binding obligation of Nipsco, enforceable
against it 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 creditors' 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 4.4 of the Nipsco 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 Nipsco or Acquisition or conflict with the joint venture
agreement or comparable document of any joint venture, partnership or other
business association or entity to which Nipsco or Acquisition is a party (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 (the "Nipsco Required
Consents") 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) above, to those conflicts,
breaches, defaults and similar matters that, individually or in the aggregate,
would not have a Nipsco Material Adverse Effect nor 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 that has not been received or made is
required by or with respect to Nipsco in connection with the execution and
delivery of this Agreement by Nipsco or the consummation by it of any of the
transactions contemplated hereby, except for (a) the filing of pre-merger
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
"Registration Statement") 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 Massachusetts
Secretary and appropriate documents with the relevant authorities of the other
states in which the Company is qualified to do business; (d) filing with the
SEC for authorization of the Merger under Section 9(a)(2) of the 1935 Act; and
(e) such other consents, approvals, authorizations, filings or notices as are
set forth in Section 4.4 of the Nipsco Disclosure Schedule or as, in the
aggregate could not reasonably be expected to have a Nipsco Material Adverse
Effect (collectively, the "Nipsco Required Statutory Approvals").
4.5 Nipsco SEC Documents and Financial Statements.
4.5.1 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.
4.5.2 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
A-22
<PAGE>
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).
4.5.3 Except as disclosed in the Nipsco SEC Documents filed and publicly
available prior to December 16, 1997 (the "Filed Nipsco SEC Documents") or
in the Nipsco 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 formerly maintained by Nipsco or any of its Subsidiaries or a Nipsco
ERISA Affiliate (as defined in Section 4.8.1) on or after January 1, 1992)
that have been or, to the knowledge of the officers of Nipsco and its
Subsidiaries and divisions, the members of 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, 1996 (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, 1996, 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 Nipsco Material Adverse Effect.
4.6 Absence of Certain Changes or Events.
(a) Except as set forth in the Nipsco SEC Documents filed prior to the
date hereof or in Section 4.6 of the Nipsco Disclosure Schedule, from
December 31, 1996 there has not been, and no fact or condition exists that
would reasonably be expected to have, a Nipsco Material Adverse Effect.
(b) Neither Nipsco nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a
nature required by GAAP to be reflected in a consolidated corporate balance
sheet, except liabilities, obligations or contingencies that are accrued or
reserved against in the consolidated financial statements of Nipsco or
reflected in the notes thereto for the year ended December 31, 1996, or
that were incurred after December 31, 1996 in the ordinary course of
business and would not reasonably likely have a Nipsco Material Adverse
Effect.
4.7 Employee Matters; ERISA. Each employee benefit plan, program, policy,
agreement or arrangement maintained by Nipsco or its Subsidiaries is and has
been operated in compliance with its terms and all applicable laws, rules, and
regulations governing such plans, including without limitation ERISA and the
Code, except for violations that could not reasonably be expected to have a
Nipsco Material Adverse Effect.
4.8 Taxes.
4.8.1 Filing of Timely Tax Returns. Nipsco and each of its Subsidiaries
have filed all Tax Returns required to be filed by each of them under
applicable law. All Tax Returns were in all material respects (and, as to
Tax Returns not filed as of the date hereof, will be) true, complete and
correct and filed on a timely basis except for where the failure to do so
would not have a Nipsco Material Adverse Effect.
4.8.2 Payment of Taxes. Neither Nipsco nor any of its Subsidiaries have
any liability for unpaid Taxes that, in the aggregate, would be reasonably
likely to have a Nipsco Material Adverse Effect.
4.9 Environmental Matters.
4.9.1 Environmental Matters. Except as would not, in the aggregate, be
reasonably expected to result in a Nipsco Material Adverse Effect, but
excluding matters disclosed in Section 4.9.1 of the Nipsco Disclosure
Schedule, (i) Nipsco and its Subsidiaries are and have been in material
compliance with all applicable Environmental Laws and the terms and
conditions of all applicable Environmental Permits, and neither Nipsco nor
any of its Subsidiaries has received any written notice from any person or
Governmental Entity that alleges that Nipsco or any of its Subsidiaries is
not in material compliance with applicable Environmental Laws or the terms
and conditions of all such Environmental Permits, (ii) to the best
knowledge of Nipsco, there are no Environmental Claims pending or
threatened (a) against Nipsco or any of its Subsidiaries, (b) against any
person or entity whose liability for any Environmental Claim Nipsco or
A-23
<PAGE>
any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law or (c) against any real or personal
property or operations that Nipsco or any of its Subsidiaries owns, leases
or manages, in whole or in part, and (iii) to the best knowledge of Nipsco,
there has been no Release of Hazardous Materials that would be reasonably
likely to (a) form the basis of any Environmental Claim against Nipsco or
any of its Subsidiaries or against any person or entity whose liability for
any Environmental Claim Nipsco or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law or (b)
cause damage or diminution of value to any of the operations or real
properties owned, leased or managed, in whole or in part, by Nipsco or any
of its Subsidiaries.
4.9.2 To the best knowledge of Nipsco, there are no facts or
circumstances that are likely to form in the basis of an Environmental
Claim or to require expenditures by Nipsco or any of its Subsidiaries in
order to comply with currently applicable Environmental Laws, including but
not limited to facts and circumstances 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/or
(iii) any other environmental matters affecting Nipsco or any of its
Subsidiaries; and that are reasonably likely to have, in the aggregate, but
excluding matters disclosed in Section 4.9.2 of the Nipsco Disclosure
Schedule, a Nipsco Material Adverse Effect.
4.10 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.
4.11 No Omissions. None of the information included in the Nipsco Disclosure
Schedule or in the Nipsco SEC Documents (including, without limitation, the
consolidated financial statements included therein) was, as of the date such
information was included in such Schedule or Documents, false or misleading in
any material respect or omitted to state a fact therein necessary to make such
information not misleading in any material respect.
4.12 Regulation as a Utility. Nipsco is a public utility holding company
within the meaning of the 1935 Act and is either exempt from, or is in
compliance with, all provisions thereof.
4.13 Compliance. Nipsco and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders, franchises, consents and approvals of all
Governmental Entities necessary for them to own, lease and operate their
properties and assets, and to lawfully conduct their respective businesses,
except where the failure to so hold would not have a Nipsco Material Adverse
Effect. Except as set forth in Section 4.13 of the Nipsco Disclosure Schedule
or as disclosed in the Nipsco SEC Documents filed as of the date hereof,
Nipsco and its Subsidiaries are not conducting their business in violation of,
nor have they received notice of an investigation with respect to any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
of any Governmental Authority, except for violations that do not have, and
would not be reasonably likely to have, a Nipsco Material Adverse Effect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Registration Statement and Proxy Statement.
5.1.1 Registration Statement; Proxy Statement. As soon as practicable
following the date of this Agreement, the Company shall prepare and file
with the SEC a preliminary proxy statement relating to the Company Special
Meeting (as defined in Section 5.2) as such preliminary proxy statement may
be amended from time to time (the "Proxy Statement"), and Nipsco shall
prepare and file with the SEC the Registration Statement including a
prospectus relating to the Nipsco Common Shares, as amended or supplemented
from
A-24
<PAGE>
time to time (the "Prospectus"). Nipsco shall use its best efforts to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall use its best
efforts to cause the Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable after the Registration Statement 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 as may be reasonably
requested in connection with any such action. It shall be a condition to
the requirement of the Company to mail the Proxy Statement to its
shareholders that the Company shall have received an opinion from Barr
Devlin, dated the date of the Proxy Statement, to the effect that, as of
the date thereof, the consideration to be received by holders of Company
Shares pursuant to the Merger is fair to such holders from a financial
point of view.
5.1.2 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 Registration Statement
shall, at the time the Registration Statement 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 shall, at the date it is first mailed to the Company's
shareholders or at the time of the Company 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 shall 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.
5.1.3 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 Registration Statement shall, at the
time the Registration Statement 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 shall,
at the date the Proxy Statement is first mailed to the Company's
shareholders or at the time of the Company 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 Registration Statement shall comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations promulgated thereunder, except with respect to statements
made or incorporated by reference in either the Registration Statement or
the Proxy Statement based on information supplied by the Company
specifically for inclusion or incorporation by reference therein.
5.2 Meeting of the Company's Shareholders. The Company shall take all action
necessary in accordance with applicable federal and state law and the Charter
and By-laws to convene a meeting of its shareholders as promptly as
practicable and consistent with Section 5.1.1 (the "Company Special Meeting")
to consider and vote upon the approval of the Merger. Subject to Section 5.10,
the Company shall, through its board of directors (the "Company Board"),
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 8.12(v), its obligations pursuant
to the first sentence of Section 5.2 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 5.9) or (ii) the
withdrawal or modification by the Company Board of its approval or
recommendation of this Agreement or the Merger. Subject to Sections 5.9 and
5.10, the Company shall use its best efforts to obtain the favorable vote of
its shareholders as soon as practicable after the date hereof. It shall be a
condition to the obligation of the Company to hold the Company Special Meeting
that the opinion of Barr Devlin referred to in Section 5.1.1 shall not have
been withdrawn.
A-25
<PAGE>
5.3 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 A to this Agreement. Nipsco
shall not be required to maintain the effectiveness of the Registration
Statement or any other registration statement under the Securities Act for the
purposes of resale of Nipsco Common 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 5.3. 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, SH&W and LLG&M
as such law firms shall require in connection with the delivery of their Tax
Opinions pursuant to Sections 7.2.3 and 7.3.3, respectively.
5.4 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.
5.5 Letter of the Company's Accountants. Following receipt by KPMG Peat
Marwick LLP, the Company's independent auditors, of an appropriate request
from Nipsco pursuant to SAS No. 72, the Company shall use best efforts to
cause to be delivered to Nipsco a letter of KPMG Peat Marwick LLP, dated a
date within two business days before the effective date of the Registration
Statement, and addressed to Nipsco, in form and substance reasonably
satisfactory to Nipsco and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
5.6 Letter of Nipsco's Accountants. Following receipt by Arthur Andersen
LLP, Nipsco's independent auditors, of an appropriate request from the Company
pursuant to SAS No. 72, Nipsco shall use best efforts to cause to be delivered
to the Company a letter of Arthur Andersen LLP, dated a date within two
business days before the effective date of the Registration Statement, and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
5.7 Access to Information; Confidentiality. Upon reasonable notice, (i) the
Company shall, and shall cause its Subsidiaries to, afford 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 and (ii) Nipsco shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel,
financial advisors and other representatives of Brass, reasonable access to
senior executives of Nipsco for the purpose of discussing Nipsco's business
(with reasonable access to the documents related thereto) during the period
sixty (60) days prior to the Effective Time. Prior to the Effective Time, 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 all
correspondence or written communication with any securities rating agency or
any Governmental Entity or utility regulatory authorities (that relates to the
transactions contemplated hereby or, subject to the terms of any then existing
confidentiality requirements, that 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
A-26
<PAGE>
warranties made by the other party pursuant to this Agreement. Each of Nipsco
and the Company agrees that it shall not, and that it shall cause its
respective representatives not to, use any information obtained pursuant to
this Section 5.7 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Except as required by law, each
of the Company and Nipsco shall hold, and shall 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 agreement dated
October 27, 1997, as amended, between Nipsco and the Company (the
"Confidentiality Agreement").
5.8 Public Announcements. Nipsco and the Company shall 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.
5.9 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 5.9 shall prohibit the Company
Board 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
Company Board, after consultation with and based upon the advice of outside
counsel, concludes in good faith that a failure to do so could reasonably be
expected to result in a breach of its fiduciary duties to the shareholders of
the Company 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 Company Board. 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 that could reasonably be expected to 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 Company Board, 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
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 a substantial 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.
5.10 Fiduciary Duties. The Company Board shall not (i) withdraw or modify
its approval or recommendation 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 Company Board concludes in good faith, after
consultation with and based upon the advice of outside counsel, that a failure
to do so could reasonably be expected to result in a breach of its fiduciary
duties to the shareholders of the Company under applicable law, it is
necessary for the Company Board 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
A-27
<PAGE>
this Section 5.10 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 that,
in the good faith judgment of the Company Board 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. In the event that the Company Board shall
act pursuant to this Section 5.10, Nipsco's remedies shall be limited to the
fees specified in Sections 8.2.4 and 8.2.5.
5.11 Filings; Other Action.
5.11.1 HSR Act. Nipsco and the Company shall file or cause to be filed
with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by them under the HSR Act and the rules
and regulations promulgated thereunder with respect to the transactions
contemplated hereby. Such parties shall use all commercially reasonable
efforts to make such filings promptly and to respond on a timely basis to
any requests for additional information made by either of such agencies.
5.11.2 Other Regulatory Approvals. Nipsco and the Company shall cooperate
and use all reasonable efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to use all commercially reasonable efforts
to obtain (and shall cooperate with each other in obtaining) any consent,
acquiescence, authorization, order or approval of, or any exemption or
nonopposition by, any Governmental Entity required to be obtained or made
by Nipsco, the Company or any of their Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this
Agreement.
5.11.3 Other Approvals. Nipsco and the Company shall, and shall cause
each of their respective Subsidiaries to, take all reasonable actions
necessary to obtain (and shall cooperate with each other in obtaining) all
Nipsco Required Consents and all Company Required Consents, as the case may
be.
5.12 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.
5.13 Indemnification. From and after the Effective Time, the Surviving
Corporation shall indemnify and hold harmless each Eligible Person (as defined
in the Charter), 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 organization or certificate or 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). Nipsco shall
cause to be maintained, for a period of not less than six years from the
Effective Time, the Company's directors' and officers' insurance and
indemnification policy in effect as of the date hereof, to the extent that it
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") for all persons who are directors or officers of the Company who
are covered persons under the Company's D&O Insurance policies in effect on
the date hereof, so long as the annual premium therefor would not be in excess
of 200% of the last annual premium paid prior to the date hereof (the "Maximum
Premium"). If the existing D&O Insurance expires, is terminated or canceled
during such six-year period, Nipsco shall use all reasonable efforts to cause
to be obtained as much D&O Insurance as can be obtained for the remainder of
such period for an annualized premium not in excess of the Maximum Premium, on
terms and conditions no less advantageous to the covered persons than the
existing D&O Insurance. The provisions of this Section 5.13 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.
A-28
<PAGE>
5.14 Representation on Nipsco Board. Nipsco shall take such action as may be
necessary to cause the number of directors comprising the Nipsco Board at the
Effective Time to be sufficient as to permit, subject to election by the
Nipsco shareholders, one director of the Company to serve thereon and shall
nominate and recommend for such election a Company director, who is to be
mutually determined by Nipsco and the Company and who shall serve on the
Nipsco Board for the remaining term of the class to which such director is
elected.
5.15 Cooperation, Notification. As contemplated by the provisions of Section
6.1 below, officers of the Company shall (i) confer on a regular and frequent
basis with officers of Nipsco to discuss the general status of the operation
of the Company and (ii) promptly notify Nipsco of any significant changes in
its business, properties, financial condition or results of operations. Each
of the Company and Nipsco shall advise the other of any change or event that
has had or is reasonably likely to result in a Company Material Adverse Effect
or a Nipsco Material Adverse Effect, as the case may be; and promptly provide
the other with copies of all filings made by it or any of its Subsidiaries
with any Governmental Entity in connection with this Agreement and the
transactions anticipated hereby.
5.16 Termination of Company Dividend Reinvestment Plan. The Company shall
terminate its Dividend Reinvestment Plan as soon as reasonably practicable,
but in any event no later than two months prior to the anticipated Effective
Time.
5.17 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) of the Code.
5.18 Termination of Shareholder Rights Plan. The Company shall coordinate
with Nipsco the timing of the redemption of the common share purchase rights
issued pursuant to the Shareholder Rights Plan Agreement, but such redemption
shall take place in any event before the Effective Time.
5.19 Actions Relating to Acquisition. In connection with the organization of
Acquisition, as soon as practicable following the creation of Acquisition,
Nipsco shall: (a) cause the directors and officers of Acquisition to take such
steps as may be necessary or appropriate to complete the organization of
Acquisition; (b) adopt (as sole shareholder of Acquisition) this Agreement;
(c) cause this Agreement to be approved and to be executed and delivered, by
Acquisition; and (d) cause Acquisition to perform its obligations under this
Agreement.
5.20 Recognition of Existing Contracts. Nipsco shall honor all existing
severance and change of control agreements of the Company and all union
contracts in accordance with their terms as in effect on the date hereof, in
the manner set forth in Section 3.8.7 of the Company Disclosure Schedule.
5.21 Redemption of Company Preferred Stock. The Company shall redeem all of
its outstanding Company Preferred A Shares and Company Preferred B Shares
prior to its mailing of the Proxy Statement to its shareholders in which the
holders of Company Shares are asked to vote to approve the Merger.
5.22 Company Stock Options. (a) At the Effective Time, each outstanding
option issued under the Company Key Employee Stock Option Plan (each, a
"Company Option"), shall be assumed by Nipsco. Each such option shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such Company Option, a number of shares of Nipsco Common
Stock equal to the number of shares of Company Common Stock purchasable
pursuant to such Company Option multiplied by the Exchange Ratio, at a price
per share equal to the per-share exercise price for the shares of Company
Common Stock purchasable pursuant to such Company Option divided by the
Exchange Ratio; provided, however, that in the case of any option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise
of such option shall be determined in order to comply with Section 425(a) of
the Code; and provided further, that the number of shares of Nipsco Common
Stock that may be purchased upon exercise of such Company Option shall not
include any fractional share and, upon exercise of such Company Option, a cash
payment shall be made for any fractional share based upon the closing price of
a share of Nipsco Common Stock on the NYSE on the last trading day of the
calendar month immediately preceding the date of exercise.
A-29
<PAGE>
(b) Nipsco shall take all corporate action necessary and appropriate (i) to
reserve for issuance a sufficient number of shares of Nipsco Common Stock for
delivery upon exercise of the Company Options assumed in accordance with this
Section 5.22 and (ii) to obtain approval of its board of directors or the
compensation committee thereof for the assumption of such Company Options
before the Effective Time. As soon as practicable after the Effective Time
Nipsco shall file with the SEC a registration statement on Form S-8 (or any
successor form) or another appropriate form (or shall cause such Company
Option to be deemed an option issued pursuant to a Nipsco stock option plan
for which shares of Nipsco Common Stock have previously been registered
pursuant to an appropriate registration form), with respect to the shares of
Nipsco Common Stock subject to the Company Options assumed in accordance with
this Section 5.22 and shall use all commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements for so long as the Company Options remain outstanding. At or prior
to the Effective Time, the Company shall make all necessary arrangements with
respect to its Key Employee Stock Option Plan to permit the assumption of
unexercised Company Options by Nipsco pursuant to this Section 5.22.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
6.1 Conduct of Business of Company Pending the Merger. Prior to the date
hereof, the Company shall have delivered a capital budget of the Company and
its Subsidiaries dated December 17, 1997 (the "Company Capital Budget") .
During the period from the date of this Agreement and continuing until the
Effective Time or earlier termination of this Agreement, the Company agrees as
to itself and its Subsidiaries that except as expressly contemplated or
permitted by this Agreement or in connection with any joint venture that the
Company and Nipsco may enter into, or to the extent that Nipsco shall
otherwise consent in writing (it being understood that if a particular
activity is permissible as a result of its being disclosed and, where
applicable, approved by Nipsco under any one of the Article VI sections of the
Company Disclosure Schedule, that activity will not be prohibited under any of
the sections of Article VI):
6.1.1 Ordinary Course of Business. The Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course consistent with past practice and use all commercially
reasonable efforts to preserve intact their present business organizations
and goodwill, keep available the services of their current officers and key
employees, endeavor to preserve the goodwill and relationships with
regulators, customers, suppliers and others having business dealings with
them, all to the end that their goodwill and ongoing businesses shall not
be impaired in any material respect at the Effective Time.
6.1.2 Dividends; Changes in Stock. The Company shall not, and it shall
not permit any of its Subsidiaries, to: (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock except
for the declaration and payment, with Record Dates and usual payment dates,
of regular quarterly cash dividends on the Company Common Shares not in
excess, in any fiscal year, of the dividends for the prior fiscal year
increased at a rate consistent with past practice, or dividends payable by
a Subsidiary of the Company to the Company or to a wholly owned Subsidiary
of the Company; (ii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
or (iii) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase, redeem or otherwise acquire, any shares of its
capital stock or other voting securities or any securities convertible
into, or any rights, warrants, calls, subscriptions or options to acquire,
shares of capital stock or other voting securities of the Company or any of
its Subsidiaries, (x) except as required by the terms of any such
securities outstanding on the date hereof, (y) the redemption of Company
Preferred A Shares and Company Preferred B Shares at the lowest applicable
redemption price in accordance with the terms thereof and (z) Company
Shares in ordinary market transactions not in excess of the number of
Company Shares required to be issued pursuant to stock grants or stock-
based awards made as of the date hereof pursuant to the Company Stock Plans
in accordance with the present terms of such plans. Notwithstanding
anything in this Section 6.1.2 to the contrary, the Company
A-30
<PAGE>
may declare a special dividend, to be paid at or immediately prior to the
Closing, up to but not in excess of an amount per share determined by
multiplying the "Daily Rate" times the number of days between December 17,
1998 and the Closing. For purposes of the foregoing, the Daily Rate shall
mean the dollar amount per share that results from dividing (A) the
difference between (x) the Company's publicly reported earnings per share
(normalized for the effects of weather) for the twelve months ended as of
the end of the most recently completed quarter for which earnings have been
publicly reported prior to the Closing (adjusted to eliminate the effect of
any extraordinary items or other mutually agreed-upon nonrecurring items,
including, but not limited to, the financial impact of the leaseback of the
Metscan AMR devices) and (y) the greater of (i) the aggregate amount of the
Company's regular cash dividends per share paid during the same twelve
month period or (ii) $1.58 by (B) 365; provided, however, that in no event
shall the Daily Rate exceed $0.00219. As used herein, "Record Date" means
each February 15, May 15, August 15 or November 15 (or, if such date is not
a business day, the first business day immediately following such date).
6.1.3 Issuance of Securities. The Company shall not, and shall not permit
any of its Subsidiaries to, issue, deliver, sell, pledge, dispose of or
encumber, or authorize or propose to issue, deliver, sell, pledge, dispose
of or encumber, any shares of its capital stock of any class or other
voting securities or any securities convertible into, or any rights,
warrants, calls, subscriptions or options to acquire, any shares of capital
stock or other voting securities or convertible securities of the Company
or any of its Subsidiaries, other than: the issuance of the Company Common
Shares pursuant to stock grants or stock-based awards made as of the date
hereof pursuant to the Company Stock Plans in accordance with the present
terms of such plans and issuances of stock by Subsidiaries to its direct or
indirect parent.
6.1.4 Capital Expenditures. Except for capital expenditures that the
Company or any of its Subsidiaries are required to make under applicable
law, the Company shall not, nor shall the Company permit any of its
Subsidiaries to, make capital expenditures (including capital lease
obligations) in excess of the amounts budgeted for capital expenditures as
set forth in the Company Capital Budget.
6.1.5 No Acquisitions. Except as set forth in Section 6.1.5 of the
Company Disclosure Schedule and not objected to by Nipsco within 45 days
after the date of this Agreement, the Company shall not, and shall not
permit any of its Subsidiaries to, acquire or agree to acquire by merging
or consolidating with, or by purchasing an interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof.
6.1.6 No Dispositions. Except as set forth in Section 6.1.6 of the
Company Disclosure Schedule, and except for dispositions in the ordinary
course of business as to which the market value is not in excess of $2
million singularly or aggregate, the Company shall not, and it shall not
permit any of its Subsidiaries to, sell, lease (whether such lease is an
operating or capital lease), encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets.
6.1.7 No Dissolution, Etc. The Company shall not authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
Subsidiaries; provided that nothing in this Section 6.1.7 preclude any such
transaction which involves only wholly owned Subsidiaries of the Company.
6.1.8 Limitation on Investment in Joint Ventures. Except as set forth in
Section 6.1.8 of the Company Disclosure Schedule, the Company will not
make, and will not permit any Subsidiary to make, any additional material
investments in, or loans or capital contributions to, or to undertake any
guarantees or other obligations with respect to any joint venture or
partnership.
6.1.9 Certain Employee Matters. Except as may be required by applicable
law or any agreement to which the Company or any of its Subsidiaries is a
party on the date hereof or as set forth in Section 6.1.9 of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
Subsidiaries to:
(i) except in the ordinary course of business consistent with past
practice, increase the amount of (or accelerate the payment or vesting
of) any benefit or amount payable under, any employee benefit plan or
any other contract, agreement, commitment, arrangement, plan or policy
providing for
A-31
<PAGE>
compensation or benefits to any former, present or future director,
officer or employee of the Company or any of its Subsidiaries and
maintained by, contributed to or entered into by, the Company or any of
its Subsidiaries on or prior to the date hereof, including, without
limitation, any Company Benefit Plan outstanding on the date hereof;
(ii) except in the ordinary course of business consistent with past
practice, increase (or enter into any contract, agreement, commitment
or arrangement to increase in any manner) the compensation or fringe
benefits, or otherwise to extend, expand or enhance the engagement,
employment or any related rights, of any former, present or future
director, officer or employee of the Company or any of its
Subsidiaries, except for (x) normal increases in the ordinary course of
business consistent with past practice, provided that the overall non-
bargaining base pay compensation budget for fiscal year 1998 shall not
increase by more than 4% above the level approved as of the date hereof
for fiscal year 1998, and for fiscal year 1999, the non-bargaining base
pay compensation budget shall be at such level as is proposed by the
Company and approved by Nipsco or (y) increases required under
applicable law; or
(iii) adopt, establish, enter into, implement or amend any plan,
policy, employment agreement, severance agreement, or other contract,
agreement or other arrangement providing for any form of benefits or
other compensation to any former, present or future director, officer
or employee of the Company or any of its Subsidiaries, other than in
the ordinary course of business consistent with past practice.
6.1.10 Indebtedness; Leases. Except as set forth in Section 6.1.10 of the
Company Disclosure Schedule, the Company shall not, nor shall the Company
permit any of its Subsidiaries to, (A) incur any indebtedness for borrowed
money or guarantee, or enter into a "keepwell" or similar arrangement with
respect to, any such indebtedness (including, without limitation, issuances
or sales of any debt securities or warrants or rights to acquire any debt
securities of the Company or any of its Subsidiaries), other than (x)
indebtedness between the Company or any of its Subsidiaries and another of
its Subsidiaries and (y) additional indebtedness in the ordinary course of
business under existing credit facilities, including the Company's
commercial paper facilities, in an amount not to exceed $90,000,000 or (B)
enter into any material operating lease or create any mortgages, liens,
security interests or other encumbrances on the property of the Company or
any of its Subsidiaries in connection with any indebtedness thereof, except
with respect to indebtedness permitted pursuant to this Section 6.1.10 or
(c) enter into any financial derivatives contract or purchase or sell any
exchange traded derivative futures or option contract, except for natural
gas hedging purposes in strict compliance with a price and/or basis risk
management policy approved in writing by Nipsco.
6.1.11 Governing Documents. Neither the Company nor any of its
Subsidiaries shall amend or propose to amend its certificate of
incorporation or by-laws (or similar governing documents).
6.1.12 Accounting. The Company shall not, nor shall it permit any of its
Subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
6.1.13 Rate Matters. Subject to applicable law and except for non-
material filings in the ordinary course of business consistent with past
practice, the Company shall consult with Nipsco prior to implementing any
changes in its or any of its Subsidiaries' rates or charges (other than
automatic cost pass-through rate adjustment clauses), standards of service
or accounting or executing any agreement with respect thereto that is
otherwise permitted under this Agreement and the Company shall, and shall
cause its Subsidiaries to, deliver to Nipsco a copy of each such filing or
agreement at least five days prior to the filing or execution thereof so
that Nipsco may comment thereon. The Company shall, and shall cause its
Subsidiaries to, make all such filings only in the ordinary course of
business consistent with past practice.
6.1.14 Gas Transmission and Storage. Except as required pursuant to
tariffs on file with the FERC as of the date hereof, in the ordinary course
of business consistent with past practice, neither the Company nor any
Subsidiary of the Company shall commence construction of any additional gas
transmission, gas delivery or gas storage capacity, or obligate itself to
purchase or otherwise acquire any additional transmission, delivery or
storage facilities, or to sell or otherwise dispose of, or to share, any
such facilities owned by it.
A-32
<PAGE>
6.1.15 Contracts. Except in the ordinary course of business consistent
with past practice, the Company shall not, nor shall it permit any of its
Subsidiaries to, modify, amend or terminate any material contract or
agreement to which the Company or any of its Subsidiaries is a party or
waive, release or assign any material rights or claims under any such
contract or agreement.
6.1.16 Insurance. The Company shall, and shall cause its Subsidiaries to,
maintain with financially responsible insurance companies (or through self-
insurance) insurance in such amounts and against such risks and losses as
are customary for companies engaged in their respective businesses.
6.1.17 Permits. The Company shall, and shall cause its Subsidiaries to,
maintain in effect all existing governmental permits (including
Environmental Permits) which are material to their respective operations.
6.1.18 Discharge of Liabilities. The Company shall not, nor shall it
permit any of its Subsidiaries to, pay, discharge or satisfy any material
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 (which includes the payment of final and unappealable judgments
and the refinancing of existing indebtedness for borrowed money either at
its stated maturity or at a lower cost of funds) or as required by 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 in the
ordinary course of business consistent with past practice.
6.1.19 1935 Act. The Company shall not, and shall not permit any of its
Subsidiaries to, engage in any activities which would cause a change in its
status as a holding company exempt from the 1935 Act under Section 3(a)(2)
pursuant to Rule 2 of that Act, or that would impair the ability of Nipsco
to continue to claim an exemption under Section 3(a)(1) of the 1935 Act
following the Merger.
6.1.20 Tax Matters. The Company shall not make or rescind any material
election or settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit, or controversy
relating to Taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1996, except as may be required by applicable law.
6.1.21 Tax Status. The Company and Nipsco shall not, and shall not permit
any of their Subsidiaries to, take any actions which would, or would be
reasonably likely to, adversely affect the status of the Merger as a
reorganization under Section 368(a) of the Code.
6.2 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.
6.3 Conduct of Business of Nipsco Pending the Merger. During the period from
the date of this Agreement and continuing until the Effective Time or earlier
termination of this Agreement, Nipsco shall, and shall cause its Subsidiaries
to, conduct their respective businesses so that the character of the business
of Nipsco and its Subsidiaries taken as a whole will not be fundamentally
altered. In no event shall either Nipsco or any of its Subsidiaries be
required to notify the Company or obtain the Company's consent prior to making
any acquisitions or dispositions of any businesses or assets.
6.4 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 VII not being satisfied on or prior to the Closing Date.
A-33
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT
7.1 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:
7.1.1 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 Company Special Meeting.
7.1.2 Governmental and Regulatory Consents. The Company Required
Statutory Approvals and the Nipsco Required Statutory Approvals shall have
been obtained at or prior to the Effective Time, such approvals shall have
become Final Orders (as hereinafter defined), and no Final Order shall
impose terms or conditions that would have, or would be reasonably likely
to have, a material adverse effect on the business, operations, properties,
assets, condition (financial or otherwise), prospects or results of
operations of the Company as if it were organized as a separate subsidiary
of Nipsco following the Merger or a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
prospects or results of operations of Nipsco as if it were organized as a
separate division of Nipsco following the Merger, or that would be
materially inconsistent with the agreements of the parties contained
herein. A "Final Order" means action by the relevant regulatory authority
that has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by law
before the transactions contemplated hereby may be consummated has expired,
and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied, and as to which
all opportunities for rehearing are exhausted (whether or not any appeal
thereof is pending).
7.1.3 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.
7.1.4 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.
7.1.5 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.
7.1.6 Registration Statement. 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.
7.1.7 Share Purchase Rights. The common share purchase rights issued
pursuant to the Shareholder Rights Agreement shall have been redeemed.
7.2 Conditions to Obligations of Nipsco. The obligations of Nipsco to effect
the Merger are further subject to the following conditions:
7.2.1 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 expressly
given as of a specified 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 7.2.1.
7.2.2 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
7.2.2.
A-34
<PAGE>
7.2.3 Tax Opinion. Nipsco shall have received the opinion dated the
Closing Date of SH&W, to the effect that for federal income tax purposes
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code and no gain or loss shall be recognized by Nipsco,
Acquisition or the Company as a consequence of the Merger. In rendering
such opinion, SH&W shall be entitled to receive and may rely on
representations contained of Nipsco, Acquisition, Northern, the Company and
certain shareholders of the Company, which are in form and substance
reasonably satisfactory to such counsel.
7.2.4 Consents and Approvals. The Company and its Subsidiaries shall have
received the consents set forth in Section 3.4 of the Company Disclosure
Schedule.
7.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
7.3.1 Representations and Warranties. The representations and warranties
of Nipsco 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 and except for the representations and
warranties set forth in Sections 4.9 and 4.13) as of the Closing Date as
though made on the Closing Date, and Nipsco shall have delivered to the
Company a certificate dated as of the Closing Date, signed by an executive
officer of Nipsco and to the effect set forth in this Section 7.3.1.
7.3.2 Performance of Obligations of Nipsco. Nipsco 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 shall have
delivered to the Company a certificate dated as of the Closing Date, signed
by an executive officer of Nipsco and to the effect set forth in this
Section 7.3.2.
7.3.3 Tax Opinion. The Company shall have received the opinion dated the
Closing Date of LLG&M, to the effect that for federal income tax purposes
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code and that shareholders of the Company shall not be
subject to federal income tax on the receipt of Nipsco Common Shares in
exchange for Company Shares pursuant to the Merger. In rendering such
opinion, LLG&M shall be entitled to receive and may rely on representations
of Nipsco, Acquisition, Northern, the Company and certain shareholders of
the Company, which are in form and substance reasonably satisfactory to
such counsel.
7.3.4 Consents and Approvals. Nipsco and its Subsidiaries shall have
received the consents set forth in Section 4.4 of the Nipsco Disclosure
Schedule.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 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:
8.1.1 by mutual written consent of Nipsco and the Company;
8.1.2 by either Nipsco or the Company, by written notice to the other:
(i) if, upon a vote at a duly held Company Special Meeting, the
Company Requisite Vote shall not have been obtained;
(ii) if the Effective Time shall not have occurred on or before
December 31, 1998; provided, however, that such date shall
automatically be changed to June 30, 1999 if, on December 31, 1998:
(a) the conditions set forth in Section 7.1.2 have not been
satisfied or waived;
(b) the other conditions to the consummation of the transactions
contemplated hereby are then capable of being satisfied; and
A-35
<PAGE>
(c) any approvals required by Section 7.1.2 that have not yet been
obtained are being pursued with diligence; provided, further, that
the right to terminate this Agreement under this Section 8.1.2 shall
not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the
termination date;
(iii) if either party shall have exercised its rights set forth in
Section 1.2.2 of this Agreement on or after December 31, 1998;
(iv) 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
(v) if the Company Board shall have exercised its rights set forth in
Section 5.10 of this Agreement.
8.1.3 by the Company if there shall have been any material breach of any
representation or warranty, or any material breach of any covenant or
agreement, of Nipsco hereunder and such breach shall not have been remedied
within 20 days after receipt by Nipsco of notice in writing from the
Company, specifying the nature of such breach and requesting that it be
remedied; or
8.1.4 by Nipsco if there shall have been any material breach of any
representation or warranty, or any material breach of any covenant or
agreement, of the Company hereunder and such breach shall not have been
remedied within 20 days after receipt by the Company of notice in writing
from Nipsco, specifying the nature of such breach and requesting that it be
remedied.
8.2 Effect of Termination.
8.2.1 In the event of termination of this Agreement by either the Company
or Nipsco as provided in Section 8.1, except as provided in Sections 8.2.4
and 8.2.5, 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 5.7 and Sections 8.2 and 11.2.
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.
8.2.2 In the event of termination of this Agreement by Nipsco pursuant to
Section 8.1.4 and at such time no third party Acquisition Proposal has been
made, the Company shall pay to Nipsco as liquidated damages and not as a
penalty, an amount in cash equal to the out-of-pocket expenses and fees
incurred by Nipsco arising out of, in connection with or related to the
Merger or the transactions contemplated by this Agreement not in excess of
$10,000,000 within 60 days of such termination, provided that Nipsco shall
not be in material breach of its obligations under this Agreement.
8.2.3 In the event of termination of this Agreement by the Company
pursuant to Section 8.1.3, Nipsco shall pay to the Company, as liquidated
damages and not as a penalty, an amount in cash equal to the out-of- pocket
expenses and fees incurred by the Company arising out of, in connection
with or related to the Merger or the transactions contemplated by this
Agreement not in excess of $10,000,000 within 60 days of such termination,
provided that the Company shall not be in material breach of its
obligations under this Agreement.
8.2.4 If (i) this Agreement is terminated (x) pursuant to Section
8.1.2(v), (y) following a failure to hold the Company Special Meeting or
failure to obtain the Company Requisite Vote, as the case may be, or (z)
pursuant to Section 8.1.4; and (ii) in the case of clauses (y) and (z), at
the time of such termination there shall have been made a third party
Acquisition Proposal then promptly (but not later than 30 days after such
termination), the Company shall pay to Nipsco a fee of $10,000,000.
8.2.5 If Section 8.2.4 is applicable and a transaction contemplated by
the Acquisition Proposal referred to in Section 8.2.4 or any other
Acquisition Proposal that the Company Board accepts in lieu of the
Acquisition Proposal referred to in Section 8.2.4 is consummated within two
and one-half years of termination of this Agreement, the Company shall pay
to Nipsco an additional fee of $15,000,000 upon such consummation.
A-36
<PAGE>
8.2.6 The payments provided in Sections 8.2.2, 8.2.3, 8.2.4 and 8.2.5
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.
8.3 Amendment. Subject to applicable law, 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 that 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.
8.4 Extension; Waiver. At any time prior to the Effective Time, subject to
applicable law, 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) 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.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A termination
of this Agreement pursuant to Section 8.1, an amendment of this Agreement
pursuant to Section 8.3 or an extension or waiver pursuant to Section 8.4
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 IX
SURVIVAL OF PROVISIONS
9.1 Survival. The representations and warranties respectively required to be
made by the Company and Nipsco in this Agreement, or in any certificate,
respectively, delivered by the Company or Nipsco pursuant to Section 7.2 or
Section 7.3 hereof, shall terminate upon the Closing and be of no further
force or effect.
ARTICLE X
NOTICES
10.1 Notices. Any notice or communication given pursuant to this Agreement
must be in writing and shall 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:
Bay State Gas Company 300 Friberg Parkway Westborough, Massachusetts
01581-5039 Attention: Joel L. Singer Telephone: 508-836-7310
Facsimile: 508-836-7075
A-37
<PAGE>
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 West 55th Street New
York, New York 10019 Attention: Douglas W. Hawes, Esq. Telephone:
212-424-8000 Facsimile: 212-424-8500
If to Nipsco, to:
NIPSCO Industries, Inc. 5265 Hohman Avenue Hammond, Indiana 46320
Attention: Stephen P. Adik Telephone: 219-647-6012 Facsimile: 219-
647-6060
with copies to:
Schiff Hardin & Waite 7200 Sears Tower Chicago, Illinois 60606
Attention: Peter V. Fazio, Jr. Telephone: 312-876-1000 Facsimile:
312-258-5600
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 10.1 shall, 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 shall 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 10.1, "Business Day" shall mean a day other than Saturday, Sunday or
any day on which the principal commercial banks located in Massachusetts are
authorized or obligated to close under the laws of Massachusetts.
ARTICLE XI
MISCELLANEOUS
11.1 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 5.7 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.
11.2 Expenses. The Company and Nipsco each shall 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 and the preparation and filing
of the Registration Statement shall be borne equally by the Company and
Nipsco.
A-38
<PAGE>
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
shall 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.
11.4 No Third Party Beneficiary. Except as otherwise specifically provided
in Section 5.13, this Agreement is not intended and may not be construed to
create any rights in any parties other than the Company and Nipsco 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.
11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts (without regard
to the principles of conflicts of law) applicable to a contract executed and
to be performed therein.
11.6 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 shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
11.7 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 inclusive.
11.8 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 under this Agreement shall not
be materially and adversely affected thereby, (i) such provision shall be
fully severable, (ii) this Agreement shall 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 shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
In Witness Whereof, this Agreement has been duly executed and delivered by
the duly authorized officers of the Company and Nipsco effective as of the
date first written above.
Nipsco Industries, Inc.
/s/ Gary L. Neale
By: ___________________________________
Name:Gary L. Neale
Title: Chairman, President and
Chief Executive Officer
Bay State Gas Company
/s/ Roger A. Young
By: ___________________________________
Name:Roger A. Young
Title: Chairman and Co-Chief
Executive Officer
A-39
<PAGE>
[BARR DEVLIN LETTERHEAD]
ANNEX B
April 22, 1998
The Board of Directors
Bay State Gas Company 300 Friberg Parkway Westborough, MA 01581
Dear Members of the Board:
We understand that Bay State Gas Company, a Massachusetts corporation ("Bay
State"), and NIPSCO Industries, Inc., an Indiana corporation ("Industries")
have entered into an Agreement and Plan of Merger, dated as of December 18,
1997 (the "Merger Agreement"), by and between Bay State and Industries. The
Merger Agreement provides for, among other things, the merger of Bay State
with and into a corporation ("Acquisition") to be organized as a wholly owned
subsidiary of Industries (the "Preferred Merger") whereby the common stock,
$3.33 1/3 par value per share, of Bay State ("Bay State Shares") issued and
outstanding immediately prior to the Effective Time (as defined in Section 1.4
of the Merger Agreement) other than shares held as treasury shares (as defined
in Section 2.2.7 of the Merger Agreement) by Bay State, shall be converted
into (i) the right to receive $40.00 in cash (the "Cash Price"), or (ii) the
fraction of a validly issued, fully paid and nonassessable share of common
stock, without par value, of Industries ("Industries Shares") determined by
dividing the Cash Price by the Industries Share Price (as defined in Section
2.2.1 of the Merger Agreement), or (iii) the right to receive a combination of
cash and Industries Shares (in accordance with Section 2.2.2 or Section 2.2.3
of the Merger Agreement), the above amounts, individually and collectively
herein referred to as the "Consideration". The Merger Agreement provides that
an alternative merger structure may be used instead of the Preferred Merger in
certain circumstances (the "Alternative Merger"). The term "Merger" refers to
the Preferred Merger or the Alternative Merger, regardless of which structure
is used to implement the combination. The terms and conditions of the Merger
are set forth in more detail in the Merger Agreement. Capitalized terms used
herein without definition have the respective meanings assigned to such terms
in the Merger Agreement.
We have been requested by Bay State to render our opinion with respect to
the fairness, from a financial point of view, to Bay State Shareholders of the
Consideration to be offered in 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 September 30, 1997, of Bay
State;
(2) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1996, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1997, June 30, 1997 and September 30,
1997, of Industries;
(3) Reviewed certain other filings with the Securities and Exchange
Commission and other regulatory authorities made by Bay State, Industries
and certain of Bay State's and Industries' subsidiaries during the last
three years, including proxy statements, FERC Forms 2, FERC Forms 1, Forms
8-K and registration statements;
(4) Reviewed certain internal information, including financial forecasts,
relating to the business, earnings, capital expenditures, cash flow, assets
and prospects of Bay State and Industries furnished to us by Bay State and
Industries, respectively;
(5) Conducted discussions with members of senior management of Bay State
and Industries concerning their respective businesses, regulatory
environments, prospects, strategic objectives, and certain operating
benefits which might be realized for the benefit of Industries following
the Merger;
B-1
<PAGE>
(6) Reviewed the historical market prices and trading activity for Bay
State Shares and Industries Shares and compared them with those of certain
publicly traded companies which we deemed to be relevant;
(7) Compared the results of operations of Bay State and Industries 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 Bay State Shares and Industries Shares
using various valuation methodologies which we deemed to be appropriate;
(10) Considered the pro forma capitalization, earnings and cash flow of
Industries following the Merger;
(11) Compared the pro forma earnings per share, dividends per share,
capitalization ratios and payout ratio of Industries following the Merger
with each of the corresponding current and projected values for Bay State
and Industries on a stand-alone basis;
(12) Reviewed the Merger Agreement;
(13) Reviewed the Registration Statement, including the Proxy
Statement/Prospectus dated the date hereof; and
(14) 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 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 Bay State
and Industries and have further relied upon the assurances of management of
Bay State and Industries that they are not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
projections of Bay State and Industries, we have relied upon the assurances of
the management of Bay State and Industries that such projections have been
reasonably prepared and reflect the best currently available estimates and
judgments of the respective managements of Bay State and Industries, as to the
future financial performance of Bay State, Industries and the combined
enterprise, individually and collectively, and as to the projected outcomes 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 Bay State or Industries,
nor have we made any physical inspection of the properties or assets of Bay
State or Industries. We have assumed that the Merger will be treated for
federal income tax purposes as a reorganization of the type described in
Section 368(a) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder and that Bay State Shareholders who exchange their
shares solely for Industries Shares will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the Merger. We have
also assumed that the Merger will be accounted for using the purchase method
of accounting. 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. Bay State has not authorized us to solicit, and we have
not solicited, any indications of interest from any third party with respect
to the purchase of all or a part of Bay State. Although we evaluated the
fairness of the Consideration from a financial point of view to Bay State
Shareholders, the specific Consideration was determined by Bay State and
Industries through arm's length negotiations.
The SG Barr Devlin division of Societe Generale has acted as financial
advisor to Bay State 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 Bay State and Industries
for which we received customary compensation.
Our advisory services and the opinion expressed herein are for the
information of Bay State's Board of Directors in evaluating the Merger. This
opinion is not intended to be and does not constitute a recommendation to any
shareholder as to how such shareholder should act with respect to the Merger.
Except for its publication
B-2
<PAGE>
in the Proxy Statement/Prospectus which will be distributed to Bay State
Shareholders in connection with approval of the Merger, 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 Consideration to be offered in connection with the Merger
is fair, from a financial point of view, to Bay State Shareholders.
Very truly yours,
SG Barr Devlin
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the registrant provide for indemnification by the registrant
of each of its directors and officers to the fullest extent permitted by law
for liability of such director or officer arising by reason of his or her
status as a director or officer of the registrant or its subsidiaries. Under
the registrant's By-Laws as well as the Indiana Business Corporation Law (the
"Indiana BCL"), the registrant is required to indemnify its directors and
officers against expenses, judgments, decrees, fines, penalties and
settlements actually and reasonably incurred by such person in connection with
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which such person is a party by reason of his or her
connection with the registrant, provided that such person acted in good faith
and in a manner he or she reasonably believed to be in the best interest of
the registrant, or, with respect to a criminal proceeding, has no reasonable
cause to believe that his or her conduct was unlawful.
The By-Laws of the registrant provide that, except where a director or
officer is substantially and finally successful on the merits, the registrant
may not indemnify a director or officer (unless ordered by a court) until
after a determination has been made that indemnification of the director or
officer is permissible because he or she met the applicable standards of
conduct. The registrant also may not advance expenses prior to the disposition
of an action, suit or proceeding until: (a) the director or officer provides
the registrant with a written affirmation of his or her good faith belief that
he or she has met the applicable standards of conduct and an undertaking to
repay the advance if it is ultimately determined that he or she did not meet
the applicable standards of conduct and (b) a determination has been made,
that, based on the facts then known to those making the determination, the
director or officer met the applicable standards of conduct. The determination
that a director or officer has met the applicable standards of conduct may be
made by a majority vote of a quorum consisting of disinterested directors, a
majority vote of a committee designated by the board of directors consisting
of two or more disinterested directors (only if a quorum of the board cannot
be obtained), special legal counsel or a majority vote of disinterested
shareholders.
As authorized under the registrant's By-Laws and the Indiana BCL, the
registrant and its subsidiaries have insurance which insures directors and
officers for acts committed as such directors or officers which are determined
not to be indemnifiable under the registrant's indemnity provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The Exhibits filed herewith are set forth on the Exhibit Index filed as
part of this Registration Statement at page II-5.
(b) No Financial Statement Schedules are required to be filed herewith.
(c) Not applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
II-1
<PAGE>
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE TOWN OF MERRILLVILLE AND STATE OF INDIANA, ON APRIL 21,
1998.
NIPSCO Industries, Inc.
(Registrant)
/s/ Gary L. Neale
By __________________________________
Gary L. Neale
Chairman and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gary L. Neale Chairman, President, April 21, 1998
____________________________________ Director
Gary L. Neale and Principal Executive
Officer
/s/ Stephen P. Adik Executive Vice President, April 21, 1998
____________________________________ Principal Financial Officer
Stephen P. Adik and Principal Accounting
Officer
Steven C. Beering* Director April 21, 1998
____________________________________
Steven C. Beering
Arthur J. Decio* Director April 21, 1998
____________________________________
Arthur J. Decio
James T. Morris* Director April 21, 1998
____________________________________
James T. Morris
Ernestine M. Raclin* Director April 21, 1998
____________________________________
Ernestine M. Raclin
Denis E. Ribordy* Director April 21, 1998
____________________________________
Denis E. Ribordy
Ian M. Rolland* Director April 21, 1998
____________________________________
Ian M. Rolland
Edmund M. Schroer* Director April 21, 1998
____________________________________
Edmund M. Schroer
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
John W. Thompson* Director April 21, 1998
____________________________________
John W. Thompson
Robert J. Welsh* Director April 21, 1998
____________________________________
Robert J. Welsh
</TABLE>
/s/ Arthur A. Paquin
*By ___________________________
Arthur A. Paquin
Attorney in Fact
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
------- -------------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of December 18, 1997, by
and between NIPSCO Industries, Inc. and Bay State Gas Company,
as amended and restated as of March 4, 1998 (incorporated by
reference to Annex A to the Proxy Statement/Prospectus
contained in this Registration Statement).
3.1 Articles of Incorporation of NIPSCO Industries, Inc., as
amended as of April 9, 1997 (incorporated by reference to
Exhibit 3(a) to NIPSCO Industries, Inc. Form 10-Q for the
period ended March 31, 1997).
3.2 By-Laws of NIPSCO Industries, Inc., as amended as of April 9,
1997 (incorporated by reference to Exhibit 3(b) to NIPSCO
Industries, Inc. Form 10-Q for the period ended March 31,
1997).
4 Rights Agreement between NIPSCO Industries, Inc. and Harris
Trust and Savings Bank dated February 27, 1990 (incorporated by
reference to Exhibit 4.1 to NIPSCO Industries, Inc. Current
Report on Form 8-K dated March 7, 1990).
5 Opinion of Schiff Hardin & Waite, counsel to NIPSCO Industries,
Inc.
8.1 Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
8.2 Tax Opinion of Schiff Hardin & Waite.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Schiff Hardin & Waite (contained in their Opinion
filed as Exhibit 5).
23.4 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
their Tax Opinion filed as Exhibit 8.1).
23.5 Consent of SG Barr Devlin.
*24 Powers of Attorney.
*99.1 Form of Proxy to be used in connection with the special meeting
of Shareholders of Bay State Gas Company.
99.2 Form of Election to be used by holders of Common Shares of Bay
State Gas Company.
</TABLE>
- --------
* previously filed
II-5
<PAGE>
EXHIBIT 5
Michael L. Meyer
(312) 258-5713
E-mail: [email protected]
April 21, 1998
NIPSCO Industries, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
Re: NIPSCO Industries, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We are acting as counsel to NIPSCO Industries, Inc., an Indiana
corporation, in connection with its filing with the Securities and Exchange
Commission of a Registration Statement on Form S-4 (as amended, the
"Registration Statement") covering up to 28,000,000 common shares to be issued
pursuant to the Agreement and Plan of Merger, dated December 18, 1997, as
amended and restated as of March 4, 1998, between NIPSCO Industries, Inc. and
Bay State Gas Company. In that connection, we have examined such corporate
records, certificates and other documents and have made such other factual and
legal investigations as we have deemed necessary or appropriate for the purposes
of this opinion.
Based upon the foregoing, it is our opinion that the NIPSCO Industries,
Inc. common shares, when issued in exchange for common shares of Bay State Gas
Company, as contemplated by and described in the Registration Statement, will be
legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, to the filing of our tax opinion as Exhibit 8.2
to the Registration Statement and to the references to us under the caption
"Legal Opinion" and "The Merger-Material Federal Income Tax Consequences to
Certain Shareholders" in the Proxy Statement/Prospectus contained in the
Registration Statement.
Very truly yours,
SCHIFF HARDIN & WAITE
By: /S/ Michael L. Meyer
------------------------------
Michael L. Meyer
MLM/js
<PAGE>
EXHIBIT 8.1
Federal Income Tax Opinion
Letterhead of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
April 22, 1998
Bay State Gas Company
300 Friberg Parkway
Westborough, Massachusetts 01581
Re: Federal Income Tax Consequences of Merger of Bay State Gas Company
with and into a newly formed wholly owned subsidiary of NIPSCO
Industries, Inc. or with and into Northern Indiana Public Service
Company
Ladies and Gentlemen:
You have requested our opinion relating to the federal income tax
consequences addressed herein below arising out of the Agreement and Plan of
Merger, dated as of December 18, 1997, as amended and restated as of March 4,
1998 (the "Merger Agreement"), by and between Bay State Gas Company ("Company")
and NIPSCO Industries, Inc. ("Industries"). This opinion is not intended to
satisfy the condition to closing set forth in the Merger Agreement. Our
conclusions are based upon (i) the facts and assumptions set forth below, (ii)
in the case of the Preferred Merger (as defined below), the representations made
in Company's letter to us dated as of April 20, 1998 (the "Company Letter"), the
representations made in Industries' letter to us dated as of April 20, 1998 (the
"Industries Letter"), the representations made in the letter to us dated April
20, 1998 of Industries on behalf of its wholly owned subsidiary to be formed
pursuant to the Merger Agreement ("Acquisition" and the "Acquisition Letter,"
respectively) and (iii) in the case of the Northern Indiana Merger (as defined
below), the representations made in the Company Letter, the representations made
in the Industries Letter and the representations made in the letter of Northern
Indiana Public Service Company to us dated as of April 20, 1998 ("Northern
Indiana" and the "Northern Indiana Letter," respectively). If any of these
stated facts or assumptions are not correct, please advise us at once, as our
advice may be affected by a change in such facts or assumptions. Capitalized
terms used but not defined in this letter have the meaning given them in the
Merger Agreement.
Our opinion does not address (i) certain federal income tax
consequences applicable to special classes of taxpayers including, without
limitation, dealers in securities, banks, insurance companies, persons who are
not treated as United States persons pursuant to the Internal Revenue Code of
1986, as amended (the "Code") (including the effects of the Foreign Investment
in Real Property Act on such persons who are not treated as United States
persons pursuant to the Code), estates, trusts,
1
<PAGE>
partnerships, corporations, tax-exempt entities, persons who do not hold their
Company Common Stock as capital assets and persons who acquired Company Common
Stock pursuant to the exercise of an employee option or otherwise as
compensation or (ii) the tax consequences of the Preferred Merger or the
Alternative Merger, defined below, under state, local or foreign law.
FACTS
Pursuant to the Merger Agreement, Company shall be merged with and
into Acquisition in accordance with the applicable provisions of the laws of
the Commonwealth of Massachusetts (the "Preferred Merger"). Acquisition shall
be the surviving corporation in the Preferred Merger and shall continue its
corporate existence under the laws of the Commonwealth of Massachusetts. As a
result of the Preferred Merger, Company shall cease to exist and Acquisition
shall remain a direct wholly-owned subsidiary of Industries.
If at any time prior to December 31, 1998 the Preferred Merger is not
approved by the Securities and Exchange Commission and it becomes possible under
applicable law to merge Company into Northern Indiana, then pursuant to the
Merger Agreement, Company will be merged with and into Northern Indiana (the
"Northern Indiana Merger"), immediately after which Northern Utilities, Inc.
will be merged with and into Northern Indiana (the "Northern Utilities Merger")
(the Northern Indiana Merger and the Northern Utilities Merger will be
collectively referred to as the "Alternative Merger"). Northern Indiana will be
the surviving corporation in both mergers contemplated in the Alternative Merger
and shall continue its existence under the laws of the state of Indiana. The
Merger Agreement currently provides that in the event the Alternative Merger is
chosen the parties will amend the terms of the Merger Agreement to make them
consistent with the Alternative Merger.
As a result of the Preferred Merger or the Alternative Merger, each
share of Company common stock (each "Company Share") will be converted into the
right to receive (i) $40.00 cash (the "Cash Price"), or (ii) such number or
fraction thereof validly issued, fully paid and nonassessable shares of common
stock, without par value, of Industries ("Industries Shares") determined by
dividing the Cash Price by the Industries Share Price, or (iii) the right to
receive a combination of cash and Industries Shares. If a holder of Company
Shares (a "Company Shareholder") elects to receive cash, then such shareholder
will receive cash, provided that the aggregate number of Company Shares that may
be converted into the right to receive cash shall not exceed a number of shares
which may be converted into an amount of cash equal to 50 percent of the Cash
Price multiplied by the aggregate number of Company Shares outstanding on the
second day prior to the Effective Time reduced by the dollar amount of any
special dividend allowed by the Merger Agreement and further reduced as
reasonably determined by
2
<PAGE>
Schiff Hardin & Waite, counsel to Industries, and LeBoeuf, Lamb, Greene &
MacRae, L.L.P., counsel to Company, as a result of the Preferred Merger or the
Alternative Merger possibly failing to satisfy continuity of interest
requirements under applicable federal income tax law principles relating to
reorganizations described in Section 368(a) of the Code. Industries will pay
cash to any Company Shareholder in lieu of delivering to such shareholder a
fractional Industries Share.
It is a condition precedent to closing the Preferred Merger or the
Alternative Merger that Company redeem all of the preferred stock issued and
outstanding.
ASSUMPTIONS
In rendering our opinion, we have assumed with your consent that (i)
the proposed transactions will be consummated strictly in accordance with the
terms and conditions described in the Merger Agreement, (ii) in the case of the
Preferred Merger, the representations made to us by Company in the Company
Letter, by Industries in the Industries Letter, by Acquisition in the
Acquisition Letter are true at the Effective Time, (iii) in the case of the
Northern Indiana Merger, the representations made to us by Company in the
Company Letter, by Industries in the Industries Letter, and by Northern Indiana
in the Northern Indiana Letter are true at the Effective Time and (iv) in the
event the Preferred Merger is not possible and the Alternative Merger is chosen,
the Merger Agreement is not materially amended such that its terms and
conditions do not meet the requirements of a reorganization pursuant to Section
368(a) of the Code. With regard to the Company Letter, the Industries Letter,
the Acquisition Letter and the Northern Indiana Letter, we have assumed that any
representation made therein to the best of the knowledge of the management of
Company, Industries, Acquisition or Northern Indiana, respectively, will be true
without that qualification.
OPINION
Based on the facts and assumptions set forth above and our review of
the Merger Agreement, the Proxy Statement/Prospectus included in the
Registration Statement on Form S-4 and accompanying exhibits dated April 22,
1998 (as amended, the "Registration Statement") and the relevant legal
authorities, it is our opinion that:
(1) The Preferred Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code and Company, Industries and Acquisition
will be "parties" to a reorganization within the meaning of Section 368(b) of
the Code or the Northern Indiana Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code and Company, Industries and Northern
Indiana will be "parties" to a reorganization within the meaning of Section
368(b) of the Code;
3
<PAGE>
(2) Except with respect to cash received in lieu of a fractional
Industries Share, no gain or loss will be recognized by the Company Shareholders
on the receipt of solely Industries Shares in exchange for Company Shares
pursuant to the Preferred Merger or the Northern Indiana Merger;
(3) Company Shareholders who exchange Company Shares for Industries
Shares and cash will not recognize loss in the Preferred Merger or the Northern
Indiana Merger, and such shareholders will recognize gain, if any, in an amount
equal to the lesser of the amount of such cash received or the excess of (x)
such cash and the fair market value of Industries Shares received over (y) such
shareholder's adjusted tax basis in Company Shares exchanged. A Company
Shareholder will either recognize capital gain or dividend income, as provided
in Section 302 of the Code;
(4) Company Shareholders who exchange their Company Shares solely for
cash will either recognize capital gain or loss measured by the difference
between the amount of cash received and the adjusted tax basis of the Company
Shares exchanged therefor or dividend income, as provided in Section 302 of the
Code;
(5) The payment of cash to a Company Shareholder in lieu of a
fractional share interest in an Industries Shares will be treated as if the
fractional share had been distributed as part of the exchange and then redeemed
for cash by Industries. A Company Shareholder will either recognize capital
gain or dividend income as provided in Section 302 of the Code;
(6) The adjusted tax basis of any Industries Shares to be received by
a Company Shareholder in the Preferred Merger or the Northern Indiana Merger
(including any fractional share deemed received) will be equal to the adjusted
tax basis in the Company Shares surrendered in exchange therefor, less the cash
received in the Preferred Merger or the Northern Indiana Merger, plus any gain
or dividend income recognized by such Company Shareholder in the Preferred
Merger or the Northern Indiana Merger (if any); and
(7) The holding period of the Industries Shares received by a Company
Shareholder will include the period during which that shareholder held the
Company Shares surrendered in exchange therefor.
SCOPE OF OPINION
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time and in certain circumstances with retroactive effect. A
material change in the authorities or the
4
<PAGE>
facts, information, covenants, statements, representations or assumptions upon
which our opinion is based could affect our conclusions.
This opinion is not binding on the Internal Revenue Service and there can
be no assurance, and none is therefore given, that the Internal Revenue Service
will not take a position contrary to one or more of the positions reflected in
the foregoing opinion or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
We express no opinion concerning any tax consequences of the Preferred
Merger, Northern Indiana Merger, Northern Utilities Merger or the Alternative
Merger other than those specifically set forth.
CONSENTS
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the heading "The Mergers - Federal Income Tax
Consequences to Certain Shareholders" in the Proxy Statement/Prospectus that
constitutes part of the Registration Statement. We do not thereby admit that we
are within the class of persons whose consent is required.
Very truly yours,
/s/ LeBoeuf, Lamb, Greene & MacRae, L.L.P.
5
<PAGE>
EXHIBIT 8.2
April 22, 1998
NIPSCO Industries, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
Re: Federal Income Tax Consequences of Merger of Bay State Gas Company
------------------------------------------------------------------
with and into a newly formed wholly owned subsidiary of NIPSCO
--------------------------------------------------------------
Industries, Inc. or with and into Northern Indiana Public Service
-----------------------------------------------------------------
Company
-------
Gentlemen:
You have requested our opinion relating to the federal income tax
consequences to NIPSCO Industries, Inc. ("Industries"), Bay State Gas Company
(the "Company"), a wholly-owned subsidiary of Industries to be formed
("Acquisition") and, under certain circumstances, Northern Indiana Public
Service Company ("Northern Indiana") arising out of the Amended and Restated
Agreement and Plan of Merger, dated as of December 18, 1997, and as amended and
restated on March 4, 1998 (the "Merger Agreement"), by and between the Company
and Industries. Our conclusions are based upon (i) the facts and assumptions set
forth below and (ii) the written representations to be made by the Company to us
as of this date and updated on the Effective Time (the "Company Letter") and the
written representations to be made by Industries to us as of the Effective Time
(the "Industries Letter"), the written representations to be made to us as of
this date and updated on the Effective Time. Capitalized terms used but not
defined in this letter have the meaning given them in the Merger Agreement. Our
opinion does not address the tax consequences of the Preferred Merger or the
Alternative Merger, defined below, under state, local or foreign law.
FACTS
Pursuant to the Merger Agreement, Company shall be merged with and
into Acquisition in accordance with the applicable provisions of the laws of the
Commonwealth of Massachusetts (the "Preferred Merger"). Acquisition shall be
the surviving corporation in the Preferred Merger and shall continue its
corporate existence under the laws of the Commonwealth of Massachusetts. As a
result of the Preferred Merger, Company shall cease to exist and Acquisition
shall remain a direct wholly-owned subsidiary of Industries.
1
<PAGE>
If at any time prior to December 31, 1998 the Preferred Merger is not
approved by the Securities and Exchange Commission and it becomes possible under
applicable law to merge Company into Northern Indiana, then pursuant to the
Merger Agreement, Company will be merged with and into Northern Indiana (the
"Northern Indiana Merger"), immediately after which Northern Utilities, Inc.
will be merged with and into Northern Indiana (the "Northern Utilities Merger")
(the Northern Indiana Merger and the Northern Utilities Merger will be
collectively referred to as the "Alternative Merger"). Northern Indiana will be
the surviving corporation in both mergers contemplated in the Alternative Merger
and shall continue its existence under the laws of the state of Indiana. The
Merger Agreement currently provides that in the event the Alternative Merger is
chosen the parties will amend the terms of the Merger Agreement to make them
consistent with the Alternative Merger.
As a result of the Preferred Merger or the Alternative Merger, each
share of Company common stock (each "Company Share") will be converted into the
right to receive (i) $40.00 cash (the "Cash Price"), or (ii) such number or
fraction thereof validly issued, fully paid and nonassessable shares of common
stock, without par value, of Industries ("Industries Shares") determined by
dividing the Cash Price by the Industries Share Price, or (iii) the right to
receive a combination of cash and Industries Shares. If a holder of Company
Shares (a "Company Shareholder") elects to receive cash, then such shareholder
will receive cash, provided that the aggregate number of Company Shares that may
be converted into the right to receive cash shall not exceed a number of shares
which may be converted into an amount of cash equal to 50 percent of the Cash
Price multiplied by the aggregate number of Company Shares outstanding on the
second day prior to the Effective Time reduced by the dollar amount of any
special dividend allowed by the Merger Agreement and further reduced as
reasonably determined by Schiff Hardin & Waite, counsel to Industries, and
LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to Company, as a result of the
Preferred Merger or the Alternative Merger possibly failing to satisfy
continuity of interest requirements under applicable federal income tax law
principles relating to reorganizations described in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). Industries will pay
cash to any Company Shareholder in lieu of delivering to such shareholder a
fractional Industries Share.
It is a condition precedent to closing the Preferred Merger or the
Alternative Merger that Company redeem all of the preferred stock issued and
outstanding.
ASSUMPTIONS
In rendering our opinion, we have assumed with your consent that (i)
the proposed transactions will be consummated strictly in accordance with the
terms and conditions described in the Merger Agreement, (ii) in the case of the
Preferred Merger, the representations made to us by Company in the Company
Letter and by Industries in the Industries Letter are true as of this date and
will be true at the Effective Time, (iii) in the case of the Northern Indiana
Merger, the representations made to us by Company in the Company Letter and by
Industries in the Industries Letter are true as of this date and will be true at
the Effective Time and (iv)
2
<PAGE>
in the event the Preferred Merger is not possible and the Alternative Merger is
chosen, the Merger Agreement is not materially amended such that its terms and
conditions do not meet the requirements of a reorganization pursuant to Section
368(a) of the Code. With regard to the Company Letter, or the Industries Letter,
we have assumed that any representation made therein to the best of the
knowledge of the management of Company and Industries, respectively, will be
true without that qualification.
OPINION
Based on the facts and assumptions set forth above and our examination
and review of the Merger Agreement, the Proxy Statement/Prospectus included in
the Registration Statement on Form S-4 and accompanying exhibits dated April 22,
1998 (as amended, the "Registration Statement") and the document referred to
above, we are of the opinion that:
(1) The Preferred Merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code and each of Company, Industries and
Acquisition will be "parties" to a reorganization within the meaning of Section
368(b) of the Code or, alternatively, the Alternative Merger will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code and each
of Company, Industries and Northern Indiana will be "parties" to a
reorganization within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by Company, Industries or
Acquisition in the case of the Preferred Merger or, alternatively, no gain or
loss will be recognized by Company, Industries or Northern Indiana in the case
of the Alternate Merger.
We express no opinion concerning any tax consequences of the Preferred
Merger, Northern Indiana Merger, Northern Utilities Merger or the Alternative
Merger other than those specifically set forth above.
SCOPE OF OPINION
Our opinion is based on present law and existing interpretations
thereof by the courts and the Internal Revenue Service. Any change in the
facts, currently or in the future, or any change in the law or existing
interpretations thereof, may adversely affect our opinion. Further, our opinion
is not binding on the Internal Revenue Service and the tax effects discussed
above are not subject to absolute resolution prior to the running of the statute
of limitations or the rendering of a final determination by a court of law or by
closing agreement with the Internal Revenue Service. Finally, it should be
noted that we have expressed no opinion except as specifically set forth herein.
3
<PAGE>
CONSENTS
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the heading "The Mergers - Material Federal Income
Tax Consequences to Certain Shareholders" in the Proxy Statement/Prospectus that
constitutes part of the Registration Statement.
SCHIFF HARDIN & WAITE
By: /s/ Lawrence H. Jacobson
------------------------------
Lawrence H. Jacobson
4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement, as amended, of our report dated
January 30, 1998, included in the annual report on Form 10-K for NIPSCO
Industries, Inc. for the year ended December 31, 1997 and to all references made
to our Firm included in this Registration Statement, as amended.
/S/ Arthur Andersen LLP
Chicago, Illinois
April 22, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in pre-effective amendment
no. 1 to this registration statement on Form S-4 of our report dated October 22,
1997, relating to the consolidated balance sheets and statements of
capitalization of Bay State Gas Company and subsidiaries as of September 30,
1997 and 1996 and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 1997, which report is included in the September 30, 1997 annual
report on Form 10-K of Bay State Gas Company. We also consent to the references
to our Firm under the caption "Experts."
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 22, 1998
<PAGE>
Exhibit 23.5
CONSENT OF SG BARR DEVLIN
We hereby consent to the use of our opinion in this Registration
Statement on Form S-4 and any amendments thereto and to all references to our
firm included in or made a part of this Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations adopted by the Securities and Exchange Commission
thereunder.
/s/ SG BARR DEVLIN
New York, New York
April 22, 1998
<PAGE>
EXHIBIT 99.2
-----------------------------------------
| [_] AMENDMENT--Check only if you
Bay State Gas Company | are amending a previously submitted
| Form of Election. See Instruction A.2.
-----------------------------------------
FORM OF ELECTION
TO RECEIVE CASH
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS. IN ORDER FOR YOUR
ELECTION TO BE EFFECTIVE, THIS ELECTION FORM, TOGETHER WITH CERTIFICATES FOR BAY
STATE GAS COMPANY COMMON SHARES OR A VALID GUARANTEE OF DELIVERY THEREOF, MUST
BE RECEIVED BY THE EXCHANGE AGENT NO LATER THAN 4:00 P.M., CHICAGO TIME, ON
___________________ , 199_.
NOTICE: ONLY SHAREHOLDERS WHO DESIRE TO RECEIVE CASH IN EXCHANGE FOR ALL OR
ANY PORTION OF THEIR BAY STATE GAS COMPANY COMMON SHARES SHOULD COMPLETE AND
RETURN THIS FORM. SHAREHOLDERS WISHING TO RECEIVE NIPSCO INDUSTRIES, INC. COMMON
SHARES FOR ALL OF THEIR BAY STATE GAS COMPANY COMMON SHARES SHOULD NOT COMPLETE
THIS FORM.
Exchange Agent:
HARRIS TRUST AND SAVINGS BANK
By Overnight Courier:
311 West Monroe Street, 11th Floor
Chicago, IL 60606
By Facsimile Transmission
By Mail: (for Eligible Institutions only): By Hand:
Corporate Trust Fax: (312) 765-8244 Central Receiving
Operations Division 311 West Monroe, 1st Floor
P.O. Box 830 Chicago, IL 60606
Chicago, IL 60690-0820
Confirm by telephone:
(312) 461-5048
- --------------------------------------------------------------------------------
Names(s) and Address(es) of Registered Owner(s) Certificate(s) Enclosed
(Please complete) (Attach list if necessary)
- --------------------------------------------------------------------------------
Total Number
of Shares
Certificate Represented
Number by Certificate
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Shares
- --------------------------------------------------------------------------------
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby submits this Form of Election and accompanying stock
certificates or guarantee of delivery (see Instruction A.1.) for the purpose of
stating the undersigned's election to convert some or all of the common shares,
par value $3.33 1/3 per share ("Bay State Shares"), of Bay State Gas Company
("Bay State") held by the undersigned into the right to receive $40.00 in cash,
without interest, per each Bay State Share pursuant to the proposed merger (the
"Preferred Merger") of Bay State into a wholly owned subsidiary of NIPSCO
Industries, Inc. ("Industries"), or, alternatively, the proposed merger of Bay
State into Industries' wholly owned subsidiary, Northern Indiana Public Service
Company, followed immediately by the merger of Bay State's wholly owned
subsidiary, Northern Utilities into Northern Indiana Public Service Company (the
"Alternative Merger"), all as more fully described in the accompanying Proxy
Statement/Prospectus dated April 22, 1998 (the "Merger" refers to the
acquisition of Bay State by Industries, regardless of whether its structure is
the Preferred Merger or the Alternative Merger). The certificates submitted
herewith must be duly endorsed in blank or otherwise in form acceptable for
transfer on the books of Bay State, with a signature guarantee if required by
the Instructions (see Instruction F.5.). If no certificates are submitted
herewith, there is furnished below a guarantee of delivery of such Bay State
Shares by no later than 4:00 p.m., Chicago time, on the fourth business day
prior to the anticipated effective time of the Merger (see Instruction A.1.).
This Election is subject to the terms, conditions and the proration and
other limitations set forth in the Agreement and Plan of Merger, dated as of
December 18, 1997, as amended and restated on March 4, 1998, by Industries and
Bay State (the "Merger Agreement"), including the obligation that this Form of
Election, accompanied by the above-described certificates representing Bay State
Shares or a valid guarantee of delivery thereof, must be received by the
Exchange Agent no later than 4:00 P.M., Chicago time, on the fourth business day
prior to the anticipated effective time of the Merger (the "Election Deadline").
THE UNDERSIGNED ACKNOWLEDGES THAT ANY ELECTION MADE IN CONNECTION WITH THE
MERGER IS SUBJECT TO THE PRORATION AND OTHER LIMITATIONS PROVIDED IN THE MERGER
AGREEMENT. Bay State Shares not converted into the right to receive cash will be
converted into common shares, without par value, and the associated Preferred
Share Purchase Rights, of Industries ("Industries Shares") as described in the
accompanying Proxy Statement/Prospectus.
The undersigned hereby elects to have all or a portion of his or her Bay
State Shares converted in accordance with the following election if and when
the Merger is consummated:
------------------------------------------------------
CASH ELECTION
The undersigned elects to convert
-----------------------------------
(fill in number of shares or "ALL")
of the undersigned's Bay State Shares into cash at the
exchange rate of $40.00 per Bay State Share.
(See Instruction C)
------------------------------------------------------
THE TAX CONSEQUENCES TO A HOLDER OF BAY STATE SHARES WILL VARY DEPENDING ON
WHETHER THE HOLDER ELECTS TO RECEIVE CASH. SEE "THE MERGER--MATERIAL FEDERAL
INCOME TAX CONSEQUENCES TO CERTAIN SHAREHOLDERS" IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
If the number of Bay State Shares represented by accompanying certificates
(or by certificates delivery of which is guaranteed) exceeds the number of Bay
State Shares as to which an election is made above, the excess Bay State Shares
will be converted into Industries Shares pursuant to the Merger Agreement. If
this Form of Election is improperly completed or executed, not received by the
Election Deadline or not accompanied by the necessary stock certificates or a
valid guarantee of delivery, or if the certificates covered by a guarantee of
delivery are not in fact received by the Exchange Agent within the time
specified in the guarantee, the Bay State Shares covered hereby will be
converted into Industries Shares.
2
<PAGE>
The undersigned hereby appoints Harris Trust and Savings Bank as the
undersigned's attorney-in-fact, with full power of substitution and re-
substitution, for the purpose of causing the undersigned's Bay State Shares to
be converted into the right to receive cash in accordance with the directions
contained in this Form of Election and the Merger Agreement.
The undersigned understands and agrees that the acceptance of any Form of
Election by the Exchange Agent (or any other authorized person) will not of
itself create any right to receive cash in exchange for Bay State Shares
deposited pursuant to the Form of Election and that such right will arise only
if the Merger is consummated and only to the extent provided in the Merger
Agreement. The undersigned further understands that the election made on this
Form of Election may be withdrawn or changed only in accordance with the
Instructions accompanying this Form of Election. See Instructions A.2. and A.3.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY
STATEMENT/PROSPECTUS DATED APRIL 22, 1998 RELATING TO THE MERGER.
Additional copies of the Proxy Statement/Prospectus may be obtained without
charge by contacting the Exchange Agent at the address or telephone number
listed above.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIGN HERE
<S> <C>
X__________________________________________ Dated: _________________________, 199_
Signature of Shareholder or Agent
Taxpayer Identification or
X__________________________________________ Social Security Number_______________
Signature of Joint Shareholder(s) (if any)
___________________________________________ Telephone Number: ( ) ________________
(Please print name)
</TABLE>
(Must be signed by registered holder(s), exactly as names(s) appear(s) on
certificates, or by person(s) authorized to become registered holder(s).
See Instruction F.3.)
________________________________________________________________________________
SIGNATURE(S) GUARANTEED:
_______________________________
(Authorized Signature)
PLEASE NOTE THAT SIGNATURE(S) MUST BE
GUARANTEED UNDER CERTAIN CIRCUMSTANCES.
See Instruction F.5.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
PLEASE NOTE
You will be deemed not have made a valid election (1) if no choice is
indicated above, (2) if you fail to follow the instructions on this Form of
Election (including submission of your Bay State Share certificates) or
otherwise fail to make an election or to complete this Form properly, (3) if the
Exchange Agent does not receive your Form of Election and Bay State Share
certificates (or a valid guarantee of delivery) before the Election Deadline
stated above, or (4) if the Exchange Agent does not receive certificates for any
Bay State Shares covered by a guarantee of delivery within the time specified in
the guarantee. Any Bay State Shares not covered by a valid election will be
converted into Industries Shares pursuant to the Merger Agreement.
- -------------------------------------------------------------------------------
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
The undersigned [check appropriate box below] guarantees delivery to the
Exchange Agent of the certificates for Bay State Shares to which this Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of Bay State, no later than 4:00 P.M., Chicago time, on
the fourth business day prior to the anticipated effective time of the Merger.
- -------------------------------------------------------------------------------
[_] a member of a registered national securities
exchange -----------------------------
(Firm-Please Print)
[_] a member of the National Association of
Securities Dealers, Inc. -----------------------------
(Authorized Signature)
[_] 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 (Address)
Medallion Signature Guarantee Program or -----------------------------
the Stock Exchange Medallion Program (Area Code and Telephone
Number)
- -------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS TO FORM OF ELECTION
A. SPECIAL CONDITIONS
1. Time in Which to Elect
To be effective, an election on this Form or a facsimile hereof,
accompanied by the above-described certificates representing Bay State Shares or
a valid guarantee of delivery thereof, must be received by the Exchange Agent no
later than the Election Deadline. Bay State Shareholders who make an election
that includes a valid guarantee of delivery will remain subject to the condition
that the certificates whose delivery is thereby guaranteed must in fact be
delivered to the Exchange Agent, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of Bay State, no later than 4:00 p.m.
Chicago time, on the fourth business day prior to the anticipated effective time
of the Merger. Persons whose certificates representing Bay State Shares are not
so received by such specified date will forfeit the right to receive cash for
all or any portion of their Bay State Shares pursuant to the Merger.
2. Amendment
Any Form of Election may be amended by the person submitting the same to
the Exchange Agent only by submitting a properly completed and signed revised or
amended Form of Election (facsimile copies are acceptable) and all required
additional documents to the Exchange Agent prior to the Election Deadline. In
such cases, the box in the upper right hand corner of the face hereof must be
checked.
3. Revocation
Any Form of Election may be revoked by the person submitting the same to
the Exchange Agent by written notice (or by written withdrawal of certificates
previously deposited with the Exchange Agent) received by the Exchange Agent
prior to the Election Deadline. Certificates may also be withdrawn at any time
after the sixtieth day following the Election Deadline, if the Merger has not
been consummated prior to that date.
4. Termination of Right to Elect
All Forms of Election will be void and of no effect if the Merger
Agreement is terminated and, promptly after any such termination, any stock
certificates submitted herewith shall be returned to the person submitting them.
B. LIMITATIONS
The Merger Agreement provides that elections made by Bay State
Shareholders will be subject to proration as necessary so that no more than a
specified maximum of Bay State Shares are converted into the right to receive
cash in the Merger and so that counsel for Bay State and Industries are able to
deliver their opinions to the effect that the Merger will qualify as a tax-free
reorganization. See "THE MERGER--Cash Elections; Allocation and Proration" in
the accompanying Proxy Statement/Prospectus.
C. SHARES AS TO WHICH AN ELECTION IS MADE
Subject to the limitations referred to in Instruction B above, at the
effective time of the Merger, each Bay State Share represented by certificates
delivered herewith (or delivery of which is guaranteed in accordance with
Instruction A.1) as to which an election is made will be converted into the
right to receive $40.00 in cash, without interest. See "THE MERGER--Overview of
the Merger" in the accompanying Proxy Statement/Prospectus.
D. SHARES AS TO WHICH NO VALID ELECTION IS MADE
If no valid election is made with respect to any Bay State Shares
represented by certificates delivered herewith (or delivery of which is
guaranteed in accordance with Instruction A.1), such shares will be converted
into Industries Shares pursuant to the Merger Agreement.
7
