File No. ________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NiSource Inc. CEG Acquisition Corp.
801 East 86th Avenue 801 East 86th Avenue
Merrillville, Indiana 46410-6272 Merrillville, Indiana 46410-6272
(Name of company filing this statement
and address of principal executive offices)
None
(Name of top registered holding company)
Mark T. Maassel
Vice President, Regulatory & Governmental Policy
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
(Names and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
Peter V. Fazio, Jr., Esq. Steven R. Loeshelle, Esq.
Schiff Hardin & Waite Dewey Ballantine LLP
6600 Sears Tower 1301 Avenue of the Americas
Chicago, IL 60606-6473 New York, New York 10019-6092
TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . 1
A. INTRODUCTION AND OVERVIEW OF THE TRANSACTION . . . . . . . . . 1
1. Background . . . . . . . . . . . . . . . . . . . . . . . 3
2. Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Financing of the Offer and Transaction . . . . . . . . . 5
4. Resulting Management . . . . . . . . . . . . . . . . . . 7
5. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 7
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION . . . . . . . . 7
1. General Description . . . . . . . . . . . . . . . . . . . 7
a. NiSource and its Subsidiaries . . . . . . . . . . . 7
b. Columbia and its Subsidiaries . . . . . . . . . . . 14
2. Description of Utility Facilities . . . . . . . . . . . . 19
a. NiSource . . . . . . . . . . . . . . . . . . . . . . 19
i. Natural Gas Utilities . . . . . . . . . . . . . 19
ii. Electric Utility . . . . . . . . . . . . . . . 21
b. Columbia . . . . . . . . . . . . . . . . . . . . . . 22
i. Natural Gas Utilities . . . . . . . . . . . . . 22
ITEM 2. FEES, COMMISSIONS AND EXPENSES . . . . . . . . . . . . . 24
ITEM 3. APPLICABLE STATUTORY PROVISIONS . . . . . . . . . . . . . 24
A. LEGAL ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . 25
1. Section 9(a)(2) . . . . . . . . . . . . . . . . . . . . . 25
2. Section 10(b) . . . . . . . . . . . . . . . . . . . . . . 26
a. Section 10(b)(1) . . . . . . . . . . . . . . . . . . 26
i. Interlocking Relationships . . . . . . . . . . 26
ii. Concentration of Control . . . . . . . . . . . 27
b. Section 10(b)(2) Fairness of Consideration . . . . 30
c. Section 10(b)(2) Reasonableness of Fees . . . . . 31
d. Section 10(b)(3) Capital Structure . . . . . . . . 31
3. Section 10(c) . . . . . . . . . . . . . . . . . . . . . . 32
a. Section 10(c)(1) . . . . . . . . . . . . . . . . . . 33
i. Retention of Electric Operations . . . . . . . 34
ii. Non-Utility Businesses . . . . . . . . . . . . 37
b. Section 10(c)(2) . . . . . . . . . . . . . . . . . . 46
i. Efficiencies and Economies . . . . . . . . . . 46
ii. Integrated Gas Utility System . . . . . . . . . 48
4. Section 10(f) State Laws and Section 11 . . . . . . . . 55
B. INTRA-SYSTEM PROVISION OF SERVICES . . . . . . . . . . . . . . 56
ITEM 4. REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . 59
ITEM 5. PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . 59
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS . . . . . . . . . . . . 59
A. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
B. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 63
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS . . . . . . . . . 63
ITEM 1. DESCRIPTION OF TRANSACTION
--------------------------
A. INTRODUCTION AND OVERVIEW OF THE TRANSACTION
--------------------------------------------
CEG Acquisition Corp. ("Acquisition Corp."), a Delaware
corporation and a wholly-owned subsidiary of NiSource Inc., an Indiana
corporation whose principal executive offices are located at 801 East
86th Avenue, Merrillville, Indiana 46410 ("NiSource"), and NiSource
herein request authority pursuant to the applicable standards of the
Public Utility Holding Company Act of 1935, as amended, 15 U.S.C.
Section 79a, ET SEQ. ("Act"), to acquire all of the outstanding common
stock of Columbia Energy Group ("Columbia"), par value $.01 per share,
and, to the extent required under the Act, for the related
transactions herein described. Subsequent to the consummation of the
acquisition, Acquisition Corp. would consummate a merger with Columbia
pursuant to the Delaware General Corporation Law ("DGCL"). The
acquisition by Acquisition Corp. of the stock of Columbia and the
subsequent merger of these companies is referred to herein as the
"Transaction." Columbia, a Delaware corporation, is a registered
holding company under the Act. NiSource, currently an exempt holding
company pursuant to Section 3(a)(1) of the Act, owns all of the issued
and outstanding common stock of three public utility subsidiary
companies that provide electric and retail natural gas service within
the state of Indiana and two public utility subsidiary companies that
provide retail natural gas service in the states of Maine,
Massachusetts and New Hampshire.
On June 25, 1999, Acquisition Corp. commenced a tender offer
pursuant to the Securities Exchange Act of 1934, as amended, 15 U.S.C.
Section 78, ET SEQ. ("1934 Act"), to purchase all of the outstanding
shares of common stock of Columbia, at $68 per share, in cash, on the
terms and subject to the conditions set forth in Acquisition Corp.'s
Offer to Purchase and Related Letter of Transmittal ("Offer"). The
purpose of the Offer and the Transaction is to enable NiSource to
acquire control of, and the entire equity interest in, Columbia. The
terms of the Offer comply with the provisions of Rule 51. The Offer
is conditioned on, among other things, approval under the Act. No
fees are payable with respect to the Offer; no indemnity is provided
for market or investment risk; no transfers of tendered shares will be
made by Acquisition Corp.; and tendered shares may be withdrawn under
the circumstances contemplated by Rule 51. Upon acquisition of the
shares of Columbia common stock, and after necessary approvals under
the Act, NiSource and Acquisition Corp. will each register as a
holding company pursuant to Section 5 of the Act.
Pursuant to Sections 9(a)(2) and 10 of the Act, NiSource and
Acquisition Corp. hereby request authorization and approval of the
Securities and Exchange Commission ("Commission") (i) to acquire,
pursuant to the Offer and the Transaction as described herein, all of
the issued and outstanding common stock of Columbia, and indirectly,
all of the outstanding voting securities of the direct and indirect
subsidiaries of Columbia and (ii) for the subsequent merger of
Acquisition Corp. and Columbia. Approval is also requested under
Section 13 of the Act and the rules promulgated thereunder for the
provision of services to the resulting direct or indirect subsidiaries
of NiSource by a service company subsidiary of NiSource.
NiSource has sought to negotiate a merger transaction with
Columbia. To date, Columbia has refused to enter into negotiations
with NiSource. NiSource intends to continue to seek to negotiate with
Columbia with respect to the consummation of a consensual merger
transaction. If such negotiations occur and result in a definitive
merger agreement between Columbia and NiSource, certain material terms
of the Offer may change. Such negotiations could result in, among
other things, termination of the Offer and submission of a different
acquisition proposal to Columbia's stockholders for approval.
Accordingly, the terms and details of the Transaction will depend on a
variety of factors, legal requirements, the actions of Columbia's
board of directors and whether the conditions stated in the Offer are
satisfied in whole or in part. Although certain representations made
and approvals sought in this Application/Declaration may change if a
negotiated merger is reached with Columbia, NiSource is making the
filing at this time pursuant to the requirement of Rule 51 that the
application for approval of the Transaction contemplated by the Offer
be filed as soon as practicable. In the absence of a cooperative
relationship with Columbia, NiSource will require additional time to
obtain and reflect in the Application/Declaration certain of the
information relevant to the Transaction. In addition, as noted,
NiSource will continue to seek to negotiate with Columbia with respect
to its proposed combination of the companies. Such negotiations may
change the terms of the proposed combination, and expedite the
availability of information to NiSource. Under these circumstances,
NiSource expects to amend this Application/Declaration with additional
relevant information as it is compiled by, or becomes available to,
NiSource.
The Transaction will produce benefits to the public,
investors and consumers and will satisfy all of the applicable
standards of the Act. NiSource and Acquisition Corp. believe that the
Transaction will provide important strategic and financial benefits to
NiSource's shareholders and Columbia's shareholders, as well as to
their respective employees and customers and the communities in which
they provide public utility service. Among other things, NiSource
believes that the Transaction will provide benefits in the form of an
enhanced ability to take advantage of future strategic opportunities
in the increasingly competitive and rapidly evolving markets for
energy and energy services in the United States. Further, as
explained more fully in ITEM 3 -- APPLICABLE STATUTORY PROVISIONS,
NiSource believes that, following the Transaction, the combined
companies will be better positioned to take advantage of operating
economies and efficiencies through, among other measures, joint
management and optimization of their respective portfolios of gas
supply, transportation and storage assets. The combination of
Columbia's gas utilities with NiSource's electric utility operations
2
will enhance the competitive position of Columbia's gas utilities as
the competition among various sectors of the utility/energy business
continues to accelerate.
Assuming a Transaction priced at $68 per share of common
stock of Columbia, NiSource Capital Markets Inc. ("Capital Markets"),
a wholly-owned subsidiary of NiSource, will issue notes due 364 days
after issuance in the approximate amount of, but not to exceed, $6
billion ("Tender Notes") to a consortium of banks in order to obtain
funds necessary for the acquisition of the stock of Columbia pursuant
to the Offer. These notes will be refinanced with longer-term
financing that will include the issuance of equity. Prior to
completion of the Transaction, NiSource will file one or more
additional Application/Declarations under the Act with respect to the
ongoing financing activities, non-utility businesses, other
investments of, and other matters pertaining to, the combined company
after giving effect to the Transaction and the registration of
NiSource and Acquisition Corp. as holding companies. Among the
transactions included in such filings will be NiSource's issuance of
common stock and other securities to refinance the Tender Notes.
1. Background
In the ordinary course of its business, NiSource engages in
the ongoing evaluation of strategic alternatives, including the
consideration of potential candidates for acquisitions and strategic
transactions. NiSource identified Columbia as a potential acquisition
that would create significant strategic benefits and opportunities for
profitable growth in view of the regulatory and technological changes
in the natural gas industry and the increasingly competitive
marketplace for energy and energy services. In discussions and
correspondence between November 1998 and early June 1999, NiSource
attempted to pursue a possible business combination with Columbia on a
friendly basis. On June 7, 1999, NiSource publicly announced its
offer to acquire all of the outstanding common stock of Columbia for
$68 per share, in cash. On June 10, 1999, Columbia rejected
NiSource's offer. On June 25, 1999, Acquisition Corp. commenced the
Offer. The Offer initially expired on August 6, 1999. At that time,
Columbia shareholders tendered 49,638,497 shares of stock pursuant to
the Offer which represents over 60% of Columbia's outstanding common
shares. Due to the Offer's initial success, NiSource extended the
Offer until midnight October 15, 1999.
2. Terms
Upon consummation of the Offer, NiSource will acquire
control of, and a controlling interest in, Columbia. NiSource
currently intends, as soon as practicable following consummation of
the Offer, to propose and seek to have Columbia consummate a merger
with Acquisition Corp. The purpose of the merger under these
circumstances would be to acquire all shares not tendered and
purchased pursuant to the Offer or otherwise. Pursuant to the merger,
3
each then outstanding share (other than shares owned by Acquisition
Corp., shares held in the treasury of Columbia and shares owned by
stockholders who perfect available dissenters' rights under the DGCL)
would be converted into the right to receive an amount in cash equal
to the price per share paid in the Offer.
In the event that Acquisition Corp. acquires shares which
constitute at least 90% of the outstanding shares of Columbia's common
stock, it will consummate a "short-form" merger pursuant to Section
253 of the DGCL. Section 253 of the DGCL provides that if Acquisition
Corp. owns at least 90% of the outstanding shares, Acquisition Corp.
may merge with Columbia without approval or any other action on the
part of the board of directors or the stockholders of Columbia.
One of the conditions of the Offer is there being validly
tendered and not properly withdrawn shares of common stock of Columbia
which, together with any shares owned by NiSource and its
subsidiaries, represent at least 51% of the voting power of Columbia
("Minimum Condition"). If Acquisition Corp. purchases enough shares
to satisfy this condition, but does not purchase a sufficient number
of shares to effect a "short-form" merger, Acquisition Corp. would
seek to effect a merger with Columbia pursuant to Section 251 of the
DGCL. Under Columbia's certificate of incorporation and the DGCL,
approval of Columbia's board of directors and a vote of at least a
majority of the outstanding shares entitled to vote thereon would be
required to approve such a merger. If the Minimum Condition is
satisfied, Acquisition Corp. would have a sufficient number of votes
to effect the stockholder approval of a merger pursuant to Section 251
of the DGCL, which approval could be effected by a vote at a meeting
of stockholders. Approval of such a merger would nonetheless also
require the approval of Columbia's board of directors.
Columbia shareholders do not have appraisal rights as a
result of the Offer. However, if the merger is consummated,
shareholders of Columbia at the time of the merger who do not vote in
favor of the merger will have the right under the DGCL to dissent and
demand appraisal of, and receive payment in cash of the fair value of,
their shares outstanding immediately prior to the effective date of
the merger in accordance with Section 262 of the DGCL.
The agreements and documents to accomplish this merger of
Acquisition Corp. and Columbia will be filed, by amendment, as
exhibits hereto.
The Offer is subject to certain conditions in addition to
the Minimum Condition. One condition is that the restriction on
certain business combinations contained in Section 203 of the DGCL not
apply to NiSource or Acquisition Corp. in connection with the
Transaction. This restriction, which could delay the Transaction for
a significant period of time, may be avoided if prior to the
acceptance for payment of shares of Columbia common stock pursuant to
the Offer (i) at least 85% of the outstanding voting stock of Columbia
4
(other than shares held by directors who are also officers and certain
employee stock plans of Columbia) are acquired by Acquisition Corp. or
(ii) the board of directors of Columbia approves the Transaction. The
terms of the Offer and the conditions applicable thereto (including
the foregoing) are described in Exhibit 11.A.1 to Acquisition Corp.'s
Schedule 14D-1, which is attached hereto as Exhibit C-1. See also
ITEM 3, SECTION A.2.b for a description of the consideration offered
in connection with this Transaction.
Consummation of the Offer and the Transaction is also
subject to various regulatory approvals, including approval of the
Commission under the Act. SEE ITEM 4 -- REGULATORY APPROVALS and
Exhibit 11.A.1 of Acquisition Corp.'s Schedule 14D-1 which is attached
hereto as Exhibit C-1.
Upon consummation of the Transaction, NiSource would own an
integrated gas utility system comprised of its existing gas
distribution utilities in Indiana, Massachusetts, Maine and New
Hampshire and, through its ownership of Acquisition Corp., Columbia's
gas distribution utilities in Ohio, Pennsylvania, Maryland, Kentucky
and Virginia. In addition, NiSource would continue to own its
existing integrated electric utility system in Indiana. Accordingly,
NiSource and Acquisition Corp. would each register as a holding
company pursuant to Section 5 of the Act. Further, NiSource would
continue to own its interest in its existing non-utility businesses,
as described herein, and, through Acquisition Corp., Columbia's
existing non-utility businesses.
3. Financing of the Offer and Transaction
Assuming a Transaction priced at $68 per share of common
stock of Columbia, NiSource estimates that approximately $6 billion
will be required to acquire the outstanding shares of Columbia
pursuant to the Offer and to pay related fees and expenses.
Acquisition Corp. will obtain the funds required to consummate the
Offer and Transaction through advances made by Capital Markets.
NiSource has accepted a commitment letter ("Commitment
Letter") from Credit Suisse First Boston Corporation ("Credit Suisse
First Boston") and Barclays Bank PLC ("Barclays" and together with
Credit Suisse First Boston, the "Underwriters"), pursuant to which,
subject to specified conditions, the Underwriters agree to provide
Capital Markets a 364-day revolving credit facility from the date of
the Commitment Letter in the amount of $6 billion, with an option to
convert outstanding loans at the expiration of such period into term
loans maturing 364 days thereafter ("Facility") to finance the Offer
and the Transaction. A portion of the Facility may be provided by a
syndicate of banks and other financial institutions arranged by the
Underwriters. Credit Suisse First Boston will act as administrative
agent for the Facility, Barclays will serve as documentation agent for
the Facility, and Credit Suisse First Boston and Barclays will act as
lead arrangers and co-syndication agents. The Facility will be
5
entitled to the benefits of the Support Agreement (defined below)
between NiSource and Capital Markets pursuant to which NiSource has
agreed (i) to cause Capital Markets to maintain at all times a
positive net worth and (ii) to provide Capital Markets with the funds
necessary to make debt service payments with respect to the Facility.
The proceeds of the Facility are to be used to finance the
Offer and the Transaction, to refinance existing indebtedness and to
pay related fees and expenses. The proceeds of the Facility also are
permitted to be used to support a commercial paper program used for
these purposes.
Upon the issuance by NiSource or any of its subsidiaries of
any debt or equity (in each case subject to exceptions to be agreed
upon), the Facility will be reduced by an amount equal to the net cash
proceeds of such debt or equity financing. Loans under the Facility
("Loans") must be repaid on the date of any such reduction to the
extent the amount of outstanding Loans exceeds the amount of the
Facility as so reduced.
The Loans will bear interest, at Capital Markets' option, at
specified spreads above LIBOR (adjusted for reserves) or Credit Suisse
First Boston's Base Rate or at a negotiated competitive bid rate.
Loans bearing interest based upon LIBOR will be for interest periods
of one, two, three or six months. All interest will be paid at the
end of the applicable interest period or quarterly, whichever is
earlier. In addition, a utilization fee will be payable at a
specified per annum rate on the outstanding principal amount at any
time more than 25% of the commitment has been borrowed, and a facility
fee will be payable at a specified per annum rate on the entire amount
of the Facility, whether or not utilized.
The Underwriters' commitments to provide the Facility may by
terminated in the event of certain customary events. The conditions
precedent to the initial borrowing under the Facility include: (a)
execution and delivery of satisfactory loan documentation, (b) receipt
by Capital Markets of senior unsecured short-term debt ratings from
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Services ("S&P") of at least A2 and P2, respectively, and
senior unsecured long-term debt ratings from Moody's and S&P of a
least Baa2 and BBB, respectively, (c) the Underwriters' reasonable
satisfaction with the terms and conditions of the Offer and the
Transaction, (d) the satisfaction of the conditions to the
consummation of the Offer and the Transaction and (e) receipt of all
necessary consents and approvals to consummate the Transaction and the
related transactions.
The definitive documentation relating to the Facility also
will contain representations, warranties, covenants, events of default
and conditions customary for transactions of this type, including a
covenant to consummate the merger of Columbia and Acquisition Corp.
within 180 days of the consummation of the Offer. In addition, the
6
Facility will contain financial covenants requiring maintenance of a
minimum interest coverage ratio and a maximum leverage ratio.
NiSource will be required to pay underwriting and upfront
fees to the Underwriters and syndication fees to the lenders in
connection with the Facility. Capital Markets will be required to pay
certain expenses of, and provide customary indemnities to, the
Underwriters and (under certain circumstances) the other lenders under
the Facility.
Underwriting and upfront fees to be paid in connection with
the Facility will be specified by amendment to this
Application/Declaration. The credit agreement and related
documentation for the Facility will be filed, by amendment, as Exhibit
B-3 hereto.
The Facility represents short-term bridge financing for the
acquisition of Columbia. The combined cash flow of NiSource and
Columbia is expected to be adequate to service the interest
requirements of the Facility without adverse effect on the current
earnings levels of NiSource common stock. NiSource anticipates that
the Facility will be repaid with internally generated funds, including
those generated by Columbia and its subsidiaries, and from the
proceeds of the issuance by NiSource of additional equity and other
securities. At this time, no specific plans or arrangements have been
made for such future issuance of securities; however, the issuance of
such securities will be in such proportion as to result in a capital
structure for NiSource comparable to other registered holding
companies. Prior to the consummation of the Transaction, NiSource
will file a separate Application/Declaration under the Act with
respect to the issuance of equity and other securities for the
purposes of refinancing the Facility and with respect to its proposed
financing activities after giving effect to the Transaction.
4. Resulting Management
The successful completion of the Transaction as currently
proposed would not affect the management of NiSource. The management
of Acquisition Corp. would be substantially identical with that of
NiSource. To the extent, however, that a negotiated merger
transaction occurs, the management and boards of directors of NiSource
and Acquisition Corp. would be expected to include some of the
individuals currently serving those functions with Columbia. The
Application/Declaration will be amended to provide further detail as
to the board of directors and management of NiSource and Acquisition
Corp.
5. Benefit Plans
Information regarding the effect of the Transaction on the
employee benefit and shareholder benefit plans of NiSource and
Columbia will be provided by amendment.
7
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION
---------------------------------------------
1. General Description
a. NiSource and its Subsidiaries
NiSource, formerly NIPSCO Industries, Inc.,1 an Indiana
corporation, was incorporated in 1987 to serve as the holding company
for Northern Indiana Public Service Company ("Northern Indiana") and
various non-utility subsidiaries. NiSource has since acquired four
additional public-utility subsidiaries, Kokomo Gas and Fuel Company
("Kokomo Gas"),2 Northern Indiana Fuel and Light Company, Inc.
("NIFL"),3 Bay State Gas Company ("Bay State")4 and Northern
Utilities, Inc. ("Northern"). NiSource has also acquired various
non-utility subsidiaries. NiSource is currently an exempt holding
company pursuant to an order under Section 3(a)(1) of the Act.5
Northern Indiana, NiSource's largest and dominant
subsidiary, is a combination gas and electric utility company which
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 distributes gas to approximately 673,300
residential, commercial and industrial customers and generates,
purchases, transmits and sells electricity to approximately 421,000
retail and wholesale electric customers. Kokomo Gas supplies natural
gas to approximately 34,200 retail customers in a six-county area of
north central Indiana having a population of approximately 100,000.
The Kokomo Gas service territory is contiguous to Northern Indiana's
gas service territory. NIFL supplies natural gas to approximately
34,800 retail customers in five counties in the northeast corner of
1 On April 14, 1999, NiSource announced that its shareholders
approved changing its name from NIPSCO Industries, Inc. to NiSource
Inc.
2 The Commission authorized NiSource to acquire all of the issued
and outstanding common stock of Kokomo Gas in 1992. SEE NIPSCO
INDUS., INC., HCAR No. 25470 (Feb. 5, 1992).
3 The Commission authorized NiSource to acquire all of the issued
and outstanding common stock of NIFL in 1993. SEE NIPSCO INDUS.,
INC., HCAR No. 25766 (Mar. 25, 1993).
4 The Commission authorized NiSource to acquire all of the issued
and outstanding common stock of Bay State in February 1999. Northern
is a wholly-owned subsidiary of Bay State. SEE NIPSCO INDUS., INC.,
HCAR No. 26975 (Feb. 10, 1999).
5 SEE NIPSCO INDUS., INC., HCAR No. 26975, 1999 SEC LEXIS 289 at
*60 (Feb. 10, 1999).
8
Indiana having a population of approximately 66,700. The NIFL service
territory is also contiguous to Northern Indiana's gas service
territory and overlaps Northern Indiana's electric service territory.
Northern Indiana has initiated a multi-phase customer choice program
to allow residential and commercial customers the right to choose
alternative gas suppliers. The three Indiana operating utility
subsidiaries of NiSource are subject to regulation by the Indiana
Utility Regulatory Commission ("IURC") as to rates, service and other
matters.
Bay State provides gas service to approximately 266,570
residential, commercial and industrial customers in three separate
areas of Massachusetts covering approximately 1,344 square miles and
having a combined population of approximately 1,340,000. These
include the greater Springfield area in western Massachusetts, an area
southwest of Boston that includes the cities of Attleboro, Brockton
and Taunton, and an area north of Boston extending to the New
Hampshire border that includes the city of Lawrence. Bay State
initiated a multi-phase customer choice program to allow residential
and commercial customers the right to choose alternative gas
suppliers. In November 1998, the Massachusetts Department of
Telecommunications and Energy ("MDTE") issued a generic order
implementing statewide customer choice for gas customers. Bay State
is complying with this order. Bay State is subject to regulation by
MDTE as to rates, service and other matters.
Northern provides gas service to approximately 46,460
residential, commercial and industrial customers in an area of
approximately 808 square miles in New Hampshire and Maine having a
population of approximately 450,000. Northern's service area extends
north from the Massachusetts-New Hampshire border to the
Portland/Lewiston area in Maine. Northern is subject to regulation by
the New Hampshire Public Utilities Commission and the Maine Public
Utilities Commission as to rates, service and other matters. At this
time, Northern remains an indirect subsidiary of NiSource, through Bay
State, pending consummation of the Transaction and registration by
NiSource, and will continue to be an indirect subsidiary of NiSource
after the merger with Columbia.
For the twelve months ended June 30, 1999, the gas and
electric public utility subsidiaries of NiSource reported segment
profit of $237.8 million ($47.0 million gas and $190.8 million
electric) on combined operating gas and electric utility revenues of
approximately $2.73 billion. Results for this period included five
months of combined operations with Bay State. Gas sales (including
transportation service) accounted for approximately 53% and electric
sales accounted for approximately 47% of NiSource's gross utility
revenues. Consolidated assets of NiSource and its subsidiaries as of
June 30, 1999, were approximately $6.4 billion, consisting of $4.1
billion in net gas and electric utility plant ($1.8 gas and $2.3
electric) and associated facilities and $2.3 billion in net
non-utility plant and other non-utility assets.
9
NiSource owns all of the outstanding common stock of
NiSource Pipeline Group, Inc. ("NPG"). NPG consists of Crossroads
Pipeline Company ("Crossroads"), Granite State Gas Transmission, Inc.
("Granite State") and PNGTS Holding Corp. ("PNGTS Holding").
Crossroads is a non-utility natural gas transportation company that
was certificated by the Federal Energy Regulatory Commission ("FERC")
in April 1995 to operate as an interstate pipeline.6 Crossroads owns
and operates a 201-mile, 20-inch diameter pipeline that extends from
Schererville, Indiana, in the northwestern corner of Indiana, to
Cygnet, Ohio, which is located in northwestern Ohio. Crossroads
receives gas from Natural Gas Pipeline Company of America ("NGPL"),
Trunkline Gas Company ("Trunkline") and Panhandle Eastern Pipeline
Company ("Panhandle Eastern"). Crossroads delivers gas to Northern
Indiana, Ohio Gas Pipe Line Corporation, NIFL and Columbia Gas
Transmission Corporation ("Columbia Transmission"). Crossroads is
proposing a 25-mile, 30-inch diameter pipeline from a point on its
system near Griffith, Indiana to form an interconnection with Northern
Border Pipeline Co., ("Northern Border") and NGPL. These extensions
would form a link in a chain of interstate pipeline projects that are
designed to transport natural gas from the Chicago area market to
eastern markets served by Columbia Transmission and Transcontinental
Gas Pipe Line Corp. ("Transco").
Granite State owns and operates a 105-mile, 6 to 12-inch
diameter interstate pipeline that extends from Haverhill,
Massachusetts, where it interconnects with the facilities of Tennessee
Gas Pipeline Company ("Tennessee Gas"), in a northeasterly direction
to a point near Westbrook, Maine where it interconnects with Portland
Natural Gas Transmission System ("PNGTS"), a partnership venture
owning a 292-mile, 24 to 30-inch diameter, natural gas transmission
line in northern New England that forms the northern link between
western Canadian gas supplies and the New England market.7 Granite
State delivers gas to Bay State and Northern. PNGTS Holding, together
with Granite State, holds a 19% interest in PNGTS. PNGTS
interconnects with the Tennessee Gas pipeline facilities near Dracut,
Massachusetts and with Granite State at locations in Maine and New
Hampshire. PNGTS also jointly owns with Maritimes and Northeast
Pipeline, L.L.C. pipeline facilities extending from Dracut,
Massachusetts to Portland, Maine.
EnergyUSA, Inc. ("EnergyUSA"), a wholly-owned subsidiary of
NiSource, serves as an intermediate holding company for many of
NiSource's non-utility businesses. Through subsidiaries, EnergyUSA
owns businesses engaged in the following activities:
6 SEE CROSSROADS PIPELINE CO., 71 FERC Paragraph 61,076 (1995).
7 SEE PORTLAND NATURAL GAS TRANSMISSION SYS., 79 FERC Paragraph
61,123 (1996).
10
- Energy Marketing: Through various subsidiaries,
including EnergyUSA-TPC Corp. ("TPC") and NESI Energy
Marketing, L.L.C., EnergyUSA markets gas and
electricity to residential, commercial and industrial
entities on a national basis, including customers in
areas served by NiSource's gas distribution utilities.
EnergyUSA also indirectly provides gas supply services
to other NiSource affiliates, including Kokomo Gas and
NIFL.
TPC was acquired on April 1, 1999 by EnergyUSA. TPC
operates gas marketing and gas asset management and
optimization businesses. TPC owns a majority interest
in Market Hub Partners, L.P. ("MHP"), which develops
and operates underground gas storage facilities. In
addition to its ownership interest in MHP, the
significant assets of TPC consist of: i) gas marketing
contracts, ii) asset management and optimization
contracts, iii) computer systems and equipment to
support the aforementioned activities and iv) various
parcels of land adjacent to, or in proximity to, the
gas storage facilities owned by MHP.
- Residential/Small Commercial Gas and Propane Marketing;
Appliance Leasing: EnergyUSA Retail, Inc. provides gas
and other energy-related products and services to
residential and small commercial customers of utilities
that allow competitive suppliers to market in their
service territories. Some of Bay State's and Northern
Indiana's customers are being provided with natural gas
by EnergyUSA Retail. EnergyUSA Retail also sells
propane and leases water heaters to customers in New
England.
- Storage: Through various subsidiaries, NiSource
provides gas storage services to a number of utilities,
gas marketers and other customers, including Northern
Indiana.
- Oil and Gas Exploration and Production: EnergyUSA has
equity interests in a domestic oil and gas producer
with properties located in Texas, Oklahoma and
Louisiana and a Canadian oil and gas producer.
- Energy Management Services: EnergyUSA Commercial, Inc.
provides traditional energy management services,
including power quality consulting and energy
management, to commercial and industrial entities.
Primary Energy, Inc. ("Primary"), a wholly-owned subsidiary
of NiSource, arranges energy-related projects for large
energy-intensive industrial facilities. Primary offers expertise to
11
large energy customers in managing the engineering, construction,
operation and maintenance of these energy-related projects.
- Primary's wholly-owned subsidiary, Harbor Coal Company
("Harbor Coal"), invested in a partnership to finance,
construct, own and operate a $65 million pulverized
coal injection facility, which began commercial
operation in August 1993. The facility receives raw
coal, pulverizes it and delivers it to Ispat Inland,
Inc. ("Ispat") for use in the operation of blast
furnaces for manufacturing operations. Harbor Coal is
a 50% partner in the project with an Ispat affiliate.
NiSource guarantees the payment and performance of the
partnership's obligations under a sale and leaseback of
a 50% undivided interest in the facility.
- North Lake Energy Corporation ("North Lake"), a wholly-
owned subsidiary of Primary, entered into a lease for
the use of a 75-megawatt energy facility located at
Ispat. The facility uses steam generated by Ispat to
produce electricity which is delivered to Ispat. The
facility began commercial operation in May 1996.
NiSource guarantees North Lake's obligations relative
to the lease and certain obligations to Ispat relative
to the project.
- Lakeside Energy Corporation ("LEC"), a wholly-owned
subsidiary of Primary, entered into a lease for the use
of a 161-megawatt energy facility located at USS Gary
Works. The facility processes high-pressure steam into
electricity and low-pressure steam for delivery to USX
Corporation-U.S. Steel Group ("U.S. Steel"). A 15-year
tolling agreement with US Steel commenced on April 16,
1997 when the facility was placed in commercial
operation. Capital Markets guarantees certain limited
LEC obligations to the lessor.
- Portside Energy Corporation ("Portside"), a wholly-
owned subsidiary of Primary, operates a 63-megawatt
energy facility at the Midwest Division of National
Steel Corporation ("National") to process natural gas
into electricity, steam and heated water to be provided
to National for a 15-year period. Portside entered
into a lease for use of the facility. Capital Markets
guarantees certain Portside obligations to the lessor.
The facility began commercial operation on September
26, 1997.
- Primary's wholly-owned subsidiary, Cokenergy, Inc.
("CE"), operates an energy facility at Ispat's Indiana
Harbor Works to scrub flue gases and recover waste heat
from the coke facility constructed by Indiana Harbor
12
Coke Company, LP ("Harbor Coke") and to produce steam
and electricity from the recovered heat which is then
delivered to Ispat. CE leases these facilities from a
third party. CE has a 15-year service agreement and a
related 15-year fuel supply agreement with Ispat and
Harbor Coke. Capital Markets guarantees certain CE
obligations relative to the lease.
- In July 1999, Primary's wholly-owned subsidiary,
Whiting Clean Energy, Inc. ("Whiting"), signed an
agreement with Amoco Oil Company for the lease,
operation and maintenance of a net 525 MW natural
gas-fired cogeneration plant on land adjacent to
Amoco's refinery in Whiting, Indiana. The plant will
provide process steam to Amoco's refinery operations
and sell power into competitive wholesale markets.
Completion of the plant is expected by the second
quarter of 2001.
SM&P Utility Resources, Inc. ("SM&P") and other NiSource
subsidiaries perform underground utility locating and marking services
in Indiana and other states.8 SM&P performed approximately 5.7
million locates during the twelve months ended December 31, 1998.
Miller Pipeline Corporation ("Miller") installs, repairs and maintains
underground pipelines used in gas, water and sewer transmission and
distribution systems.
NiSource, through an intermediate holding company, IWC
Resources Corporation ("IWCR"), owns four water companies and has an
operating agreement with the City of Lawrence, Indiana which is being
treated as a purchase by IWCR in accordance with generally accepted
accounting principles (collectively, the "Water Utilities"). The
Water Utilities supply water to residential, commercial and industrial
customers and for fire protection service in Indianapolis, Indiana and
surrounding areas. The territory served by the Water Utilities covers
an area of approximately 561 square miles in seven counties of central
Indiana and the Water Utilities serve approximately 270,880 customers
as of June 30, 1999.
NiSource Development Company, Inc. ("Development") has
investments in various activities, including real estate. These
investments vary widely and are hereinafter discussed in detail in
ITEM 3 -- APPLICABLE STATUTORY PROVISIONS. South Works Power Company
("South Works"), a wholly-owned subsidiary of Development, leases
electric generating and transmission facilities owned by U.S. Steel
8 In 1999, NiSource acquired a 100% interest in Colcom
Incorporated and a 50% interest in UGTI (doing business as Underground
Technology Inc.). Colcom provides underground utility locating and
marking services in Texas. UGTI provides underground utility locating
and marking services in California and other states.
13
and located in south Chicago, Illinois. The facilities, which are
presently not in operation, are indirectly interconnected with the
electric transmission system of Northern Indiana.
Capital Markets provides financing for NiSource's
non-utility subsidiaries. Capital Markets has entered into revolving
credit agreements for $200 million. These agreements provide
financing flexibility to Capital Markets and may be used to support
the issuance of commercial paper. At June 30, 1999, Capital Markets
had issued $204.5 million in commercial paper but there were no
borrowings outstanding under the revolving credit agreements. Capital
Markets also has $130 million available in money market lines of
credit with $114 million of borrowings outstanding as of June 30,
1999.
The financial obligations of Capital Markets are subject to
a support agreement ("Support Agreement") between NiSource and Capital
Markets which provides that NiSource make payments of principal and
interest on Capital Markets' obligations in the event of a failure to
pay by Capital Markets. Under the terms of the Support Agreement, in
addition to the cash flow of cash dividends paid to NiSource by any of
its consolidated subsidiaries, the assets of NiSource are available as
recourse for the benefit of Capital Markets' creditors except that
restrictions in the Support Agreement prohibit recourse on the part of
Capital Markets' creditors against the stock and assets of Northern
Indiana which are owned by NiSource. The carrying value of the assets
of NiSource, other than the assets of Northern Indiana, as reflected
in the consolidated financial statements of NiSource, was
approximately $2.6 billion at June 30, 1999. The Support Agreement is
filed as Exhibit B-4 hereto.
NiSource Corporate Services Company ("Corporate Services")
provides management, administrative, gas portfolio management,
accounting and other services to the various NiSource companies.
Hamilton Harbour Insurance Services, Ltd. provides various insurance
services to the NiSource companies and Shore Line Shops Incorporated
provides relocation services to NiSource employees.
b. Columbia and its Subsidiaries9
Columbia, formerly The Columbia Gas System, Inc.,10 and
its subsidiaries comprise one of the nation's largest integrated
9 Information regarding Columbia and its subsidiaries was obtained
from Columbia's Annual Report or Form 10-K for the year ended December
31, 1998, the Forms 10-Q for the quarters ended March 31, 1999 and
June 30, 1999 or from other publicly available information. None of
the information has been independently verified by NiSource.
10 On January 20, 1998, Columbia announced that its name had been
changed from The Columbia Gas System, Inc. to Columbia Energy Group.
14
natural gas systems engaged in natural gas transmission, natural gas
distribution and exploration for and production of natural gas and
oil. Columbia is also engaged in related energy businesses including
the marketing of natural gas and electricity, the generation of
electricity, primarily fueled by natural gas, and the distribution of
propane. Columbia, organized under the laws of the State of Delaware
on September 30, 1926, is a registered holding company under the Act
and derives substantially all its revenues and earnings from the
operating results of its 18 direct subsidiaries. Columbia owns all of
the securities of these direct subsidiaries except for approximately
8% of the stock in Columbia LNG Corporation.
Columbia and its principal pipeline subsidiary, Columbia
Transmission, emerged from bankruptcy on November 28, 1995, after
filing separate petitions for protection under Chapter 11 of the
Federal Bankruptcy Code ("Bankruptcy Code") on July 31, 1991. During
the bankruptcy period, both Columbia and Columbia Transmission were
debtors-in-possession under the Bankruptcy Code and continued to
operate their businesses in the normal course subject to the
jurisdiction of the United States Bankruptcy Court for the District of
Delaware.
Distribution Utilities: Columbia provides natural gas
distribution services in a five-state region in the midwestern and
north central United States through its five wholly-owned public
utility subsidiaries: Columbia Gas of Kentucky, Inc. ("Columbia
Kentucky"), Columbia Gas of Maryland, Inc. ("Columbia Maryland"),
Columbia Gas of Ohio, Inc. ("Columbia Ohio"), Columbia Gas of
Pennsylvania, Inc. ("Columbia Pennsylvania") and Columbia Gas of
Virginia, Inc. ("Columbia Virginia"). Columbia's five distribution
subsidiaries provide natural gas service to nearly 2.1 million
residential, commercial and industrial customers in Ohio,
Pennsylvania, Virginia, Kentucky and Maryland. Approximately 32,000
miles of distribution pipelines serve these major markets. The
distribution subsidiaries have or plan to initiate customer choice
programs that allow residential and small commercial customers the
opportunity to choose their natural gas suppliers and to use the
distribution subsidiaries for transportation service. This ability to
choose a supplier was previously limited to larger commercial and
industrial customers.
Columbia Kentucky supplies natural gas to approximately
137,300 retail customers in a 31-county area of central and eastern
Kentucky having a population of approximately 965,000. Columbia
Kentucky is subject to regulation by the Kentucky Public Service
Commission as to rates, service and other matters.
Columbia Maryland supplies natural gas to approximately
31,800 retail customers in a three-county area of western Maryland
having a population of approximately 227,000. Columbia Maryland is
subject to regulation by the Maryland Public Service Commission as to
rates, service and other matters.
15
Columbia Ohio supplies natural gas to approximately
1,309,200 retail customers in a 53-county area of north central and
south eastern Ohio having a population of approximately 6,700,000.
Columbia Ohio is subject to regulation by the Public Utilities
Commission of Ohio as to rates, service and other matters.
Columbia Pennsylvania supplies natural gas to approximately
383,900 retail customers in a 26-county area of central and south
eastern Pennsylvania having a population of approximately 2,380,000.
Columbia Pennsylvania is subject to regulation by the Pennsylvania
Public Utility Commission as to rates, service and other matters.
Columbia Virginia supplies natural gas to approximately
168,700 retail customers in a 52-county area of north central and
eastern Virginia having a population of approximately 3,366,500.
Columbia Virginia is subject to regulation by the Virginia State
Corporation Commission as to rates, service and other matters.
Transmission and Storage Operations: Columbia's two
interstate pipeline subsidiaries, Columbia Transmission and Columbia
Gulf Transmission Company ("Columbia Gulf"), operate a 16,700-mile
pipeline network extending from offshore in the Gulf of Mexico to Lake
Erie, New York and the eastern seaboard. In addition, Columbia
Transmission operates one of the nation's largest underground natural
gas storage systems. Together, Columbia Transmission and Columbia
Gulf serve customers in fifteen northeastern, midatlantic, midwestern
and southern states and the District of Columbia. Columbia Gulf's
pipeline system extends from offshore Louisiana to West Virginia and
transports a major portion of the gas delivered by Columbia
Transmission. It also transports gas for third parties within the
production areas of the Gulf Coast. Columbia Transmission and
Columbia Gulf provide an array of competitively priced natural gas
transportation and storage services for local distribution companies,
marketers, brokers and industrial and commercial customers who
contract directly with producers or marketers for their gas supplies.
During 1998, Columbia Transmission continued construction of
the largest expansion of its storage and transportation system in its
history. In April 1999, the final phase of storage service began.
Upon completion, the expansion will add approximately 500,000 Mcf per
day of firm service. Columbia Transmission is also participating in
the proposed 442-mile Millennium Pipeline Project that has been
submitted to FERC for approval. As proposed, the project will
transport approximately 700,000 Mcf per day of natural gas from
Western Canada through the Lake Erie region to eastern markets.
Columbia Gulf recently announced its participation in the
proposed 160 mile, 24-inch diameter, Volunteer Pipeline Project. As
proposed, the project will transport approximately 250,000 dth/day
from Portland, Tennessee to a point near Chattanooga, Tennessee.
Columbia Gulf also announced plans in September 1998 to consider an
expansion of its onshore East Lateral system at Grand Island,
16
Louisiana to add approximately 600,000 Mcf per day of incremental firm
gas transportation capacity. Columbia Gulf is also participating in
the proposed SunStar Pipeline project, a 56-mile offshore pipeline
project with a capacity of 660,000 Mcf of natural gas per day from the
Gulf of Mexico to its onshore lateral at Grand Isle, Louisiana.
Columbia Gulf also owns a 33% interest in the Trailblazer Pipeline, a
350-mile natural gas pipeline that extends from northeast Colorado to
Gage County in Nebraska.
Exploration and Production Operations: Columbia's
exploration and production subsidiary, Columbia Energy Resources, Inc.
("Columbia Resources"), explores for, develops, gathers and produces
natural gas and oil in Appalachia and Canada.11 As of December 31,
1998, Columbia Resources held interests in approximately 2.7 million
net acres of gas and oil leases and had proved gas reserves of 802
billion cubic feet of natural gas equivalent. In August 1997,
Columbia Resources acquired Alamco, Inc., an Appalachian gas and oil
exploration and development company. During the first quarter of
1998, Columbia Resources purchased 26 producing wells and
approximately 5,000 undeveloped acres in Ontario, Canada. On May 12,
1999, Columbia Resources acquired the production and gathering assets
of The Wise Oil Company for $28 million which consist of a working
interest in 487 natural gas and oil wells, more than 100,000 net acres
of developed and undeveloped land and a gathering system in
southeastern Kentucky and central West Virginia. On June 17, 1999,
Columbia Resources purchased the assets of Thornwood Gas, Inc. and
Northeast Gathering System, Inc., which includes a 50% interest in a
40-mile gathering pipeline system, eight natural gas wells and 70,000
developed and undeveloped acres. Through its operations in
north-central West Virginia, southern Kentucky and northern Tennessee,
Columbia Resources is one of the largest-volume independent natural
gas and oil producers in the Appalachian Basin. Columbia Pipeline
Corporation and its wholly owned subsidiary, Columbia Deep Water
Services Company, were formed to operate pipeline and gathering
facilities that are not regulated by FERC.
Marketing Operations: Columbia Energy Services Corporation
("Columbia Energy Services") and its subsidiaries conduct Columbia's
non-regulated natural gas and electric power marketing operations and
provide an array of energy supply and fuel management services to
distribution companies, independent power producers and other large
end-users both on and off Columbia's transmission and distribution
pipeline systems. Columbia Energy Services is also providing natural
gas supplies to residential and small commercial customers as a result
of the unbundling of services that is occurring at the local
distribution level. Columbia Energy Services, through its subsidiary,
11 In 1997, Columbia Transmission sold 2,700 miles of gathering
lines to Columbia Resources. Effective January 1999, Columbia
Transmission sold an additional 750 miles of gathering facilities to
Columbia Resources.
17
Columbia Service Partners, Inc. ("Columbia Service"), provides a
variety of energy-related services to both homeowners and businesses.
In 1997, Columbia Energy Services acquired PennUnion Energy Services
L.L.C. ("PennUnion"), an energy-marketing affiliate of the Pennzoil
Company. In August 1999, Columbia Energy Services announced that it
has decided to sell its wholesale gas and electric trading operations
based in Houston, Texas.
Propane, Power Generation and LNG Operations: Columbia
Propane Corporation ("Columbia Propane") sells propane at wholesale
and retail to approximately 340,000 customers. In 1998, Columbia
Propane purchased the propane assets of three companies that added
approximately 12,500 new customers and 6.4 million gallons of annual
propane sales. On July 19, 1999, Columbia Propane completed its
acquisition of National Propane Partners, L.P., which added more than
210,000 retail and wholesale customers in 24 states. On June 16,
1999, Columbia Propane completed its acquisition of Trentane Gas, Inc.
which added more than 4,300 customers in north-central Virginia. On
May 11, 1999, Columbia Propane, through its subsidiary Columbia
Petroleum Corporation, completed its acquisition of the propane and
petroleum assets of Carlos R. Leffler, Inc., which added approximately
12,500 propane customers and 36,600 petroleum customers.
Columbia Electric Corporation's ("Columbia Electric")
primary focus has been the development, ownership and operation of
natural gas-fueled cogeneration power plants that sell electric power
to local electric utilities under long-term contracts. Columbia
Electric is part owner in three cogeneration projects. These
facilities produce both electricity and useful thermal energy and are
fueled principally by natural gas. Columbia Electric holds various
interests in these facilities, which have a total capacity of
approximately 250 megawatts.
In June 1998, Columbia Electric and LG&E Power Inc., a
subsidiary of LG&E Energy Corporation, announced an agreement for
Columbia to participate in the development of a gas-fired cogeneration
project that would have a total equivalent capacity of approximately
550 megawatts. The facility will provide steam and electric services
to a Reynolds Metals plant in Gregory, Texas and will also provide
electricity to the Texas energy market. Construction began in August
1998 and financing for the $257 million project was secured in
November of 1998.
In January 1998, Columbia Electric and Westcoast Energy Inc.
signed a joint ownership agreement to develop three gas-fired electric
generation plants by 2001. In total, the three plants would provide
approximately 1,000 megawatts of electricity using approximately 160
MMcf per day of natural gas. In August 1998, a site was purchased in
Pennsylvania to build the first of these plants. This plant will cost
about $300 million to develop and will produce 500 megawatts of
electricity and consume approximately 80 MMcf per day of natural gas.
Each of the sponsors will own a 50% interest in the project.
18
Columbia LNG Corporation is a partner with Potomac Electric
Power Company in the Cove Point LNG Limited Partnership
("Partnership"). The Partnership owns one of the largest natural gas
peaking and storage facilities in the United States located in Cove
Point, Maryland. The facility has the capacity to liquefy natural gas
at a rate of 15,000 Mcf per day. The facility enables liquefied
natural gas to be stored until needed for the peak-day requirements of
utilities and other large gas users.
Telecommunications: Columbia Network Services Corporation,
a wholly owned subsidiary of Columbia, and its subsidiaries provide
telecommunications and information services and assist personal
communications services and other microwave radio service licensees in
locating and constructing antenna facilities. Columbia Transmission
Communications Corporation, another Columbia subsidiary, is involved
in the development of a dark fiber optics network for voice and data
communications.
2. Description of Utility Facilities
a. NiSource
i. Natural Gas Utilities
At June 30, 1999, the NiSource gas distribution system in
Indiana included approximately 15,176 miles of distribution mains and
737,664 customers. In addition, Northern Indiana owns and operates
underground gas storage facilities located at Royal Center, Indiana
with a storage capacity of 6.75 billion cubic feet (Bcf), and a
liquefied natural gas ("LNG") plant in LaPorte County, Indiana having
a storage capacity of 4.0 Bcf, which is used for system pressure
maintenance and peak season (November-March) deliveries. Northern
Indiana also holds under long-term contract storage capacity totaling
approximately 9.11 Bcf in the Markham, Moss Bluff and Egan salt-dome
storage caverns in Texas and Louisiana. These facilities, which
provide Northern Indiana with a significant amount of "high
deliverability" storage capacity,12 are located at or near major
12 "High deliverability," which is an operational characteristic
of salt-dome storage caverns, means the ability to inject and withdraw
gas on a frequent (I.E., daily) basis, year-round and at a high rate
of flow. Utilization of the capacity of such facilities is measured
in terms of both their storage volume and frequency of the
injection/withdrawal cycle (I.E., cycling). In contrast, Northern
Indiana's storage facilities in Indiana only allow for gas injection
and withdrawal on a seasonal basis. The "high deliverability"
facilities in Texas and Louisiana provide Northern Indiana with added
flexibility in managing deliveries to and from interstate pipelines,
which, in turn, allows Northern Indiana to take advantage of price
volatility and to balance its system load requirements on a daily
basis.
19
supply "hubs" which have formed at locations where interstate
pipelines serving the upper Midwest, Northeast, Gulf Coast,
mid-Atlantic and Ohio Valley markets intersect.
At June 30, 1999, NiSource's New England gas distribution
utilities included some 5,508 miles of distribution mains, 116 miles
of transmission lines and approximately 313,760 customers. Bay State
and Northern also own and operate LNG liquefaction, vaporization and
storage facilities and propane storage tanks used to store
supplemental and peak shaving supplies. At June 30, 1999, NiSource's
combined gas system consisted of 20,684 miles of distribution mains,
together with associated compressing and regulating stations, LNG
liquefaction, vaporization and storage facilities, propane storage
tanks and 1,051,424 customers.
Currently, NiSource's utilities purchase approximately 73%
of their total system gas requirements from production in the onshore
and offshore Texas and Louisiana producing areas, and approximately
16% from production in the Mid-Continent (Oklahoma, Kansas and
Arkansas), and Permian (West Texas) supply basins. Gas produced from
the Western Canadian Sedimentary Basin has also made up a significant
portion of the gas supply portfolios of Bay State and Northern. In
1999, with the completion of new pipeline capacity from western Canada
to the upper Midwest and New England markets, NiSource's gas
distribution utilities in Indiana will have the opportunity to further
diversify their gas portfolio through additional purchases of gas
produced in the Western Canadian Sedimentary Basin (Alberta and
British Columbia).13 NiSource estimates that, by 2002, western
Canadian gas could potentially account for as much as 40% of its total
system supply for its Indiana gas utilities.
NiSource's gas distribution subsidiaries have currently
contracted for "firm" capacity and storage service on nine different
long-haul interstate pipelines: ANR Pipeline Company ("ANR"), NGPL,
Panhandle Eastern, PNGTS, Tennessee Gas, Texas Eastern Transmission
13 FERC granted certificate authority under Section 7(c) of the
Natural Gas Act of 1938 ("NGA"), as amended, for a major expansion of
the Northern Border Pipeline, which runs from the Montana-Saskatchewan
border to its present terminus at Harper, Iowa, and a 243-mile
extension thereof to a new terminus south of Chicago. SEE NORTHERN
BORDER PIPELINE CO., 76 FERC Paragraph 61,141 (1996); NORTHERN BORDER
PIPELINE CO., 80 FERC Paragragh 61,152 (1997). The Northern Border
extension added capacity that can deliver some 650,000 Mcf into the
Chicago market. Northern Border is proposing to extend its system to
connect with Northern Indiana's facilities near North Hayden, Indiana.
FERC also granted certificate authority under Section 7(c) of the NGA,
for the construction of the Alliance Pipeline project ("Alliance"), an
887-mile, 36-inch diameter, line designed to transport 1.325 Bcf per
day of gas from western Canada to the Chicago market. SEE ALLIANCE
PIPELINE L.P., 84 FERC Paragraph 61,239 (1998).
20
Corp. ("Texas Eastern"), Texas Gas Transmission Corp. ("Texas Gas"),
Transco and Trunkline. NiSource's subsidiaries also have firm
transportation capacity agreements with TransCanada PipeLines Limited
("TransCanada"), a Canadian interprovincial pipeline, and with several
other regional pipelines, such as Algonquin Gas Transmission Company
("Algonquin"), Crossroads, Granite State and National Fuel Gas Supply
Company ("National Fuel").
NiSource projects that, as transmission constraints are
eliminated and new pipeline capacity begins commercial service, the
NiSource gas distribution utilities will be well positioned to
purchase an increasing amount of their gas requirements from the
Western Canadian Sedimentary, Appalachian and Michigan producing
areas. This gas will reach NiSource's Midwest and New England gas
distribution utilities directly through new pipelines, such as PNGTS,
Northern Border and Alliance, as well as indirectly by means of any
one of several existing pipeline interconnections among Crossroads and
Columbia Transmission, Tennessee Gas and PNGTS, Tennessee Gas and
Columbia Transmission, Algonquin and Columbia Transmission and
Northern Border's expansion into Northwest Indiana.
ii. Electric Utility
Northern Indiana owns and operates four coal-fired electric
generating stations with net capabilities of 3,179 MW, two
hydroelectric generating plants with net capabilities of 10 MW and
four gas-fired combustion turbine generating units with net
capabilities of 203 MW, for a total system net capability of 3,392 MW.
During the year ended December 31, 1998, Northern Indiana generated
93.3% and purchased 6.7% of its electric requirements.
Northern Indiana has 291 substations with an aggregate
transformer capacity of 23,131,300 kilovoltamperes (kva). Northern
Indiana's transmission system with voltages from 34,500 to 345,000
consists of 3,058 circuit miles of line. The electric distribution
system extends into 21 counties and consists of 7,814 circuit miles of
overhead and 1,497 cable miles of underground primary distribution
lines operating at various voltages ranging from 2,400 to 12,500
volts. Northern Indiana has distribution transformers having an
aggregate capacity of 11,156,320 kva and 445,117 electric watt-hour
meters.
Northern Indiana's electric control area peak load (the
highest level of electrical utility usage in the control area) of
3,307 MW was set on July 30, 1999. Northern Indiana's electric
control area includes Northern Indiana, Wabash Valley Power
Association, Inc. ("WVPA") and Indiana Municipal Power Agency
("IMPA"). Northern Indiana's internal peak load, which excludes WVPA
and IMPA, of 2,962 MW, was also set on July 30, 1999.
Northern Indiana's electric system is interconnected with
the systems of American Electric Power, Commonwealth Edison Company,
21
Cinergy Services, Inc., Consumers Energy and Ameren Services
Corporation, formerly Central Illinois Public Service Company.
Electric energy is purchased from, sold to, or exchanged with various
other utilities and power marketers under Northern Indiana's power
sales and open access transmission tariffs.
Northern Indiana provides WVPA with transmission and
distribution service, operating reserve requirements and capacity
deficiency service, and provides IMPA with transmission service,
operating reserve requirements and capacity deficiency service in
Northern Indiana's control area. Northern Indiana also engages in
sales and services under interconnection agreements with WVPA and
IMPA. WVPA provides service to 12 Rural Electric Membership
Corporations located in Northern Indiana's control area. IMPA
provides service to the municipal electric system of the city of
Rensselaer located in Northern Indiana's control area. Northern
Indiana and WVPA have executed a supplemental agreement for unit
peaking capacity and energy. Unit peaking capacity is the capacity
used to serve peak demand from a specific peaking generation unit.
Pursuant to this agreement, which runs through December 2001, WVPA
purchases 90 MW of capacity per month.
Northern Indiana serves the Town of Argos as a full
requirements customer and provides network integration service to
seven municipal wholesale customers.
Northern Indiana is a member of the East Central Area
Reliability Coordination Agreement ("ECAR"). ECAR is one of nine
regional electric reliability councils established to coordinate
planning and operations of member electric utilities regionally and
nationally.
Fuel Supply: The generating units of Northern Indiana are
located at the Bailly, Mitchell, Michigan City and Schahfer Generating
Stations. Northern Indiana's 13 steam generating units have a net
capability of 3,179 MW. Coal is the primary source of fuel for all
units, except for three, which utilize natural gas. In addition,
Northern Indiana's four combustion turbine generating units with a net
capability of 203 MW are fired by gas. Fuel requirements for Northern
Indiana's generation for 1998 were supplied as follows:
Coal . . . . . . . . . . . . . . 97.5%
Natural Gas . . . . . . . . . . 2.5%
In 1998, Northern Indiana used approximately 8.8 million
tons of coal at its generating stations. Northern Indiana has
established a normal level of coal stock that is expected to provide
adequate fuel supply during the year under all conditions.
b. Columbia
i. Natural Gas Utilities
22
At December 31, 1998, the combined distribution systems of
Columbia's five gas utilities were comprised of 31,994 miles of
distribution pipeline and approximately 2,030,900 customers, as
detailed by state in the table below:
Distribution Distribution
Pipeline (miles) Customers
---------------- ------------
Columbia Kentucky 2,404 137,300
Columbia Maryland 595 31,800
Columbia Ohio 18,140 1,309,200
Columbia Pennsylvania 6,895 383,900
Columbia Virginia 3,960 168,700
Columbia's natural gas public utility subsidiaries receive
their natural gas supplies through Columbia's two wholly-owned
interstate pipelines, Columbia Transmission and Columbia Gulf, major
non-affiliated pipelines such as Panhandle Eastern, Tennessee Gas and
Texas Eastern, and regional pipelines such as National Fuel and
Equitrans, LP. In addition to receiving supplies of Louisiana gas
from Columbia Gulf, Columbia Transmission transports gas from
Mid-Continent, onshore and offshore Texas, and western Canadian supply
basins, through interconnections with ANR, Panhandle Eastern,
Tennessee Gas, Texas Eastern, Texas Gas and Transco. Columbia
Transmission also transports Appalachian gas produced by Columbia's
exploration and production subsidiaries and others, and both receives
and transports Appalachian gas transported by Consolidated Natural Gas
Company ("CNG") and Equitrans.
Columbia's natural gas public utility subsidiaries have
long-term firm transportation contracts with, among others, Columbia
Gulf, Columbia Transmission, Panhandle Eastern, Tennessee Gas, Texas
Gas, Texas Eastern and Transco to meet the peak day needs of their
customers. In addition, the gas utilities have contractual access to
the natural gas storage owned by Columbia Transmission. Columbia
Pennsylvania is the only gas utility to own underground storage,
supported by eight wells on 3,300 acres. Columbia Virginia and other
unaffiliated LDC's subscribe to LNG storage services provided by
Columbia Transmission from a facility located in Chesapeake, Virginia.
Several of Columbia's gas utility subsidiaries subscribe to LNG
storage services offered by Cove Point LNG.
For the year 1998, NiSource understands that Columbia's
natural gas public utility subsidiaries received significant amounts
of natural gas supplies from Louisiana and Texas onshore or offshore
sources, Appalachian Basin and Canada.
23
ITEM 2. FEES, COMMISSIONS AND EXPENSES
------------------------------
Estimates of the fees, commissions and expenses to be paid
or incurred, directly or indirectly, in connection with the
Transaction will be provided by amendment to this Application/
Declaration.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
-------------------------------
The following sections of the Act and the Commission's rules
thereunder are, or may be, directly or indirectly, applicable to the
proposed Transaction:
Transactions to which section or rule is, or may
Section of the Act be, applicable:
------------------ ------------------------------------------------
4, 5 Registration of NiSource and Acquisition Corp. as
holding companies following consummation of the
Transaction
9(a)(2), 10(a), Acquisition of Columbia's common stock and the
(b), (c) and (f) merger of Acquisition Corp. and Columbia
8, 11(b), 21 Upon registration, retention by NiSource of
Northern Indiana's electric operations and
NiSource's and Columbia's non-utility businesses
13 Approval of the service agreement and performance
of certain services by Corporate Services for the
various companies owned, and to be acquired, by
NiSource
Rules
-----
51 Acquisition Corp.'s tender offer for Columbia's
common stock
80-91 Charges by Corporate Services to affiliated
companies
87(a)(3) Services among NiSource system companies
88 Approval of Corporate Services as a subsidiary
service company
93, 94 Accounts, records and annual reports by Corporate
Services
24
To the extent that other sections of the Act or the Commission's rules
thereunder are deemed applicable to the Transaction, such sections and
rules are hereby incorporated into this ITEM 3.
A. LEGAL ANALYSIS
1. Section 9(a)(2)
Section 9(a)(2) makes it unlawful, without approval of the
Commission under Section 10, "for any person . . . to acquire,
directly or indirectly, any security of any public utility company, if
such person is an affiliate . . . of such company and of any other
public utility or holding company, or will by virtue of such
acquisition become such an affiliate." 15 U.S.C. Section 79i(a)(2).
Under the definition set forth in Section 2(a)(11), an "affiliate" of
a specified company means "any person that directly or indirectly
owns, controls, or holds with power to vote, 5 per centum or more of
the outstanding voting securities of such specified company," and "any
company 5 per centum or more of whose outstanding voting securities
are owned, controlled, or held with power to vote, directly or
indirectly, by, such specified company." 15 U.S.C. Section
79b(a)(11)(A)-(B).
Columbia Kentucky, Columbia Maryland, Columbia Ohio,
Columbia Pennsylvania and Columbia Virginia are public utility
companies as defined in Section 2(a)(5) of the Act. Because NiSource
will indirectly acquire (through Acquisition Corp.'s acquisition of
Columbia) more than 5% of the voting securities of each of Columbia
Kentucky, Columbia Maryland, Columbia Ohio, Columbia Pennsylvania and
Columbia Virginia as a result of the Transaction, NiSource and
Acquisition Corp. must obtain the approval for the Transaction under
Sections 9(a)(2) and 10 of the Act. The statutory standards to be
considered by the Commission in evaluating the proposed Transaction
are set forth in Sections 10(b), 10(c) and 10(f) of the Act.
As set forth more fully below, the Transaction complies with
all of the applicable provisions of Section 10 of the Act and should
be approved by the Commission:
- the consideration to be paid in the Transaction is fair
and reasonable;
- the Transaction will not create detrimental
interlocking relations or concentration of control;
- the Transaction will not result in an unduly
complicated capital structure for the NiSource system;
- the Transaction is in the public interest and the
interests of investors and consumers;
- the Transaction is consistent with Sections 8 and 11 of
the Act; and
- the Transaction will comply with all applicable state
laws.
25
In addition, the Transaction is consistent with a number of
the recommendations made by the Division of Investment Management in
the report issued by the Division in June 1995 entitled "The
Regulation of Public Utility Holding Companies" (the "1995 Report")
and Commission precedent that has developed based upon these
recommendations.14
2. Section 10(b)
Section 10(b) provides that, if the requirements of Section
10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the public
interest or the interests of investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and
other remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or will
be detrimental to the public interest or the interests of
investors or consumers or the proper functioning of such holding
company system.
15 U.S.C. Section 79j(b).
a. Section 10(b)(1)
i. Interlocking Relationships
Although any merger results in new links between heretofore
unrelated companies, the relationships that will result from the
14 For example, the Commission should "respond realistically to
the changes in the utility industry and interpret more flexibly each
piece of the integration equation," the "geographic requirements of
Section 2(a)(29) [should be interpreted] flexibly, recognizing
technical advances consistent with the purposes and provisions of the
Act," the Commission's analysis should focus on whether the resulting
system will be subject to effective regulation and the Commission
should liberalize its interpretation of the "A-B-C" clauses and permit
combination systems where the affected states agree. 1995 Report at
71-77.
26
Transaction are not the types of interlocking relationships prohibited
by Section 10(b)(1), which was primarily aimed at preventing business
combinations unrelated to operational and economic benefits to the
integrated utility system. SEE NORTHEAST UTILS., HCAR No. 25221, 1990
SEC LEXIS 3898 at *33 (Dec. 21, 1990), MODIFIED, HCAR No. 25273 (Mar.
15, 1991), aff'd sub nom., CITY OF HOLYOKE V. SEC, 972 F2d 358 (D.C.
Cir. 1992) ("interlocking relationships are necessary to integrate
[the two merging entities]"). Under the circumstances of the Offer,
no combination of the existing boards of NiSource and Columbia is
currently proposed.
ii. Concentration of Control
Section 10(b)(1) is intended to avoid "an excess of
concentration and bigness" while preserving the "opportunities for
economies of scale, the elimination of duplicate facilities and
activities, the sharing of production capacity and reserves and
generally more efficient operations" afforded by the coordination of
local utilities into an integrated system. AMERICAN ELEC. POWER CO.,
HCAR No. 20633, 1978 SEC LEXIS 1103 at *25 (July 21, 1978). In
applying Section 10(b)(1) to utility acquisitions, the Commission must
determine whether the acquisition will create "the type of structures
and combinations at which the Act was specifically directed." VERMONT
YANKEE NUCLEAR POWER CORP., HCAR No. 15958, 1968 SEC LEXIS 925 at *15
(Feb. 6, 1968). As discussed below, the Transaction will not create a
"huge, complex, and irrational system," but rather will afford the
opportunity to achieve economies of scale and efficiencies which are
expected to benefit investors and consumers. AMERICAN ELEC. POWER
CO., HCAR No. 20633, 1978 SEC LEXIS 1103 at *20 (July 21, 1978).
Size: If approved, the NiSource combined gas utility system
will serve approximately 3.1 million gas customers in nine states and
422,000 electric customers in Indiana. As of June 30, 1999: (1) the
combined assets of NiSource and Columbia would have totaled
approximately $17.23 billion and (2) the combined operating revenues
of NiSource and Columbia would have totaled approximately $10.7
billion.
By comparison, the Commission has approved acquisitions
resulting in similarly sized and considerably larger holding
companies. SEE, E.G., TUC HOLDING CO., HCAR No. 26749 (Aug. 1, 1997)
(acquisition of Texas Utility Company and ENSERCH Corp.; combined
assets at the time of the acquisition over $21 billion); ENTERGY
CORP., HCAR No. 25952 (Dec. 17, 1993) (acquisition of Gulf States
Utilities; combined assets at the time of the acquisition in excess of
$22 billion).
As the following table demonstrates, there are numerous
registered and non-registered holding company systems that are larger
than NiSource will be following the Transaction in terms of assets,
operating revenues, and number of customers.
27
Total Operating Customers
Assets Revenues
System ($ Millions) ($ Millions) (Millions)<F>15
Southern 36,192 11,403 3.8
Duke 26,806 17,610 2.0
Entergy 22,848 11,495 2.5
AEP 19,483 6,346 3.0
Reliant 19,138 11,488 4.4
FirstEnergy 18,063 5,861 2.3
NiSource 17,051 10,308 3.1
In addition, NiSource will be smaller than two of the
registered holding companies to be formed as a result of recently
announced mergers -- American Electric Power Company, Inc. and Central
& South West Corp. (combined 1998 year-end assets of approximately
Resources, Inc. and Consolidated Natural Gas Company (combined 1998
$33.23 billion and operating revenues of $11.83 billion) and Dominion
year-end assets of approximately $28 billion, operating revenues of
$8.8 billion and nearly 4 million customers) -- and similar in size to
a third recently announced merger, Northern States Power Company and
New Century Energies, Inc. (combined 1998 year-end assets of
approximately $15.09 billion and operating revenues of $6.43 billion).
As consolidation within the energy industries continues, one
would expect proposals for even larger holding company systems than
exist today. Nevertheless, following the consummation of the
Transaction, NiSource will be within the size range of the existing
and emerging registered and exempt holding companies with which it
will compete as competition in the converging utility industries
increases. As such, its operations would not exceed the economies of
scale of current and developing holding company systems or provide
undue power or control to NiSource in the regions in which it will
provide service.
Efficiencies and Economies: In addition to analyzing the
size of the utility system, the Commission also assesses the
efficiencies and economies that can be achieved through the
integration and coordination of utility operations. More recent
pronouncements of the Commission confirm that size is not
determinative. In CENTERIOR ENERGY CORP., HCAR No. 24073, 1986 SEC
LEXIS 1655 at **6-7 (April 29, 1986), the Commission stated that a
"determination of whether to prohibit enlargement of a system by
acquisition is to be made on the basis of all the circumstances, not
---------------
<F>15 Amounts are as of December 31, 1998. The following
information was derived from publicly-available sources and none of
the information has been independently verified by NiSource.
28
on the basis of size alone." In addition, in the 1995 Report, the
Division recommended that the Commission approach its analysis on
merger and acquisition transactions in a flexible manner with emphasis
on whether the Transaction creates an entity subject to effective
regulation and is beneficial for shareholders and customers as opposed
to focusing on rigid, mechanical tests.16
By enhancing the size and geographic diversity of NiSource's
existing gas system and combining NiSource's electric business with
Columbia's gas business, the Transaction will significantly enhance
each company's competitive position in an increasingly competitive
energy market. The electric and gas utility industries are merging in
order to provide greater value to customers and, thus, allow companies
to compete effectively in the increasingly competitive business
environment. By combining with NiSource's electric expertise and
operations, Columbia's competitiveness, product offerings and ability
to serve its customers will be enhanced. In CONSOLIDATED NATURAL GAS
CO., HCAR No. 26512, 1996 SEC LEXIS 1205 at **2, 17 (Apr. 30, 1996),
the Commission recognized that "fundamental changes in the energy
industry are leading to an increasingly competitive and integrated
market, in which marketers deal in interchangeable units of energy
expressed in British thermal unit values, rather than in natural gas
or electricity. To retain and attract wholesale and industrial
customers, utilities need to provide competitively priced power and
related customer services. . . . It appears that the restructuring of
the electricity industry now underway will dramatically affect all
United States energy markets as a result of the growing
interdependence of natural gas transmission and electric generation,
and the interchangeability of different forms of energy, particularly
gas and electricity." The combination offers the same type of
synergies and efficiencies that were sought and are now being realized
by the applicants (both exempt and registered) in TUC HOLDING CO.,
HCAR No. 26749 (Aug. 1, 1997); HOUSTON INDUS. INC., HCAR No. 26744
(July 24, 1997); WPL HOLDINGS, INC., HCAR No. 26856 (Apr. 14, 1998),
aff'd sub nom., MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C.
Cir. 1999); and NEW CENTURY ENERGIES, INC., HCAR No. 26748 (Aug. 1,
1997).
Competitive Effects: As the Commission noted in NORTHEAST
UTILS., HCAR No. 25221, 1990 SEC LEXIS 3898 at *39 (Dec. 21, 1990),
the "antitrust ramifications of an acquisition must be considered in
light of the fact that public utilities are regulated monopolies and
that federal and state administrative agencies regulate the rates
charged consumers." On July 19, 1999, NiSource filed the Notification
and Report Forms with the Department of Justice ("DOJ") and Federal
Trade Commission pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, 15 U.S.C. Section 1311, et seq. Act ("HSR
Act") describing the effects of the Transaction on competition in the
relevant market. It is a condition to the consummation of the
16 1995 Report at 70.
29
Transaction that the applicable waiting periods under the HSR Act
shall have expired or been terminated. The HSR waiting period expired
on August 4, 1999.
In addition, FERC reviews the effects of jurisdictional
transactions on competition, rates and regulation. A copy of the
application to be filed by NiSource with FERC will be filed by
amendment to this Application/Declaration and will demonstrate the
absence of any anti-competitive effects.
In the context of the foregoing review, the Transaction will
not "tend towards interlocking relations or the concentration of
control" of public utility companies, of a kind or to the extent
detrimental to the public interest or the interests of investors or
customers within the meaning of Section 10(b)(1). 15 U.S.C. Section
79j(b)(1).
b. Section 10(b)(2) -- Fairness of Consideration
Section 10(b)(2) requires the Commission to determine
whether the consideration to be given by NiSource to the holders of
Columbia common stock in connection with the Transaction is reasonable
and whether it bears a fair relation to investment in and earning
capacity of the utility assets underlying the securities being
acquired. On Friday, June 4, 1999, the last full trading day before
the first public announcement of NiSource's proposal to acquire
Columbia, the closing price per share of Columbia common stock on NYSE
was $55-3/4 per share. On June 23, 1999, the last full trading day
before the public announcement of the Offer, the closing sale per
share of Columbia's common stock on NYSE was $63-3/4 per share. The
fairness of the Transaction's consideration is evidenced by the fact
that NiSource is offering $5.7 billion, or $68 per share, in cash for
all outstanding shares of Columbia's common stock. This offer
represents a 30.7% premium over the average closing share price for
Columbia's common stock for the 20 trading days ending Friday, June 4,
1999. In addition, as demonstrated in the table below, the quarterly
price data of Columbia common stock for the years 1997, 1998 and 1999
support the fairness of NiSource's tender offer. The per share price
offered is considerably above Columbia's highest price prior to the
announcement of NiSource's proposal for Columbia.
Columbia Common Stock17
<TABLE>
<CAPTION>
High Low Dividends
----- --- ---------
<S> <C> <C> <C>
1999:
Third Quarter (through August 31, 1999) 64 11/16 58 5/8
Second Quarter 64 1/4 43 7/8 .225
17 Amounts have been restated to reflect a three-for-two stock
split, in the form of a stock dividend, effective June 15, 1998.
30
First Quarter 58 44 5/8 .200
1998
Fourth Quarter 60 3/4 54 1/4 .200
Third Quarter 60 3/8 47 1/2 .200
Second Quarter 57 11/12 51 5/8 .200
First Quarter 52 17/24 47 1/3 .167
1997
Fourth Quarter 52 5/12 46 1/3 .167
Third Quarter 48 1/6 43 11/24 .167
Second Quarter 44 11/12 37 1/3 .167
First Quarter 43 11/12 38 5/12 .100
</TABLE>
NiSource's Offer was priced after analysis and evaluation of the
assets, liabilities and business prospects of Columbia and of a
combined company. Moreover, in the context of a direct offer to
Columbia's shareholders, a presumption must exist that the price is
fair. In such circumstances, the price will be evaluated by market
forces.
In light of the foregoing, including an analysis of the
recent trading history of Columbia's common stock, NiSource and
Acquisition Corp. believe that the offer falls within the range of
reasonableness and that the Offer bears a fair relation to the sums
invested in, and the earning capacity of, Columbia's utility assets.
c. Section 10(b)(2) -- Reasonableness of Fees
NiSource believes that the overall fees and expenses to be
incurred in connection with the Transaction will be found reasonable
in light of the Transaction's size and complexity relative to similar
acquisitions and the anticipated benefits of the Transaction to the
public, investors and consumers. Details of such fees and expenses
will be provided by amendment to this Application/Declaration.
d. Section 10(b)(3) -- Capital Structure
Section 10(b)(3) requires the Commission to determine
whether the Transaction will unduly complicate NiSource's capital
structure or will be detrimental to the public interest, the interests
of investors or consumers or the proper functioning of NiSource's
system.
The capital structure of NiSource after the Transaction will
not be unduly complicated and will be substantially similar to capital
structures approved by the Commission in recent orders. A corporate
organizational chart of NiSource and Columbia will be filed by
amendment to this Application/Declaration. Although NiSource has not
conclusively determined its corporate structure after the Transaction
is consummated, it intends to undertake several significant steps to
simplify its organizational structure. Once the final structure is
determined, NiSource will file an amendment to this
Application/Declaration which describes its corporate structure and
31
provide an organizational chart of NiSource after consummation of the
Transaction.
Set forth below are summaries of the capital structures of
NiSource and Columbia as of June 30, 1999:
NiSource and Columbia Capital Structures
(dollars in millions)
NiSource Columbia
-------- --------
Common Stock Equity $1,369 $ 2,071
Preferred stock not
subject to mandatory
redemption 86 0
Preferred stock subject
to mandatory redemption 55 0
Company obligated
mandatorily preferred securities 345 0
Long-Term Debt 2,008 1,951
Short-Term Debt 494 175
Total $4,357 $4,197
The debt financing by NiSource of Columbia's acquisition
represents only short-term bridge financing. Although the combined
cash flow of NiSource and Columbia would comfortably service the
interest requirements of the Facility under reasonable interest rate
assumptions, NiSource intends to replace the Facility with the
issuance of equity and debt in order to improve its debt/equity ratio
after consummation of the Transaction. In refinancing the Facility,
it will issue equity and other securities to establish a debt/equity
ratio consistent with the business environment in which it operates
and comparable to other registered public utility holding companies.
As previously noted, prior to the consummation of the Transaction,
NiSource will file a separate Application/Declaration under the Act
with respect to the refinancing of the Facility and with respect to
its ongoing financing activities after giving effect to the
Transaction.
3. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the
provisions of Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of section
32
8 or is detrimental to the carrying out of the provisions of
section 11;18 or
(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system.
15 U.S.C. Section 79j(c).
a. Section 10(c)(1)
Section 10(c)(1) requires that an acquisition be lawful
under Section 8 of the Act. Section 8 prohibits registered holding
companies from acquiring, owning interests in or operating both a gas
and an electric utility serving substantially the same area if it is
prohibited by state law. As discussed below, the Transaction does not
raise any issues under Section 8 of the Act. Indeed, Section 8
indicates that a registered holding company may own both gas and
electric utilities where the relevant state utility commission permits
such an arrangement.
Section 10(c)(1) also requires that the transactions not be
detrimental to carrying out the provisions of Section 11 of the Act.
Section 11(a) of the Act requires the Commission to examine the
corporate structure of registered holding companies to ensure that
unnecessary complexities are eliminated and voting powers are fairly
and equitably distributed. As described above in ITEM 3.A.2, the
Transaction will not result in unnecessary complexities or unfair
voting powers.
Section 11(b)(1) of the Act generally requires a registered
holding company system to limit its operations "to a single integrated
public-utility system, and to such other businesses as are reasonably
incidental, or economically necessary or appropriate to the operations
of such integrated public-utility system." 15 U.S.C. Section
79k(b)(1). However, Section 11(b)(1) further provides that "one or
more additional integrated public-utility systems" may be retained if
certain criteria are met. ID. Section 11(b)(2) directs the
Commission "to ensure that the corporate structure or continued
existence of any company in the holding-company system does not unduly
or unnecessarily complicate the structure, or unfairly or inequitably
18 By their terms, Sections 8 and 11 only apply to registered
holding companies and are therefore inapplicable at present to
NiSource, since it is not now a registered holding company. The
following discussion of Sections 8 and 11 is included only because,
under the present transaction structure, NiSource will register as a
holding company after consummation of the Transaction.
33
distribute voting power among security holders, of such
holding-company system." 15 U.S.C. Section 79k(b)(2).
As detailed below, the Transaction is lawful under Section 8
and is not detrimental to carrying out the provisions of Section 11.
i. Retention of Electric Operations
NiSource's retention of the electric operations of Northern
Indiana is lawful under Section 8 of the Act and is not detrimental to
carrying out the provisions of Section 11 of the Act.
Section 8 of the Act provides that:
Whenever a State law prohibits, or requires approval or
authorization of, the ownership or operation by a single
company of the utility assets of an electric utility company
and a gas utility company serving substantially the same
territory, it shall be unlawful for a registered holding
company, or any subsidiary company thereof . . . (1) to take
any step, without the express approval of the State
commission of such State, which results in its having a
direct or indirect interest in an electric utility company
and a gas company serving substantially the same territory;
or (2) if it already has any such interest, to acquire,
without the express approval of the State commission, any
direct or indirect interest in an electric utility company
or gas utility company serving substantially the same
territory as that served by such companies in which it
already has an interest.
15 U.S.C. Section 79h. A plain reading of Section 8 indicates that,
with the approval of the relevant state utility commissions, a
registered holding company can include both electric and gas utility
systems. A more detailed examination of Section 8 in light of its
legislative history indicates that the purpose of this section is to
preclude ownership by a registered holding company of separate gas and
electric utility companies with overlapping service territories in an
attempt to circumvent state law restrictions that preclude ownership
of gas and electric assets by the same company.19
Section 8 of the Act and the public interest both permit
NiSource's retention of its Northern Indiana operations upon
completion of the Transaction and NiSource's registration as a holding
19 The Report of the Committee on Interstate Commerce, S. Rep. No.
621 at 29 (1935) (Section 8 of the Act "is concerned with competition
in the field of distribution of gas and electric energy a field
which is essentially a question of State policy, but which becomes a
proper subject of Federal action where the extra-State device of a
holding company is used to circumvent state policy.").
34
company. NiSource's existing gas and electric operations in Indiana,
which are in overlapping service territories, are in conformity with
Indiana law. These utility operations will not change as a result of
the Transaction. Consequently, NiSource is not using its holding
company structure to circumvent state regulation. The IURC currently
exercises, and will continue to exercise, jurisdiction over NiSource's
Indiana gas and electric operations.
In addition to Section 8 of the Act, Section 11 contains
provisions that permit the retention by NiSource of Northern Indiana's
electric operations. Section 11(b)(1) of the Act permits a registered
holding company to control one or more additional integrated public
utility systems I.E., electric as well as gas utility systems if:
(A) each of such additional systems cannot be operated as
an independent system without the loss of substantial
economies which can be secured by the retention of control
by such holding company of such system;
(B) all of such additional systems are located in one
state, adjoining states, or a contiguous foreign country;
and
(C) the continued combination of such systems under the
control of such holding company is not so large (considering
the state of the art and the area or region affected) as to
impair the advantages of localized management, efficient
operation, or the effectiveness of regulation.
15 U.S.C. Section 79k(b)(1). These three subsections of Section
11(b)(1) are frequently referred to as the "ABC Clauses" and each
clause is addressed separately below.
Clause A: The Commission has interpreted Clause A "to
require an affirmative showing by a registrant that an additional
system could not be operated under separate ownership without a loss
of economies which are 'so important as to cause a serious impairment
of that system' and 'substantial in the sense that they were important
to the ability of the additional system to operate soundly.'" NEW
CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583 at **44-45
(Aug. 1, 1997), QUOTING NEW ENGLAND ELEC. SYS., HCAR No. 15035, 1964
SEC LEXIS 999 at **9, 12 (Mar. 19, 1964). A registered holding
company generally satisfies the requirements of Clause A by preparing
a "divestiture" or "severance" study which examines the estimated loss
of economies precipitated by a hypothetical divestiture "expressed in
terms of the ratio of increased expenses to the system's total
operating revenues, operating revenue deductions (excluding federal
income taxes), gross income and net income before federal income
taxes." ID. at *47 n.52. In an early leading decision, the
Commission found that cost increases which resulted in a 6.78% loss of
operating revenues, a 9.72% increase in operating revenues deductions,
a 25.44% loss of gross income and a 42.46% loss of net income provided
35
an "impressive basis for finding a loss of substantial economies."
ENGINEERS PUB. SERV. CO., HCAR No. 3796, 1942 SEC LEXIS 941 at *43
(Sept. 17, 1942), REV'D ON OTHER GROUNDS AND REMANDED, 138 F.2d 936
(D.C. Cir. 1943), VACATED AS MOOT, 332 U.S. 788 (1947).
NiSource will prepare a divestiture study with respect to
Northern Indiana which it expects will demonstrate substantial lost
economies if NiSource is required to divest Northern Indiana. These
lost economies will result from the need to replicate corporate and
administrative services, lost economies of scale and the costs of
reorganization, and will be described more fully in the divestiture
study which will be filed as an amendment to this
Application/Declaration.
In addition to quantitative factors, the Commission also
considers qualitative factors in its determination under Clause A.
First, the Commission in recent decisions has approved the retention
by registered holding companies of combination gas and electric
systems because "separation of gas and electric businesses may cause
the separated entities to be weaker competitors than they would be
together." NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS
1583 at *52 (Aug. 1, 1997); CINERGY CORP., HCAR No. 26934, 1998 SEC
LEXIS 2377 at *8 (Nov. 2, 1998); WPL HOLDINGS, INC., HCAR No. 26856,
1998 SEC LEXIS 676 at **62-63 (Apr. 14, 1998), AFF'D SUB NOM., MADISON
GAS AND ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999).20 Due to
the recent wave of mergers between electric and gas utilities (E.G.,
Duke Power Company/PanEnergy Corp., Houston Industries, Inc./NorAm
Energy Corporation, Enron Corporation/Portland General Corporation,
Dominion Resources, Inc./Consolidated Natural Gas Company), NiSource's
competitive position in the market could suffer because as the utility
industry moves toward a complete energy services concept, competitive
companies must be able to offer customers a range of options to meet
their energy needs. The combination of electric and gas operations in
a single company offers that company a means to compete more
effectively in the emerging energy services business. SEE WPL
HOLDINGS, INC., HCAR No. 26856 (Apr. 14, 1998), AFF'D SUB NOM.,
MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999).
Proposed transactions should continue to be evaluated in light of this
continuing evolution in the utility industries. Second, the
Commission has noted that the DOJ and FERC typically have concomitant
jurisdiction over public utility mergers and typically consider
anticompetitive consequences of any proposed transactions. NEW CENTURY
ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583 at *55 (Aug. 1,
20 The Commission further noted that the "empirical basis" for the
assumptions underlying its decision in NEW ENGLAND ELEC. SYS., HCAR
No. 15035 (Mar. 19, 1964), REV'D, SEC V. NEW ENGLAND ELEC. SYS., 346
F.2d 399 (1st Cir. 1965), REV'D AND REMANDED, 384 U.S. 176 (1966), ON
REMAND, 376 F.2d 107 (1st Cir. 1967), REV'D, 390 U.S. 207 (1968) was
"rapidly eroding." NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997
SEC LEXIS 1583 at *54 (Aug. 1, 1997).
36
1997). The Transaction is expressly conditioned on the approval of
the DOJ. Third, the Commission considers whether the electric and gas
properties have long been under common control and whether retention
would alter the STATUS QUO with respect to utility operations.
Northern Indiana's electric and gas operations have been under common
control since 1926 and permitting the retention of Northern Indiana's
electric business would not alter the STATUS QUO with respect to its
utility operations. Finally, the Commission determines whether the
proposed acquisition has not "elicited any adverse reaction from
interested state commissions." ID. at *56. This factor should not
present a problem either because the Transaction is expressly
conditioned upon NiSource receiving all necessary regulatory approvals
from the relevant state commissions. The Transaction will not go
forward unless NiSource satisfies any reservations the relevant state
commissions may have regarding the Transaction.
Clause B: The requirements of Clause B are met because
Northern Indiana's electric operations are located in the same state
as its gas operations their service territories physically overlap
and are located in an adjoining state to Columbia's gas operations in
Ohio.
Clause C: The requirements of Clause C are met because the
continued combination of the electric and gas operations under
NiSource is not so large (considering the state of the art and the
area or region affected) as to impair the advantages of localized
management, efficient operation or the effectiveness of regulation.
Northern Indiana's electric system is confined to a relatively small
geographic area. NiSource will maintain management of electric
operations geographically close to Northern Indiana's electric
operations, thereby preserving the advantages of localized management.
Northern Indiana's electric operations will also remain subject to the
IURC's jurisdiction, thereby maintaining the effectiveness of
regulation. Finally, Northern Indiana's electric operations enjoy
substantial economies as part of the NiSource system, and will realize
additional economies as a result of the Transaction from becoming part
of a combined NiSource/Columbia system. Far from impairing the
advantages of efficient operation, the continued combination of
Northern Indiana's electric and gas operations will continue to
facilitate and enhance efficiency.
ii. Non-Utility Businesses
Section 11(b)(1) limits the non-utility interests of a
registered holding company to "interests that are 'reasonably
incidental, or economically necessary or appropriate to the operations
of such integrated public-utility system,' on a finding by the
Commission that such interests are 'necessary or appropriate in the
public interest or for the protection of investors or consumers and
not detrimental to the proper functioning' of the integrated system."
NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583 at *36
n.37 (Aug. 1, 1997). "The Commission has interpreted these provisions
37
to require the existence of an operating or functional relationship
between the utility operations of the registered holding company and
its nonutility activities." ID. at *62 n.70.
Rule 58 provides exemptions for investments in certain
energy related businesses up to the greater of $50 million or 15% of
the consolidated capitalization of such registered holding company.
17 C.F.R. Section 250.58. Further, the Commission has determined that
existing investments in energy-related companies (as of the date of
the consummation of the merger) of an exempt holding company which
became a registered holding company as a result of the merger should
be disregarded for purposes of calculating the dollar limitations
imposed by Rule 58. SEE NEW CENTURY ENERGIES, INC., HCAR No. 26748,
1997 SEC LEXIS 1583 at *63 (Aug. 1, 1997); AMEREN CORP., HCAR No.
26809, 1997 SEC LEXIS 2719 at **39-40 (Dec. 30, 1997); CONECTIV, INC.,
HCAR No. 26832, 1998 SEC LEXIS 326 at *42 (Feb. 25, 1998).
NiSource is currently a holding company that is exempt from
the registration requirements of the Act. As an exempt holding
company, NiSource has been free to invest in a variety of non-utility
businesses and activities without the need to obtain prior Commission
approval under Section 9(a) of the Act. The Transaction will result
in NiSource becoming a registered holding company. Therefore, it is
necessary to evaluate each of NiSource's nonutility business
activities within the retention restrictions of the Act and the
Commission's rules promulgated thereunder. Columbia has been subject
to regulation as a registered holding company for an extended period.
Therefore, Columbia's ability to engage in nonutility businesses has
been subject to the approval requirements of Section 9, and each of
Columbia's existing nonutility businesses has been either approved by
the Commission or falls within the exemptions of Rule 58.
Consequently, the discussion below focuses on the retention of
NiSource's nonutility businesses as appropriate either under the
exemptions of Rule 58 or prior Commission precedent. Most of
NiSource's non-utility businesses are demonstrably functionally
related to its gas and electric utility operations. In addition,
NiSource believes that significant equitable arguments support the
retention of its various non-utility businesses.21
Natural Gas Pipeline, Storage and Gathering: NiSource has
two wholly-owned interstate natural gas pipeline subsidiaries.
Crossroads operates an interstate pipeline from Indiana to Ohio
connecting NGPL, Trunkline and Panhandle Eastern with Columbia
Transmission and gas utility customers in Ohio and Indiana. Granite
State operates an interstate pipeline extending from Massachusetts,
where it interconnects with Tennessee Gas, through New Hampshire and
into Maine, where it interconnects at several points with PNGTS.
21 In addition to the non-utility businesses listed below,
NiSource currently owns interests in several non-utility businesses
which are either inactive or which it is in the process of divesting.
38
Granite State serves Northern and Bay State in all three states. In
addition, NiSource indirectly owns an interest in a pipeline in
northern New England, an intrastate natural gas pipeline in Texas and
natural gas salt cavern storage facilities.
These companies engage in "gas-related activities" under
Section 2(a) of the Gas-Related Activities Act of 1990 ("GRAA"). The
ownership of such businesses is authorized under Rule 58(a)(2) and
such businesses have routinely been permitted to be retained in prior
Commission orders approving mergers and the creation of new registered
holding companies. WPL HOLDINGS, INC., HCAR No. 26856, 1998 SEC LEXIS
676 at *105 (Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO.
V. SEC, 168 F.3d 1337 (D.C. Cir. 1999) (gas gathering system and gas
pipeline, dehydration and compression facilities); NEW CENTURY
ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583 at **99-100 (Aug.
1, 1997) (gas pipeline and storage facilities).
Exploration and Production Operations: EnergyUSA has equity
interests in a domestic oil and gas producer with properties located
in Texas, Oklahoma and Louisiana and a Canadian oil and gas producer.
The exploration of natural resources or the holding of
rights to such resources are "gas-related activities" under Section
2(b) of the GRAA. The ownership of such businesses is authorized
under Rule 58(a)(2) and such businesses have routinely been permitted
to be retained in prior Commission orders approving mergers and the
creation of new registered holding companies. WPL HOLDINGS, INC.,
HCAR No. 26856, 1998 SEC LEXIS 676 at **104-05 (Apr. 14, 1998), AFF'D
SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir.
1999); NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583
at *92 (Aug. 1, 1997). SEE ALSO NEW ENGLAND ENERGY INC., HCAR No.
21862 (Dec. 30, 1980).
Non-Regulated Natural Gas and Electric Power Marketing:
Through direct and indirect subsidiaries, NiSource provides natural
gas sales and management services to industrial and commercial
customers.
The ownership of businesses engaged in the brokering and
marketing of energy commodities is specifically authorized under Rule
58(b)(1)(v) and the retention of such businesses has routinely been
permitted in prior Commission orders approving mergers and the
creations of new registered holding companies. WPL HOLDINGS, INC.,
HCAR No. 26856, 1998 SEC LEXIS 676 at *105 (Apr. 14, 1998), AFF'D SUB
NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999);
CONECTIV, INC., HCAR No. 26832, 1998 SEC LEXIS 326 at *54 (Feb. 25,
1998); NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583
at **93-94 (Aug. 1, 1997).
Energy-Related Projects: NiSource's subsidiary, Primary,
arranges energy-related projects for large energy-intensive facilities
through Harbor Coal, North Lake, LEC, Portside, CE and Whiting. The
39
SEC Staff issued a no-action letter concurring with NiSource that
North Lake is not an "electric utility" under Section 2(a)(3) of the
Act with respect to its involvement in the processing of steam into
electricity which is owned and used solely by Ispat in its
manufacturing operations. NIPSCO INDUS., INC., 1996 SEC No-Act.
LEXIS 541 (Jan. 19, 1996). Lakeside, Portside and CE process steam
into electricity under similar circumstances to North Lake. Whiting
recently announced an agreement with Amoco Oil Company to lease and
operate a net 525 MW natural-gas fired cogeneration facility adjacent
to Amoco's refinery in Whiting, Indiana. None of Primary's
subsidiaries engages in activities that would cause it to be a public
utility company under the Act. The Commission has permitted newly
registered holding companies to retain businesses which provide
operation and maintenance services to generating facilities and the
sale of steam to residential, commercial and industrial customers.
WPL HOLDINGS, INC., HCAR No. 26856, 1998 SEC LEXIS 676 at **114-15
(Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168
F.3d 1337 (D.C. Cir. 1999) (sale of steam to residential and
commercial customers); CONECTIV, INC., HCAR No. 26832, 1998 SEC LEXIS
326 at **70-72 (Feb. 25, 1998) (ownership and operation of thermal
heating and cooling systems); NEW CENTURY ENERGIES, INC., HCAR No.
26748, 1997 SEC LEXIS 1583 at *80 (Aug. 1, 1997) (providing steam to a
manufacturing facility); AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS
2719 at *42 (Dec. 30, 1997) (steam heating business).
Energy Management: EnergyUSA Commercial, Inc., along with
its affiliates, provide energy management services, to industrial and
large commercial customers, which enhance competitiveness through cost
reductions, modernizing infrastructure and improving cost
accountabilities.
Rule 58(b)(1)(i) specifically permits registered holding
companies to invest in a business that derives substantially all of
its revenues from "the rendering of energy management services and
demand-side management services." 17 C.F.R. Section 250.58(b)(1)(i).
SEE ALSO CONECTIV, INC., HCAR No. 26832, 1998 SEC LEXIS 326 at **60-61
(Feb. 25, 1998); CENTRAL AND SOUTH WEST CORP., HCAR No. 26367 (Sept.
1, 1995); AMERICAN ELEC. POWER CO., HCAR No. 26267 (Apr. 5, 1995);
AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS 2719 at **44-45 (Dec. 30,
1997); NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583
at *95 (Aug. 1, 1997).
HVAC Services: Two subsidiaries of EnergyUSA provide HVAC
services to industrial and commercial customers. The Commission has
permitted wholly-owned subsidiaries of registered holding companies to
provide services to system utilities and non-affiliates related to
heating, ventilation, and air conditioning. CONECTIV, INC., HCAR No.
26832, 1998 SEC LEXIS 326 at **54-55 (Feb. 25, 1998); CINERGY CORP.,
HCAR No. 26662, 1997 SEC LEXIS 294 at *3 (1997).
Customer Information Services ("CIS"): Customer Information
Services, Inc., a wholly-owned subsidiary of Development, participates
40
with IBM in a joint venture to enhance a CIS system (and training for
the system) which it markets to other utilities. The Commission has
permitted retention by registered holding companies of a business that
provides technical and consulting services, including billing services
and information systems or data processing, to affiliated and
non-affiliated companies. CONECTIV, INC., HCAR No. 26832, 1998 SEC
LEXIS 326 at *64 (Feb. 25, 1998) (consulting services related to
information system/data processing); NEW CENTURY ENERGIES, INC., HCAR
No. 26478, 1997 SEC LEXIS 1583 at *83 (Aug. 1, 1997) (intellectual
property owned or developed in the course of utility operations);
CENTRAL AND SOUTH WEST SERVICES, INC., HCAR No. 25132 (Aug. 10, 1990)
(licensing and sale of computer programs developed in the course of
utility business). In addition, these services are expressly
permitted under Rule 58 (b)(l)(vii), since they involve technical
expertise developed in the course of utility operations.
Water Utilities: The Water Utilities supply water for
residential, commercial and industrial uses in Indianapolis, Indiana
and surrounding areas. Precedent exists for the retention of such
water utilities and related activities by newly registered holding
companies under circumstances where the divestiture of such interests
would result in economic inequities and where such activities
represent a small portion of the registered holding company's
operations.
The Water Utilities represent only a small portion of
NiSource's total operations. In 1998, the Water Utilities had
operating revenues of $84 million. This figure represents less than
one percent of the $10.3 billion PRO FORMA combined operating revenues
of NiSource following consummation of the Transaction. The Commission
has previously authorized retention of water utilities by a newly
registered holding company that had a similar, DE MINIMIS effect on
the holding company's overall revenues. WPL HOLDINGS, INC., HCAR No.
26856, 1998 SEC LEXIS 676 at *73 (Apr. 14, 1998), AFF'D SUB NOM.,
MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999).
NiSource's ownership of the Water Utilities results in
significant savings to the water customers through economies of scale
provided by NiSource. All of NiSource's subsidiaries benefit from
shared administrative services, such as payroll, tax, and financial
reporting software. Potential cost savings are also present through
combined billing, call center, dispatching services and lowered
capital expenditures. NiSource will prepare and file by amendment to
this Application/Declaration a divestiture study for the Water
Utilities and it anticipates that significant lost economies will
result if NiSource is required to divest the Water Utilities.
NiSource's ownership of the Water Utilities also provides
financial benefits to NiSource's gas and electric utility
subsidiaries. NiSource realizes property tax advantages for its gas
and electric utilities by combining water property holdings with gas
and electric holdings.
41
In addition to the financial benefits that result to
NiSource and its customers, NiSource's ownership of the Water
Utilities also represents a strategic business opportunity as the
competition in the energy industries accelerates and the natural gas
and electric utility industries continue to deregulate. The ownership
of water utilities, as well as gas and electric utilities, will
enhance NiSource's ability to provide essential resources to all of
its customers. The Water Utilities are strategically located less
than 50 miles from NiSource's electric and gas service territory.
Through its strong reputation in Indiana as a leading provider of
electric and gas service, and through the customer loyalty it is
building by providing quality service to its water customers, NiSource
is in a strategic position to provide multiple energy services to all
of its customers once deregulation occurs in Indiana.
The Commission recently permitted Alliant Energy Corp., a
newly registered holding company, to retain ownership of three water
utilities under similar circumstances. WPL HOLDINGS, INC., HCAR No.
26856 (Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC,
168 F.3d 1337 (D.C. Cir. 1999). NiSource believes its circumstances
justify retention of the Water Utilities by reference to such
precedent and is preparing a study to address the economic
consequences of divestiture.
Waste Water Treatment: IWC Services, Inc., a wholly-owned
subsidiary of IWCR, has a 52% interest in the White River
Environmental Partnership that provides waste water treatment services
for the cities of Gary, Plainfield and Indianapolis, Indiana. The
Commission has permitted registered holding companies to own
subsidiaries engaged in the ownership, operation and servicing of
waste water treatment facilities and consulting and management
services for waste water treatment. WPL HOLDINGS, INC., HCAR No.
26856, 1998 SEC LEXIS 676 at **94-96 (Apr. 14, 1998), AFF'D SUB NOM.,
MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999); NEW
CENTURY ENERGIES, INC., HCAR No. 26478, 1997 SEC LEXIS 1583 at *73
(Aug. 1, 1997); AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS 2719 at
*43 (Dec. 30, 1997).
Utility Related Services: SM&P and other NiSource
subsidiaries perform underground utility locating and marking services
in Indiana and other states. Miller installs, repairs and maintains
underground pipelines used in gas, water and sewer transmission and
distribution systems. SM&P provides services to four utility
industries -- telephone, gas, electricity and water. Miller provides
services to both gas and water utilities. The Commission has approved
a registered holding company's ownership of a business engaged in
providing construction, engineering and operation and maintenance
services primarily to nonaffiliates. CENTRAL AND SOUTH WEST SERVS.,
INC., HCAR No. 26280 (Apr. 26, 1995) (provisions of engineering and
construction services to nonaffiliates); ENTERGY CORP., HCAR No. 26322
(June 30, 1995) (provision of development, design, engineering,
construction and maintenance and management services to domestic and
42
foreign power projects); NEW ENGLAND ELEC. SYS., HCAR No. 26017 (Apr.
1, 1994) (provision of consulting services, including engineering,
design and construction, to nonaffiliates); GENERAL PUB. UTILS. CORP.,
HCAR No. 25108 (June 26, 1990) (provision of engineering and
management services in connection with investments in power production
facilities and related projects); NEW CENTURY ENERGIES, INC., HCAR No.
26478, 1997 SEC LEXIS 1583 at *67 (engineering, construction and
related services primarily to non-affiliates).
Financing: Capital Markets provides financing for
NiSource's non-utility subsidiaries and certain utility subsidiaries.
The Commission has on a number of occasions authorized registered
holding companies to own subsidiaries that provide financing and
related financial services to their affiliated companies. SEE
ALLEGHENY POWER SYS., INC., HCAR No. 26401 (Oct. 27, 1995); CSW
CREDIT, INC., HCAR No. 26437 (Dec. 22, 1995).
Real Estate: NiSource and its subsidiaries have invested in
several different types of real estate ventures. These fall into
several different categories, as described below.
- A wholly-owned subsidiary of Development manages or
sells off excess real estate owned by Development and
other NiSource subsidiaries. These investments are
functionally related to the activities of system
utilities and therefore, under Commission precedent,
NiSource should be allowed to retain the investment
after NiSource becomes a registered holding company.
SEE, E.G., CONECTIV, INC., HCAR No. 26832, 1998 SEC
LEXIS 326 at **53, 57, 60 (Feb. 25, 1998); UNITIL
CORP., HCAR No. 25524, 1992 SEC LEXIS 1017 at *3 n.7
(Apr. 24, 1992); WPL HOLDINGS, INC., HCAR No. 26856,
1998 SEC LEXIS 676 at *102 (Apr. 14, 1998), AFF'D SUB
NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F. 3d 1337
(D.C. Cir. 1999).
- JOF Transportation Company, a wholly-owned subsidiary
of Development, owns a 40% passive interest in railroad
assets in the vicinity of several electric generating
plants owned by Northern Indiana and which Northern
Indiana currently uses to deliver coal to its electric
generating plants. Retention of NiSource's interest
would enable it to construct additional power lines or
gas pipelines in the future and to ensure continued
access to tracks needed to deliver coal to electric
generating plants owned by Northern Indiana. The
Commission has held that a registered public utility
holding company may hold property that will be needed
in the future to support operations of the utility
company. SEE NEW CENTURY ENERGIES, INC., HCAR No.
26748, 1997 LEXIS 1583 at **80-81 (Aug. 1, 1997) (water
rights held in connection with the future addition of
43
generation capacity); WPL HOLDINGS, INC., HCAR No.
26856, 1998 SEC LEXIS 676 at *111 (Apr. 14, 1998),
AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168
F.3d 1337 (D.C. Cir. 1999) (undeveloped property for
the future development of utility-related assets). The
Commission has also allowed subsidiaries of registered
public utility holding companies to acquire or maintain
rail lines and rolling stock for the benefit of system
utilities. SEE THE SOUTHERN CO., HCAR No. 25734 (Jan.
13, 1993); THE NORTH AMERICAN CO., HCAR No. 3405, 1942
SEC LEXIS 1069 at **85-88 (Apr. 15, 1942); NEW CENTURY
ENERGIES, INC., HCAR No. 26748, 1997 LEXIS 1583 at *75
(Aug. 1, 1997) (railroad maintenance facility); WPL
HOLDINGS, INC., HCAR No. 26856, 1998 SEC LEXIS 676 at
**103-104 (Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS
& ELEC. CO. V. SEC, 168 F. 3d 1337 (D.C. Cir. 1999)
(ownership and operation of rail lines).
- NDC Douglas Properties, Inc., a wholly-owned subsidiary
of Development, has 15 passive interests in multiple-
family residential developments, most of which are in
the service territory of NiSource's utility
subsidiaries. These investments are divided into six
limited partnerships and nine limited liability
companies and are held by NiSource in order to generate
low-income housing tax benefits under Section 42 of the
Internal Revenue Code. The investments are part of the
continued commitment by NiSource to provide high
quality, energy efficient, affordable housing to the
residents of various geographic and economic regions
served by its utilities. The Commission has allowed
subsidiaries of registered holding companies to invest
in low income housing provided that the holding company
is a passive investor and that the purpose of the
investment is to obtain federal and state income tax
credits as well as fulfilling civic responsibilities.
SEE AMEREN CORP., HCAR No. 26809, 1997 LEXIS 2719 at
**51-53 (Dec. 30, 1997); GEORGIA POWER CO., HCAR No.
26220, 1995 SEC LEXIS 174 at *1 (Jan. 24, 1995).
- KOGAF Enterprises, Inc. ("KOGAF"), a wholly-owned
subsidiary of Development, has invested in a project to
revitalize downtown Kokomo, Indiana, which is in the
service territory of Kokomo Gas. KOGAF has a passive
interest in a limited partnership which is conducting
the revitalization project. KOGAF's total investment
in the project is less than $100,000. Under Rule
40(a)(5), registered holding companies are permitted to
invest up to $5 million annually in qualified state
sponsored industrial development companies and up to $1
million annually in other local industrial or non-
utility enterprises. 18 C.F.R. Section 250.40(a)(5).
44
SEE AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS 2719
at **46-47 (Dec. 30, 1997); OHIO POWER CO., HCAR No.
25604 (Aug. 11, 1992).
- Lake Erie Land Company ("Lake Erie"), a wholly-owned
subsidiary of Development, owns wetlands that can be
used as offsets to enable developers to obtain approval
for projects that require filling of wetlands. These
offsets could be used for construction projects by
NiSource system utilities and are also sold to other
developers in need of offsets. Because it is difficult
and economically inefficient to identify discrete,
small tracts of wetlands to be restored each time a
need for a small amount of offsets arises, it is
beneficial to have a large bank of restored wetlands
available to serve these needs as they arise and to
sell the offsets to third parties to the extent that
the available bank exceeds near term utility system
needs. Commission precedent supports the retention of
property held for future utility needs. WPL HOLDINGS,
INC., HCAR No. 26856, 1998 SEC LEXIS 676 at *111 (Apr.
14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V.
SEC, 168 F.3d 1337 (D.C. Cir. 1999). Furthermore,
larger tracts of wetlands are environmentally
preferable to smaller tracts that collectively comprise
the same number of acres. Thus, NiSource is able to
serve as a good environmental citizen as well as
meeting its system utility needs for wetlands offsets
by holding tracts of restored wetlands larger than the
minimum necessary for the foreseeable needs of its
system utilities. Divestiture of these assets would
impose an economic hardship because of the difficulty
and expense NiSource would incur if it had to purchase
wetlands each time it needed wetlands offsets for
utility development.
Lake Erie and a subsidiary also develop and operate
tracts of land which were initially purchased in
bankruptcy within the service territories of NiSource
utility subsidiaries into model communities that serve
community development and environmental interests. In
order to assure the developments meet NiSource's goals
for architectural, urban planning, and environmental
considerations, NiSource has made an active investment
in these projects. These investments, however,
represent approximately $62 million or just over 1% of
NiSource's net assets, and they are managed by a
subsidiary that is separate from the system utility
companies, so that any losses from these projects will
have no adverse impact on the utilities or their
ratepayers. NiSource requests that the Commission
permit retention of this investment, given that these
45
projects impose no significant risks on ratepayers and
taking into consideration the economic hardship that
NiSource would suffer if it were required to divest
itself of these projects after the substantial
investments it has made to ensure that the developments
meet the established community development, urban
planning and environmental goals. The Commission has
allowed retention of real estate operations created by
exempt holding companies before becoming registered
even though such operations were not strictly related
to utility operations. WPL HOLDINGS, INC., HCAR No.
26856 (Apr. 14, 1998); CONECTIV, INC., HCAR No. 26832
(Feb. 25, 1998); AMEREN CORPORATION, HCAR No. 26809
(Dec. 30, 1997); NEW CENTURY ENERGIES, INC., HCAR No.
26748 (Aug. 1, 1997). The Commission has also
authorized real estate investments where they benefited
utility operations. UNITIL CORP., HCAR No. 25524 (Apr.
24, 1992); AMERICAN ELECTRIC POWER CO., HCAR No. 21898
(Jan. 27, 1981).
b. Section 10(c)(2)
The Transaction will tend toward the economical and
efficient development of an integrated public utility system, thereby
serving the public interest, as required by Section 10(c)(2) of the
Act.
i. Efficiencies and Economies
The Commission should find that the Transaction is likely to
produce substantial economies and efficiencies over time, chiefly in
the areas of coordinated gas supply for the combined gas distribution
utilities and coordinated utilization and optimization of interstate
pipeline and storage capacity and gas storage deliverability. The
Transaction will also produce economies and efficiencies relating to
the development and marketing of energy services, both regulated and
unregulated. The Transaction will make it possible for NiSource's and
Columbia's gas distribution utilities to combine their separate
portfolios of gas supply, transportation and storage arrangements.
This will make the combined entity a larger volume participant in
common supply basins and at market hubs and centers. Having this
larger volume position will enable the combined entity to achieve
larger savings and create greater efficiencies than NiSource and
Columbia distribution utilities could achieve independently,
increasing their purchasing power and creating flexibility in
balancing demand and supply requirements of their combined utility
systems. Moreover, as the dynamics in the natural gas industry
continue to change (E.G., in response to the impact of growing
Canadian gas supplies on the Midwest and Northeast markets, the
elimination of inter-regional transportation "bottlenecks," the
growing importance of hubs and market centers, the continued
unbundling of LDC "merchant" (or gas sales or resales) functions from
46
LDC delivery services, and the "de-contracting" of long-term firm
transportation and storage contracts currently held by gas utilities),
the marketplace will create greater opportunities for larger, more
geographically diversified market participants. At the same time, the
marketplace will place increased importance on reducing transaction
costs to enable service providers to offer services at low cost.
Competitive Rates and Services: The Transaction will permit
NiSource to meet the challenges of the increasingly competitive
environment in the utility industry more effectively than either it or
Columbia would alone. The Transaction also will create financial and
operational benefits for customers in the form of lower rates and
better services over the long-term. The Transaction will be presented
to or subject to the approval of the relevant state public service
commissions. Those regulatory bodies will address the Transaction in
the context of its effect on rates and service in each jurisdiction
and NiSource will demonstrate the benefits of the Transaction in the
process of obtaining approvals.
Increased Size and Stability: Shareholders will benefit
over the long-term from the greater financial strength and financial
flexibility which NiSource will obtain. NiSource will be better able
to take advantage of future strategic opportunities and to reduce its
exposure to changes in economic conditions in any particular segment
of its business.
Diversification of Service Territory: The combined service
territories of NiSource and Columbia will be larger and more
geographically diverse than the independent service territories of
each company, reducing the combined company's exposure to changes in
economic, competitive or climatic conditions in any given sector of
the combined service territory relative to the exposure NiSource and
Columbia now face.
Coordination of Diversification Programs: NiSource and
Columbia each have complementary unregulated businesses, and NiSource,
as a stronger financial entity after the Transaction, should be able
to manage and pursue these unregulated businesses more efficiently and
effectively as a result of access to lower-cost capital and
efficiencies achievable through greater size.
Complementary Operational Functions: The combination of
NiSource and Columbia will allow NiSource after the Transaction to
offer customers a more complete menu of service options and a better
operational balance. Combining Columbia's natural gas-related
businesses with NiSource's electric expertise and operations, will
enhance the range and quality of product offerings and services that
can be offered to Columbia's customers. The combined companies will
also be better positioned to manage the fluctuating weather-related
load profiles of their gas distribution utilities.
47
Although some of the anticipated economies and efficiencies
will be fully realizable only on a long-term basis and some of the
potential benefits cannot be precisely estimated, they are properly
considered in determining whether the standards of Section 10(c)(2)
have been met. SEE AMERICAN ELEC. POWER CO., HCAR No. 20633 (July 21,
1978); CENTERIOR ENERGY CORP., HCAR No. 24073, 1986 SEC LEXIS 1655 at
*18 (Apr. 29, 1986) ("[S]pecific dollar forecasts of future savings
are not necessarily required; a demonstrated potential for economies
will suffice even when these are not precisely quantifiable.")
(footnote omitted). SEE ALSO ENERGY EAST CORP., HCAR No. 26976 (Feb.
12, 1999) (authorizing acquisition based on strategic benefits and
potential but presently unquantifiable savings). There is no
requirement in Section 10(c)(2) that the specific dollar estimates of
future savings be large in relation to the gross revenues of the
companies involved. SEE AMERICAN NATURAL GAS CO., HCAR No. 15620
(Dec. 12, 1966).
NiSource is continuing to analyze potential cost savings
resulting from the Transaction. Details will be filed by amendment to
this Application/Declaration.
ii. Integrated Gas Utility System
Under Section 10(c)(2), the Commission must affirmatively
find that the acquisition of Columbia by NiSource "will serve the
public interest by tending towards the economical and the efficient
development of an integrated public-utility system." 15 U.S.C.
Section 79j(c)(2). An "integrated public-utility system" is defined
in Section 2(a)(29), 15 U.S.C. Section 79j(c)(2) to mean:
(B) As applied to gas utility companies, a system
consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated
by being operated as a single coordinated system confined in its
operations to a single area or region, in one or more States, not
so large as to impair (considering the state of the art and the
area or region affected) the advantages of localized management,
efficient operation, and the effectiveness of regulation;
PROVIDED, That gas utility companies deriving natural gas from a
common source of supply may be deemed to be included in a single
area or region.22
22 Unlike the definition of an "integrated electric utility
system" in Section 2(a)(29)(A) of the Act, physical interconnection of
the component parts of a gas utility system is not required. Further,
the Commission has previously recognized that "integrated or
coordinated operations of a gas system under the Act may exist in the
absence of [physical] interconnection." AMERICAN NATURAL GAS CO.,
HCAR No. 15620, 1966 SEC LEXIS 469 at *11 n.5 (Dec. 12, 1966).
48
The combination of Columbia's gas utility operations with
the NiSource gas utility operations will yield an integrated gas-
utility system within the meaning of Section 2(a)(29)(B) of the Act.
Indeed, because Columbia's gas distribution properties form a bridge
between the Midwest and the mid-Atlantic and northeast regions,
bringing NiSource's and Columbia's gas distribution operations
together will forge even more substantial links between NiSource's
Midwestern gas utility operations and its New England operations than
the links that this Commission noted in 1999 in approving NiSource's
acquisition of Bay State.
Single Area Or Region: The gas utility system resulting
from the Transaction will include eight gas utilities located in the
contiguous states of Indiana, Kentucky, Ohio, Pennsylvania, Virginia
and Maryland and two gas utilities located in the contiguous states of
Massachusetts, New Hampshire and Maine. The utilities located in
contiguous states will be effectively interconnected by affiliated and
non-affiliated interstate pipelines and storage. The two groups of
contiguous utilities will likewise be capable of effective integration
through the coordinated use of pipeline and storage capacity and
supply sources they have in common.
Section 2(a)(29)(B) specifically contemplates that "gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region." 15 U.S.C.
Section 79b(a)(29)(B). Moreover, in considering whether an "area or
region" is so large as to impair "the advantages of localized
management, efficient operation, and the effectiveness of regulation,"
the Commission must consider the "state of the art" in the industry.
ID.
The Commission's prior decisions establish that separation
between the states served is not determinative as to whether utility
operations constitute an integrated public utility system. SEE MCN
CORP., HCAR No. 26576 (Sept. 17, 1996) (approving acquisition of an
interest in a gas-utility company by an exempt gas-utility holding
company whose service area is located more than 500 miles distant in a
non-adjoining state); SEMPRA ENERGY, HCAR No. 26971 (Feb. 1, 1999)
(approving natural gas utility operations in California and North
Carolina as a single integrated public-utility system). The
integration of NiSource's Massachusetts, New Hampshire and Maine gas
utility operations and its Indiana gas utility operations has already
been established. This was an essential finding in the Commission
order approving NIPSCO's acquisition of Bay State. NIPSCO INDUS.,
INC., HCAR 26975 (Feb. 10, 1999). With the exception of NiSource's
New England operations the gas distribution operations of Columbia and
NiSource are in contiguous states and, given their location and
reliance on many of the same interstate pipelines, are readily
susceptible to being operated as an integrated system.
Common Source Of Supply: Historically, in determining
whether two distant gas companies share a "common source of supply,"
49
the Commission has placed primary importance on whether the gas supply
of the two companies is derived from the same gas producing areas (or
basins), recognizing that the most significant economies and
efficiencies that two gas utilities can achieve is through the
coordination and management of gas supply. The Commission has also
considered whether the two entities are served by a common pipeline.
Further, the Commission has found an integrated system to exist where
two entities purchase their gas from different pipelines which
originate in the same gas producing area and/or interconnect at
various points along the transportation route. 23
The NiSource and Columbia gas utility systems will
functionally perform as a coordinated system. They now purchase gas
from common sources of supply (including the onshore and offshore
Texas and Louisiana producing region and the mid-Continent region) and
will continue to do so. Moreover, they will each have enhanced
opportunities to increase their respective purchases of Western
Canadian Sedimentary Basin gas sourced through the Chicago market
center. The NiSource and Columbia gas utility systems currently hold
firm transportation service agreements on a number of the same
interstate pipelines, including ANR, Panhandle Eastern, Tennessee Gas,
Texas Gas, Texas Eastern and Transco. The NiSource Midwestern gas
utilities are physically linked through Crossroads' interconnections
with Columbia Transmission, Trunkline and Panhandle Eastern with a
transmission system (Columbia Transmission) that serves each of the
Columbia gas distribution utilities. The Columbia and NiSource gas
distribution utilities also make use of other, regional pipelines to
transport and deliver Canadian and Appalachian-sourced supplies,
including Crossroads, National Fuel and CNG. In addition, gas
purchased by the unregulated marketing affiliates of each of NiSource
and Columbia has been transported by NiSource subsidiary Crossroads
for further delivery to utility customers served by NiSource's and
Columbia's gas public utilities located in Indiana, Ohio and
Pennsylvania. These links, and the increased presence the combined
NiSource and Columbia utilities will have at Midwestern, mid-Atlantic
and northeastern market centers, will facilitate coordinated
management of interstate transportation and gas supplies. Additional
efficiencies and arbitrage opportunities will be realized over time
through the combined companies' use of a single data management system
to record gas transaction data.
Trading "hubs" and market centers have rapidly grown in
importance as a result of the construction of new pipeline capacity,
the unbundling of interstate transportation from gas sales, the
development of high deliverability salt cavern storage gas storage
facilities and local distribution companies' "de-contracting" of firm
pipeline capacity. Trading hubs and market centers now provide market
participants with access to gas supplies sourced from multiple, widely
23 SEE MCN CORP., HCAR No. 26576 (Sept. 17, 1996); CENTRAL POWER
CO., et al., HCAR No. 2471 (Jan. 7, 1941).
50
separated producing areas, by way of any number of interconnected
interstate pipeline facilities at a manageable number of common
geographic points. These hubs and centers have contributed to the
establishment of a fully integrated, competitive marketplace in which
real-time pricing is available.24
Using many of the same hubs and market centers, the NiSource
and Columbia gas public utilities and their affiliates have daily
opportunities to coordinate and manage their gas supply and
transportation portfolios. These opportunities will increase in
number and scope as a consequence of the combination of the two groups
of distribution companies. The result will be increased efficiency
and economy, and a greatly enhanced ability to support retail
unbundling and performance-based ratemaking initiatives that will
benefit the distribution companies' customers and their shareholders
alike. So, for example, gas purchased, sold or exchanged at the
Lebanon Hub in Ohio can satisfy the gas distribution utility
requirements of NiSource's Indiana gas utility subsidiaries,
Columbia's gas distribution companies in the mid-Atlantic region and
NiSource's gas distribution subsidiaries in New England. By utilizing
existing NiSource capacity and deliverability entitlements at the Egan
Storage hub in Louisiana, the various NiSource and Columbia
distribution utilities can achieve additional pricing certainty and
operational flexibility, and can share these benefits through their
common use of the Columbia Gulf/Columbia Transmission, ANR,
Trunkline/Panhandle Eastern, Tennessee Gas and Texas Gas systems.
Moreover, upon the completion of various proposed pipelines and/or
pipeline expansions from the Chicago area to the eastern U.S. markets,
the combined NiSource and Columbia distribution companies, either
directly or through interstate pipeline affiliates, will have direct
access to all gas supplies entering the Chicago market center.
Industry studies indicate that the importation of low-cost
western Canadian gas is reshaping the dynamics of gas supply in
certain U.S. markets (in particular the Midwest and Northeast).25
Those studies conclude that, in the future, there will be much more of
a west-to-east flow of gas to the Northeast. With the expansion of
import capacity into the Chicago area, it is projected that the
Midwest will experience an excess supply situation. This expectation
24 As a result of the evolution of an integrated, competitive
marketplace for both supply and transportation, the duration of
contracts has shortened considerably. In fact, local distribution
companies now purchase significant amounts of their gas supply under
short-term (E.G., daily) arrangements. Some local distribution
companies are as a corollary reducing their exposure under long-term
firm transportation contracts (a process known as "de-contracting").
25 SEE, E.G., Energy Information Administration, NATURAL GAS 1998:
ISSUES AND TRENDS, Ch. 5 (Natural Gas Pipeline Network: Changing and
Growing), at 109-27 (Washington, D.C. May 1999).
51
has lead to various regional pipeline expansion proposals between the
Midwest and Northeast, all of which are designed to move Midwest
supplies to the supply-constrained Northeast markets.26 As a
consequence, it is likely that the Midwest itself will become an
important supply region for gas moving to the Northeast. The
combination of the NiSource and Columbia systems will produce a
single, integrated gas utility system, whose components will be linked
by affiliated and third party interstate pipelines, in an essentially
unbroken chain extending from the northwestern corner of Indiana
through the Midwest to the mid-Atlantic region and east into New
England.
State Of The Art: Any determination of the appropriate size
of the area or region calls for consideration of the "state of the
art" in the gas industry. This "state of the art" continues to evolve
and change, primarily as a result of decontrol of wellhead prices, the
continuing development of an integrated national gas transportation
network, the emergence of natural gas marketers and brokers, and the
"un-bundling" of the commodity and transportation functions of
pipelines in response to various FERC initiatives.27 Of particular
importance has been the formation of a national network of trading
hubs at locations where interstate pipelines intersect.28 Today,
26 See generally "THE OUTLOOK FOR IMPORTED NATURAL GAS," INGAA
Foundation, Inc. Report No. F-9705 (prepared by the Brattle Group,
1997). INGAA notes (at II-21 to II-22) that 5.4 Bcf/day of import
capacity additions into the Midwest have been proposed, and that over
4 Bcf/day of pipeline capacity additions have been proposed to
facilitate the flow of gas from the Midwest to the Northeast. Most of
these projects are planned to come on line between 1998-2000.
27 The Commission has taken notice of the regulatory and
technological changes that have reshaped the natural gas industry over
the past two decades. SEE 1995 Report, at 29-38. The 1995 Report
recommended that the Commission "interpret the single area or region'
requirement [of Section 2(a)(29)] flexibly, recognizing technical
advances, consistent with the purposes and provisions of the Act."
ID. at 73.
28 The development of trading hubs and market centers was the
direct outgrowth of FERC's Order 636, which required interstate
pipelines to separate, or "un-bundle," the commodity and
transportation and storage functions of the interstate pipelines. SEE
REGULATION OF NATURAL GAS PIPELINES AFTER PARTIAL WELLHEAD DECONTROL,
Order No. 636, 57 Fed. Reg. 13,267 (Apr. 16, 1992). FERC has promoted
the development of trading hubs as a means and location for providing
services that customers of the interstate pipelines (I.E., shippers)
need in order to manage their portfolios of gas supply,
transportation, and storage, all of which can now be contracted
separately. Today, there are more than 39 trading centers and market
hubs in operation. For a comprehensive analysis of the role of market
52
trading activity conducted at hubs plays an increasingly vital role in
the overall management of the assets in a gas portfolio (supply,
transportation and storage). The hubs frequently utilized as trading
centers for gas supply destined for the Midwest, mid-Atlantic, and New
England markets are listed below:
Name of Hub Location Interconnecting Pipelines
----------- -------- -------------------------
Lebanon Ohio ANR, CNG, Columbia Transmission,
Panhandle Eastern, Texas Gas,
Texas Eastern
Portland Tennessee Tennessee Gas, Midwestern Gas
Transmission Co.
Maumee Ohio ANR, Columbia Transmission,
Panhandle Eastern
Leidy Pennsylvania Transco, Texas Eastern, CNG,
National Fuel
Ellisburg Pennsylvania Tennessee Gas, National Fuel
Chicago Market Illinois ANR, NGPL, Crossroads/Columbia,
Midwestern to Tennessee Gas,
Northern Border, Alliance
(proposed), TriState or Vector
to TransCanada to Millennium
(proposed), ANR to Independence
to National Fuel and Transco
(proposed)
Henry Hub Louisiana ANR, NGPL, Texas Gas, Trunkline,
Transco, Columbia Gulf
Perryville Louisiana Tennessee Gas, Texas Gas,
Reliant Gas Transmission
Broad Run West Virginia Columbia Transmission, Tennessee
Gas
Trading hubs (including all of those listed above)
essentially function as physical transfer points between intersecting
pipelines, where shippers (I.E., buyers and sellers) and traders can
sell, exchange or trade gas or pipeline capacity or redirect
hubs and trading centers, see ENERGY INFORMATION ADMINISTRATION,
NATURAL GAS 1996: ISSUES AND TRENDS, DOE/EIA-0560(96).
53
deliveries to a different pipeline. Further, various types of
unbundled services are typically available at trading hubs, such as
temporary storage, parking and loaning of gas, and balancing. Because
of the role played today by market hubs and market centers,
coordination of the operations of two or more geographically
diversified gas companies is no longer dependent solely upon having
contractual capacity on the same interstate pipelines, so long as the
companies both have access to one or more common trading hubs.
Importantly, trading hubs now allow gas distribution
companies operating in a much larger area or region of the country to
realize operating economies and efficiencies from coordinated
operation that were once achievable only by contiguous or nearly
contiguous gas companies supplied by the same interstate pipelines.
In fact, as discussed below, the opportunities to achieve operating
economies may be even greater where companies seeking to combine have
significantly different load profiles (E.G., non-coincident seasonal
peaks, a substantially different customer mix, etc.).29 This logic
applies with even greater force where, as in this case, one of the
companies (NiSource) has gas distribution operations in a major gas
market center (the Chicago market center) and in a region which
industry forecasts expect to experience significant growth in demand
(the U.S. northeast) while others (the Columbia distribution
utilities) are located between the market center and the high growth
area.
Because the NiSource and Columbia distribution utilities
share access through their respective pipeline transporters to several
industry-recognized market and supply-area hubs, they will have the
ability physically to coordinate and manage their portfolios of
supply, transportation and storage. One example of this is the
potential for coordination using the Egan Storage facility and common
interconnecting pipelines described above. NiSource and Columbia also
have access to the Henry Hub in southern Louisiana via capacity on the
ANR, NGPL, Trunkline, Texas Gas, Transco and Columbia Gulf pipelines.
The Henry Hub is the recognized center for natural gas futures trading
in the U.S. Through nine interstate and four intrastate pipeline
interconnections, market participants such as Columbia and NiSource's
gas distribution utilities and other affiliates can physically
support, if necessary, the utilization of financial derivatives as a
means of managing price volatility.
Moreover, through interconnections via Crossroads and third
party pipelines between NiSource's midwestern gas distribution
utilities and the Columbia Transmission system, both NiSource's and
Columbia's gas public utilities will benefit from the ability to share
and optimize storage capacity each company owns or has under contract.
29 For example, due to the normal effects of the west-to-east
"weather lag," Bay State's demand pattern tends to follow the NiSource
demand pattern by, on average, 24 to 48 hours.
54
As previously stated, NiSource has access to "high deliverability"
salt dome storage capacity held by Northern Indiana in Texas and
Louisiana, while Columbia's distribution companies have contractual
rights to use the substantial storage capacity operated by Columbia
Transmission. Similar opportunities to optimize contractual
entitlements to capacity and deliverability exist with respect to the
LNG storage capacity which the NiSource and Columbia distribution
companies own or have under contract. Shared access to the various
classes of gas storage facilities would provide NiSource and Columbia
with an important gas balancing capability, which will allow the
combined companies to manage fluctuating weather-related load profiles
on their various distribution systems.
Finally, by making enhanced use of the Crossroads/Columbia
Transmission interconnect, Columbia's distribution companies would
gain direct access to the Chicago market center. Such access will be
an important gas supply resource and a vital risk management tool as
the Chicago market center becomes an increasingly important source of
gas for all eastern U.S. markets.
No Impairment: The resulting integrated gas system to be
formed by the combination of Columbia's gas properties with those of
NiSource will not be "so large as to impair (considering the state of
the art and the area or region affected) the advantages of localized
management, efficient operation, and the effectiveness of regulation."
In this case, the separate corporate identity and local
headquarters of each of Columbia's five natural gas public utility
subsidiaries will be maintained. Further, following the Transaction,
each of the Columbia and NiSource public utilities will remain subject
to regulation as to rates, service, and other matters by the
regulatory agencies in each of the states in which they provide public
utility services.
4. Section 10(f) State Laws and Section 11
Section 10(f) of the Act provides that:
The Commission shall not approve any acquisition as to which
an application is made under this section unless it appears
to the satisfaction of the Commission that such State laws
as may apply in respect to such acquisition have been
complied with, except where the Commission finds that
compliance with such State laws would be detrimental to the
carrying out of the provisions of section 11.
15 U.S.C. Section 79k(f). As described in Item 4 of this
Application/Declaration, NiSource and Acquisition Corp. will comply
with all applicable state laws related to the Transaction.
55
B. INTRA-SYSTEM PROVISION OF SERVICES
In addition to requesting that the Commission find that
Corporate Services meets the organizational and operational
requirements of Section 13(b) for subsidiary service companies,
NiSource also requests exemptions from the provisions of Rules 90 and
91, and the at-cost requirements contained therein, in connection with
services provided by Corporate Services to any affiliated qualifying
facilities ("QFs"), independent power producers ("IPPs"), exempt
wholesale generators ("EWGs") and foreign utility companies ("FUCOs").
As described in more detail below, NiSource believes these exemptions
will help these companies compete more effectively for the provision
of services to such entities, which are either majority owned by
unaffiliated third parties (eliminating the potential for abusive
affiliate transactions) or are otherwise adequately regulated with
respect to affiliated transactions and do not otherwise present the
concerns for which the Commission developed its at-cost requirements.
The Commission has granted similar exemptions to existing registered
holding companies. All other services provided by NiSource system
companies to other NiSource system companies will be in accordance
with the requirements of Section 13 of the Act, unless otherwise
exempted by the Commission or the rules promulgated under the Act.
1. Corporate Services
As described above, although NiSource may maintain Columbia
Energy Services as a separate service company during a transitional
period, NiSource currently intends to combine Columbia Energy Services
with NiSource's corporate service company. Corporate Services will
provide Northern Indiana, Kokomo Gas, NIFL, Columbia Ohio, Columbia
Pennsylvania, Columbia Virginia, Columbia Kentucky and Columbia
Maryland, pursuant to an appropriate service agreement, with a variety
of administrative, management and support services, including services
relating to planning, transportation, materials management, facilities
and real estate, accounting, budgeting and financial forecasting,
finance and treasury, rates and regulation, legal, internal audit,
corporate communications, environmental, fuel procurement, corporate
planning, investor relations, human resources, marketing and customer
services, information systems, information technology management,
general administrative and executive management services and other
services. In accordance with the service agreement, any services
provided by Corporate Services will be directly assigned, distributed
or allocated by activity, project, program, work order or other
appropriate basis. To accomplish this, employees of Corporate
Services will record transactions utilizing the existing data and
accounting systems of each client company. Costs of Corporate
Services will be accumulated in accounts and directly assigned,
distributed and allocated to the appropriate client company in
accordance with the guidelines set forth in the service agreement.
NiSource is currently developing the system and procedures necessary
to implement the Commission's rules.
Corporate Services' accounting and cost allocation methods
and procedures are structured so as to comply with the Commission's
56
requirements for service companies in registered holding company
systems. Its billing system uses or will use the "Uniform System of
Accounts for Mutual Service Companies and Subsidiary Service
Companies" established by the Commission for service companies of
registered holding company systems.
As compensation, the service agreement would provide that
the client company will pay to Corporate Services all costs which
reasonably can be identified and related to particular services
performed by Corporate Services. Where more than one client company
has received benefits from a service performed by Corporate Services,
costs will be directly assigned, distributed or allocated, between or
among such client companies on a basis reasonably related to the
services performed. Therefore, charges for all services provided by
Corporate Services to affiliated utility companies will be on an "at
cost" basis in accordance with Rules 90 and 91 of the Act.
NiSource has not yet determined whether Corporate Services
will perform services to NiSource's and Columbia's non-utility
subsidiaries under the service agreement or a separate non-utility
service agreement. Nevertheless, services provided by Corporate
Services to non-utility affiliates will also be charged on an "at
cost" basis in accordance with Rules 90 and 91 of the Act, except as
authorized by the Commission to be provided at fair market value.
Section 13(b) of the Act allows the Commission to exempt
transactions, by rule, regulation or order, from the provisions of
Section 13(b) and the rules promulgated thereunder if such
transactions:
(1) are with any associate company which does not
derive, directly or indirectly, any material part of
its income from sources within the United States and
which is not a public utility company operating within
the United States or (2) involve special or unusual
circumstances or are not in the ordinary course of
business.
15 U.S.C. Section 79m(b). The Commission grants such an exemption to
permit non-utility subsidiaries of a registered holding company to
provide certain services to FUCOs, EWGs, IPPs and QFs at market-based
rates.30 In addition, in the 1995 Report, the Division recommended
that "the SEC should also issue exemptive orders under Section 13
allowing more nonutility subsidiaries to charge market rates to
nonutility affiliates."31 The Commission's primary concern under
30 See, E.G., ENTERGY CORP., HCAR No. 26322 (June 30, 1995);
GENERAL PUB. UTILS. CORP., HCAR No. 26307 (June 14, 1995); THE
SOUTHERN CO., HCAR No. 26212 (Dec. 30, 1994).
31 1995 Report at 102.
57
Section 13 is to protect utility subsidiaries in a registered holding
company system from abusive cross-subsidization transactions with non-
utility affiliates. Exemptions from Rules 90 and 91 for transactions
solely between non-utility affiliates will not interfere with the
financial integrity of the utility affiliates, but will benefit the
holding company system by permitting it to offer competitively priced
services based on market considerations. Therefore, Corporate
Services requests that the Commission grant an exemption from the
provisions of Rules 90 and 91, and the at-cost requirement contained
therein, in order for Corporate Services to provide services to
associate FUCOs, EWGs, IPPs and QFs. No services will be provided at
market-based rates to a FUCO, EWG, IPP or QF selling electricity to
Northern Indiana unless authorized by the Act or the Commission.
No change in the organization of Corporate Services, the
type and character of the client companies, the methodology for
allocating costs to client companies, or the scope and character of
the services to be rendered subject to Section 13 of the Act, or any
rule promulgated by the Commission thereunder, shall be made unless
and until Corporate Services shall have first provided the Commission
with written notice of the proposed change at least 60 days prior to
the proposed effective date. If, upon the receipt of such notice, the
Commission notifies Corporate Services within the 60-day period that a
question exists as to whether the proposed change is consistent with
the provisions of Section 13 of the Act, or of any rule promulgated by
the Commission thereunder, then the proposed change will not become
effective unless and until Corporate Services has filed with the
Commission an appropriate declaration regarding the proposed change
and the Commission has permitted the declaration to become effective.
NiSource submits that its service agreements will be
structured in a manner which complies with Section 13 of the Act and
the Commission's rules and regulations thereunder and requests the
Commission's approval of these agreements.
Rule 88 provides that "[a] finding by the Commission that a
subsidiary company of a registered holding company . . . is so
organized and conducted or to be conducted, as to meet the
requirements of section 13(b) of the Act with respect to reasonable
assurance of efficient and economical performance of services or
construction or sale of goods for the benefit of associate companies,
at cost fairly and equitably allocated among them (or as permitted by
[Rule 90]), will be made only pursuant to a declaration filed with the
Commission on Form U-13-1, as specified" in the instructions for that
form, by such company or the persons proposing to organize it. 17
C.F.R. Section 250.88. Notwithstanding the language of Rule 88, the
Commission has recently made findings under Section 13(b) based on
information set forth in an Application/Declaration or Form U-1,
without requiring the formal filing of a Form U-13-1. SEE CINERGY
CORP., HCAR No. 26146 (Oct. 21, 1994); UNITIL CORP., HCAR No. 25524
(April 24, 1992). In this Application/Declaration, NiSource submits
the same information as would be submitted in a Form U-13-1.
58
Accordingly, NiSource submits to the Commission that the
filing of a Form U-13-1 is unnecessary, or, alternatively, that this
Application/Declaration should be deemed to constitute the filing of
Form U-13-1 for purposes of Rule 88.
ITEM 4. REGULATORY APPROVALS
--------------------
Approval of the Transaction is required, or may be required,
from, and the Transaction will be reviewed by, the following state
public utility commissions: Public Utilities Commission of Ohio,
Virginia State Corporation Commission, Maryland Public Service
Commission, Pennsylvania Public Utility Commission, Kentucky Public
Service Commission, Maine Public Utilities Commission and New
Hampshire Public Utilities Commission. In addition, certain aspects
of the Transaction (the transfer of control of Columbia's FERC-
jurisdictional power marketing subsidiaries to NiSource) are subject
to the jurisdiction of FERC under Section 203 of the Federal Power
Act. The Transaction is also subject to the notification and
reporting requirements of the HSR Act. The HSR waiting period expired
on August 4, 1999. No other state or federal commission has
jurisdiction over the Transaction.
ITEM 5. PROCEDURE
---------
NiSource and Acquisition Corp. respectfully request the
Commission to expedite its approval of this Application/Declaration.
A proposed form of notice is attached hereto as Exhibit H-1. NiSource
hereby waives a recommended decision by a hearing officer or any other
responsible officer of the Commission and consents that the Division
of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the
Transaction.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
A. EXHIBITS
--------
A-1 Amended and Restated Articles of Incorporation of
NiSource Inc. dated as of May 13, 1998, as amended
on May 20, 1998 and April 14, 1999.
A-2 Amended and Restated By-Laws of NiSource Inc.
dated as of April 14, 1999.
A-3 Articles of Incorporation of Columbia. (To be
filed by amendment)
A-4 By-Laws of Columbia. (To be filed by amendment)
59
A-5 Articles of Incorporation of Acquisition Corp.
A-6 By-Laws of Acquisition Corp.
B-1 Service Agreement. (To be filed by amendment)
B-2 Commitment Letter dated June 23, 1999 to NiSource
Inc. from Credit Suisse First Boston Corporation
and Barclays Bank PLC. (Incorporated by reference
to Exhibit 11(b)(1) to the Schedule 14D-1 filed by
CEG Acquisition Corp. and NiSource Inc. on June
25, 1999).
B-3 Credit Agreement and related documentation. (To
be filed by amendment)
B-4 Support Agreement dated April 4, 1989, as amended
on May 15, 1989, December 10, 1990 and February
14, 1991 between NIPSCO Industries, Inc. (now
known as NiSource Inc.) and NIPSCO Capital
Markets, Inc. (now known as NiSource Capital
Markets, Inc.). (Incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form
S-3 filed by NIPSCO Capital Markets, Inc. and
NIPSCO Industries, Inc. on November 13, 1992
(Registration No. 33-54516)).
B-5 Agreement and Documents Relevant to the Merger of
Acquisition Corp. and Columbia. (To be filed by
amendment)
C-1 Schedule 14D-1 filed by CEG Acquisition Corp. and
NiSource Inc. to acquire outstanding shares of
Columbia Energy Corp. (Filed with the Commission
on June 25, 1999, File No. 510049 and incorporated
by reference herein)
D-1.1 Application to the FERC under the Federal Power
Act. (To be filed by amendment)
D-1.2 Order of the FERC. (To be filed by amendment)
D-2.1 Application to the Virginia Commission. (To be
filed by amendment)
D-2.2 Order of the Virginia Commission. (To be filed by
amendment)
D-3.1 Application to the Maryland Commission. (To be
filed by amendment)
60
D-3.2 Order of the Maryland Commission. (To be filed by
amendment)
D-4.1 Application to the Pennsylvania Commission. (To
be filed by amendment)
D-4.2 Order of the Pennsylvania Commission. (To be
filed by amendment)
D-5.1 Application to the Ohio Commission. (To be filed
by amendment)
D-5.2 Order of the Ohio Commission. (To be filed by
amendment)
D-6.1 Application to the Kentucky Commission. (To be
filed by amendment)
D-6.2 Order of the Kentucky Commission. (To be filed by
amendment)
D-7.1 Application to the Maine Commission. (To be filed
by amendment)
D-7.2 Order of the Maine Commission. (To be filed by
amendment)
D-8.1 Application to the New Hampshire Commission. (To
be filed by amendment)
D-8.2 Order of the New Hampshire Commission. (To be
filed by amendment)
E-1 Map of service territory of NiSource. (To be
filed by amendment)
E-2 Map of service territory of Columbia. (To be
filed by amendment)
E-3 Map of service territory of Bay State. (To be
filed by amendment)
E-4 NiSource Corporate Organization Chart. (To be
filed by amendment)
E-5 Columbia Corporate Organization Chart. (To be
filed by amendment)
E-6 Corporate Organization Chart of Companies after
Merger. (To be filed by amendment)
F-1 Opinion of Counsel. (To be filed by amendment)
61
F-2 Past Tense Opinion of counsel. (To be filed by
amendment)
G-1 Annual Report of NiSource on Form 10-K for the
year ended December 31, 1998. (Filed with the
Commission on March 25, 1999, File No. 1-9776 and
incorporated by reference herein)
G-2 Annual Report of Columbia on Form 10-K for the
year ended December 31, 1998. (Filed with the
Commission on March 26, 1999, File No. 1-1098 and
incorporated by reference herein)
G-3 Quarterly Report on Form 10-Q of NiSource for the
quarter ended March 31, 1999. (Filed with the
Commission on May 13, 1999, File No.1-9779 and
incorporated by reference herein)
G-4 Quarterly Report on Form 10-Q of Columbia for the
quarter ended March 31, 1999. (Filed with the
Commission on May 13, 1999, File No. 1-1098 and
incorporated by reference herein)
G-5 Quarterly Report on Form 10-Q of NiSource for the
quarter ended June 30, 1999. (Filed with the
Commission on August 13, 1999, File No.1-9779 and
incorporated by reference herein)
G-6 Quarterly Report on Form 10-Q of Columbia for the
quarter ended June 30, 1999. (Filed with the
Commission on August 11, 1999, File No. 1-1098 and
incorporated by reference herein)
G-7 Form U-3A-2 of NiSource for the year ended
December 31, 1998. (Filed with the Commission on
February 26, 1999, File No. 69-340 and
incorporated by reference herein)
G-8 Form U5S of Columbia for the year ended December
31, 1998. (Filed with the Commission on April 30,
1999, File No. 101098 and incorporated by
reference herein)
H-1 Proposed Form of Notice.
I-1 Divestiture Study of Northern Indiana. (To be
filed by amendment)
I-2 Divestiture Study of Water Utilities. (To be
filed by Amendment)
62
B. FINANCIAL STATEMENTS
--------------------
FS-1 NiSource Unaudited Pro Forma Condensed
Consolidated Balance Sheet. (To be filed by
amendment)
FS-2 NiSource Unaudited Pro Forma Condensed
Consolidated Statement of Income. (To be filed by
amendment)
FS-3 Notes to NiSource Unaudited Pro Forma Condensed
Consolidated Financial Statements. (To be filed
by amendment)
FS-4 NiSource Consolidated Balance Sheet as of December
31, 1998. (Included in Exhibit G-1)
FS-5 NiSource Consolidated Statement of Income for the
twelve months ended December 31, 1998. (Included
in Exhibit G-1)
FS-6 Columbia Consolidated Balance Sheet as of December
31, 1998. (Included in Exhibit G-2)
FS-7 Columbia Consolidated Statement of Income for the
twelve months ended December 31, 1998. (Included
in Exhibit G-2)
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
---------------------------------------
The Transaction does not involve a "major federal
action" nor will it "significantly affect the quality of the
human environment" as those terms are used in section
102(2)(C) of the National Environmental Policy Act. The
Transaction that is the subject of this
Application/Declaration will not result in changes in the
operation of NiSource or its subsidiaries that will have an
impact on the environment. NiSource is not aware of any
federal agency that has prepared or is preparing an
environmental impact statement with respect to the
Transaction.
63
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly
caused this Application/Declaration filed herein to be signed on its
behalf by the undersigned thereunto duly authorized.
NISOURCE INC.
By: /s/ Gary L. Neale
-------------------------
Name: Gary L. Neale
Title: Chairman and President
CEG ACQUISITION CORP.
By: /s/ Gary L. Neale
-------------------------
Name: Gary L. Neale
Title: Chairman and President
Date: September 20, 1999
EXHIBIT A-1
-----------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
NISOURCE INC.
ARTICLE I
NAME
The name of the Corporation is NISOURCE Inc.
ARTICLE II
PERIOD OF DURATION
The period during which the Corporation shall continue is
perpetual.
ARTICLE III
PURPOSE AND POWERS
PURPOSE. The purpose for which the Corporation is formed is the
transaction of any or all lawful business for which corporations may
be incorporated under the Act.
POWERS. The Corporation shall have the capacity to act possessed
by natural persons and, subject to any limitations or restrictions
imposed by the Act, other law or the Articles of Incorporation, shall
have the power to do all acts and things necessary, convenient or
expedient to carry out the purposes for which it is formed.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The street address of the Corporation's registered office in
Indiana and the name of its registered agent at that office is Nina M.
Rausch, 5265 Hohman Avenue, Hammond, Indiana 46320.
ARTICLE V
AUTHORIZED SHARES
A. AUTHORIZED CAPITAL SHARES.
The total number of shares which the Corporation shall have the
authority to issue shall be 420,000,000 shares, of which 400,000,000
shares shall be Common Shares without par value and 20,000,000 shares
shall be Preferred Shares without par value.
B. PREFERRED SHARES.
Preferred Shares may be issued from time to time in one or more
series as may from time to time be determined by the Board of
Directors. Each series shall be distinctly designated. All shares of
any one series of the Preferred Shares shall be alike in every
particular, except that there may be different dates from which
dividends thereon, if any, shall be cumulative, if made cumulative.
The powers, preferences and relative, participating, optional and
other rights of each such series, and the qualifications, limitations
or restrictions thereof, if any, may differ from those of any other
series at any time outstanding. Subject to the provisions of Section
C of this ARTICLE V, the Board of Directors is hereby expressly
granted authority to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of Preferred
Shares, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, if any, of such series,
including, but without limiting the generality of the foregoing, the
following:
(a) the distinctive designation of, and the number of
Preferred Shares which shall constitute the series, which number
may be increased (except as otherwise fixed by the Board of
Directors) or decreased (but not below the number of shares
thereof then outstanding) from time to time by action of the
Board of Directors;
(b) the rate and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the series
shall be paid, the extent of preferences or relation, if any, of
such dividends to the dividends payable on any other class or
classes of shares of the Corporation, or on any series of
Preferred Shares or of any other class or classes of shares of
the Corporation and whether such dividends shall be cumulative or
noncumulative;
(c) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same for, shares
of any other class or classes of shares of the Corporation, or
any series of Preferred Shares, and the terms and conditions of
such conversion or exchange;
(d) whether shares of the series shall be subject to a
redemption price or prices including, without limitation, a
redemption price or prices payable in Common Shares and the time
or times at which, and the terms and conditions upon which shares
of the series may be redeemed;
(e) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
2
consolidation, distribution or sale of assets, dissolution or
winding up of the Corporation;
(f) the terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of the series; and
(g) the voting powers, if any, of the holders of shares of
the series which may, without limiting the generality of the
foregoing, include (i) the right to more or less than one vote
per share on any or all matters voted upon by the shareholders
and (ii) the right to vote, as a series by itself or together
with other series of Preferred Shares or together with all series
of Preferred Shares as a class, upon such matters, under such
circumstances and upon such conditions as the Board of Directors
may fix, including, without limitation, the right, voting as a
series by itself or together with other series of Preferred
Shares or together with all series of Preferred Shares as a
class, to elect one or more directors of this Corporation in the
event there shall have been a default in the payment of dividends
on any one or more series of Preferred Shares or under such other
circumstances and upon such conditions as the Board of Directors
may determine.
No holder of any shares of any series of Preferred Shares shall
be entitled to vote for the election of directors or in respect of any
other matter except as may be required by the Indiana Business
Corporation Law, as amended, or as is permitted by the resolution or
resolutions adopted by the Board of Directors authorizing the issue of
such series of Preferred Shares.
C. COMMON SHARES.
1. After the requirements with respect to the preferential
dividends on Preferred Shares (fixed in accordance with the provisions
of Section B of this ARTICLE V), if any, shall have been met and after
this Corporation shall have complied with all the requirements, if
any, with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of Section B of this ARTICLE V) and subject further to any
other conditions which may be fixed in accordance with the provisions
of Section B of this ARTICLE V, then, but not otherwise, the holders
of Common Shares shall be entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors.
2. After distribution in full of the preferential amount (fixed
in accordance with the provisions of Section B of this ARTICLE V), if
any, to be distributed to the holders of Preferred Shares in the event
of voluntary or involuntary liquidation, distribution or sale of
assets, dissolution or winding up of the Corporation, the holders of
the Common Shares shall be entitled to receive all the remaining
assets of the Corporation, tangible and intangible, of whatever kind
3
available for distribution to shareholders, ratably in proportion to
the number of Common Shares held by each.
3. Except as may otherwise be required by law, these Articles of
Incorporation or the provisions of the resolution or resolutions as
may be adopted by the Board of Directors pursuant to Section B of this
ARTICLE V, each holder of Common Shares shall have one vote in respect
of each Common Shares held by such holder on each matter voted upon by
the shareholders and any such right to vote shall not be cumulative.
D. OTHER PROVISIONS.
1. The relative powers, preferences, and rights of each series
of Preferred Shares in relation to the powers, preferences and right
of each other series of Preferred Shares shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Section B of this
ARTICLE V, and the consent by class or series vote or otherwise, of
the holders of the Preferred Shares or such of the series of the
Preferred Shares as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Shares whether the powers, preferences and rights
of such other series shall be fixed by the Board of Directors as
senior to, or on a parity with, powers, preferences and rights of such
outstanding series, or any of them, provided, however, that the Board
of Directors may provide in such resolution or resolutions adopted
with respect to any series of Preferred Shares that the consent of the
holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall
be required for the issuance of any or all other series of Preferred
Shares.
2. Subject to the provisions of Paragraph 1 of this Section D,
shares of any series of Preferred Shares may be issued from time to
time as the Board of Directors shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
3. Common Shares may be issued from time to time as the Board of
Directors shall determine and on such terms and for such consideration
as shall be fixed by the Board of Directors.
4. No holder of any of the shares of any class or series of
shares or securities convertible into such shares of any class or
series of shares, or of options, warrants or other rights to purchase
or acquire shares of any class or series of shares or of other
securities of the Corporation shall have any preemptive right to
purchase, acquire or subscribe for any unissued shares of any class or
series or any additional shares of any class or series to be issued by
reason of any increase of the authorized capital shares of the
Corporation of any class or series, or bonds, certificates of
indebtedness, debentures or other securities convertible into or
exchangeable for shares or any class or series, or carrying any right
4
to purchase or acquire shares of any class or series, but any such
unissued shares, additional authorized issue of shares of any class or
series of shares or securities convertible into or exchangeable for
shares, or carrying any right to purchase or acquire shares, may be
issued and disposed of pursuant to resolution of the Board of
Directors to such persons, firms, corporations or associations, and
upon such terms as may be deemed advisable by the Board of Directors
in the exercise of its sole discretion.
5. The Corporation reserves the right to increase or decrease
its authorized capital shares, or any class or series thereof, or to
reclassify the same and to amend, alter, change or repeal any
provision contained in the Articles of Incorporation, or in any
amendment thereto, in the manner now or hereafter prescribed by law,
but subject to such conditions and limitations as are hereinbefore
prescribed, and all right conferred upon shareholders in the Articles
of Incorporation of this Corporation, or any amendment thereto, are
granted subject to this reservation.
6. Unless any statute of the State of Indiana shall expressly
provide to the contrary and subject to the limitations hereinbefore
set forth in this ARTICLE V, the Corporation may acquire, hold and
dispose of any of its shares of any class heretofore issued and
outstanding.
E. SERIES A JUNIOR PARTICIPATING PREFERRED SHARES.
1. This Section E of the ARTICLE V hereby creates a series of
Preferred Shares and hereby states the designation and number of
shares, and fixes the relative powers, preferences and rights of such
series.
2. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Shares" (the
"Series A Preferred Shares") and the number of shares constituting the
Series A Preferred Shares shall be 2,000,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of Series A
Preferred Shares to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Shares.
3. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of
any series of Preferred Shares (or any similar shares) ranking
prior and superior to the Series A Preferred Shares with respect
to dividends, the holders of Series A Preferred Shares, in
preference to the holders of Common Shares and of any other
junior shares, shall be entitled to receive, when, as and if
5
declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the 20th
day of February, May, August and November in each year (each such
date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of
Series A Preferred Shares, in an amount per share (rounded to the
nearest cent) equal to the greater of (i) $26 or (ii) subject to
the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable
in Common Shares or a subdivision of the outstanding Common
Shares (by reclassification or otherwise), declared on the Common
Shares since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any Series A Preferred Share or
fraction of a Series A Preferred Share. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Shares payable in Common Shares, or effect a subdivision
or combination or consolidation of the outstanding Common Shares
(by reclassification or otherwise than by payment of a dividend
in Common Shares) into a greater or lesser number of Common
Shares, then in each such case the amount to which holders of
Series A Preferred Shares were entitled immediately prior to such
event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator
of which is the number of Common Shares outstanding immediately
after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such
event.
(b) The Corporation shall declare a dividend or
distribution on the Series A Preferred Shares as provided in
paragraph 3(a) of the Section E immediately after it declares a
dividend or distribution on the Common Shares (other than a
dividend payable in Common Shares); provided that, in the event
no dividend or distribution shall have been declared on the
Common Shares during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $26 per share on the Series A Preferred
Shares shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding Series A Preferred Shares from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
6
determination of holders of Series A Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Preferred Shares in an
amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for
the determination of holders of Series A Preferred Shares
entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
4. VOTING RIGHTS. The holders of Series A Preferred Shares will
have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each Series A Preferred Share shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation
shall at any time declare or pay any dividend on the Common
Shares payable in Common Shares, or effect a subdivision or
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of a dividend in
Common Shares) into a greater or lesser number of Common Shares,
then in each such case the number of votes per share to which
holders of Series A Preferred Shares were entitled immediately
prior to such event shall be adjusted by multiplying such number
by a fraction, the numerator of which is the number of Common
Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were
outstanding immediately prior to such event;
(b) Except as otherwise provided herein, in any other
provisions of the Articles of Incorporation of the Corporation
creating a series of Preferred Shares or any similar shares, or
by law, the holders of Series A Preferred Shares and the holders
of Common Shares and any other capital shares of the Corporation
having general voting rights shall vote together as one class on
all matters submitted to a vote of shareholders of the
Corporation;
(c) If at the time of any annual meeting of shareholders
for the election of directors a "default in preference dividends"
on the Series A Preferred Shares shall exist, the number of
directors constituting the Board of Directors of the Company
shall be increased by two (2), and the holders of the Preferred
Shares of all series (whether or not the holders of such series
of Preferred Shares would be entitled to vote for the election of
directors if such default in preference dividends did not exist)
7
shall have the right at such meeting, voting together as a single
class without regard to series, to the exclusion of the holders
of Common Shares, to elect two (2) directors of the Company to
fill such newly created directorships. Such right shall continue
until there are no dividends in arrears upon the Preferred
Shares. Each director elected by the holders of Preferred Shares
(a "Preferred Director") shall continue to serve as such director
for the full term for which he shall have been elected,
notwithstanding that prior to the end of such term a default in
preference dividends shall cease to exist. Any Preferred
Director may be removed by, and shall not be removed except by,
the vote of the holders of record of the outstanding Preferred
Shares voting together as a single class without regard to
series, at a meeting of the shareholders or of the holders of
Preferred Shares called for the purpose. So long as a default in
any preference dividends on the Preferred Shares shall exist, (i)
any vacancy in the office of a Preferred Director may be filled
(except as provided in the following clause (ii)) by an
instrument in writing signed by the remaining Preferred Director
and filed with the Company and (ii) in the case of the removal of
any Preferred Director, the vacancy may be filled by the vote of
the holders of the outstanding Preferred Shares voting together
as a single class without regard to series, at the same meeting
at which such removal shall voted. Each director appointed as
aforesaid by the remaining Preferred Director shall be deemed,
for all purposes hereof, to be a Preferred Director. Whenever
the term of office of the Preferred Directors shall end and a
default in preference dividends shall no longer exist, the number
of directors constituting the Board of Directors of the Company
shall be reduced by two (2). For the purposes hereof, a "default
in preference dividends" on the Preferred Shares shall be deemed
to have occurred whenever the amount of accrued dividends upon
any series of the Preferred Shares shall be equivalent to six (6)
full quarterly dividends or more, and, having so occurred, such
default shall be deemed to exist thereafter until, but only
until, all accrued dividends on all Preferred Shares of each and
every series then outstanding shall have been paid to the end of
the last preceding quarterly dividend period; and
(d) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Shares shall have no special
voting rights and their consent shall not be required (except to
the extend they are entitled to vote with holders of Common
Shares as set forth herein) for taking any corporate action; and
5. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Shares, as
provided in paragraph 3 of this Section E, are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on Series A Preferred
8
Shares outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Shares;
(ii) declare or pay dividends, or make any other
distributions, on any shares ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Shares, except dividends paid
ratably on the Series A Preferred Shares and all such parity
shares on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration any shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Shares, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior shares in exchange for any shares of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Shares; or
(iv) redeem or purchase or otherwise acquire for
consideration any Series A Preferred Shares, or any shares
ranking on a parity with the Series A Preferred Shares,
except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of the Corporation unless the Corporation could, under
paragraph 5(a) of this Section E, purchase or otherwise acquire
such shares at such time and in such manner.
6. REACQUIRED SHARES. Any Series A Preferred Shares purchased
or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but
unissued Preferred Shares and may be reissued as part of a new series
of Preferred Shares subject to the conditions and restrictions on
issuance set forth in the Articles of Incorporation of the Corporation
9
creating a series of Preferred Shares or any similar shares or as
otherwise required by law.
7. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares ranking junior
(either as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Shares unless, prior thereto, the
holders of Series A Preferred Shares shall have received $6,000 per
share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such
payment, provided that the holders of Series A Preferred Shares shall
be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common
Shares, or (b) to the holders of shares ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Shares, except distributions made ratably on the
Series A Preferred Shares and all such parity shares in proportion to
the total amounts to which the holders of all such shares are entitled
upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Shares payable in Common Shares, or effect a subdivision or
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of a dividend in Common
Shares) into a greater or lesser number of Common Shares, then in each
such case the aggregate amount to which holders of Series A Preferred
Shares were entitled immediately prior to such event under the proviso
in clause (A) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of a Common Shares outstanding immediately after such event and
the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
8. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the Common Shares are exchanged for or changed into other
shares or securities, cash and/or any other property, then in any such
case each Series A Preferred Share shall at the same time be similarly
exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount of shares, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each
Common Share is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Shares
payable in Common Shares, or effect a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise than by payment of a dividend in Common Shares) into a
greater or lesser number of Common Shares, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of Series A Preferred Shares shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
10
number of Common Shares outstanding immediately after such event and
the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
9. NO REDEMPTION. The Series A Preferred Shares shall not be
redeemable.
10. CONVERSION. The Series A Preferred Shares shall not be
convertible into Common Shares or shares of any other series of any
other class of Preferred Shares.
11. RANK. The Series A Preferred Shares shall rank, with
respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of Preferred Shares, unless
the terms of any such series shall provide otherwise.
12. AMENDMENT. The Articles of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A
Preferred Shares so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the
outstanding Series A Preferred Shares, voting together as a single
class.
F. 8.75% SERIES CUMULATIVE PREFERRED SHARES.
1. This Section F of this ARTICLE V hereby creates a series of
Preferred Shares and hereby states the designation and number of
shares, and fixes the powers, preferences and relative participating,
optional and other rights of such series, and the qualifications,
limitation and restrictions thereof.
2. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "8.75% Series Cumulative Preferred Shares (Liquidation
Preference $100 Per Share)" (the "8.75% Series Preferred Shares") and
the number of shares constituting the 8.75% Series Preferred Shares
shall be 350,000.
3. DIVIDENDS.
(a) The holders of 8.75% Series Preferred Shares, in
preference to the holders of the Series A Preferred Shares, the
Common Shares and of any other junior shares hereafter created,
shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the
purpose, cumulative quarterly dividends at the rate of 8.75% per
annum, computed on the liquidation preference of the 8.75% Series
Preferred Shares (using for such computation a month of 30 days
and a year of 360 days), payable in arrears in cash on the 14th
day of January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment
Date") to the holders of record as of the 14th day of the month
11
prior to such respective dates, commencing on January 14, 1991.
Dividends shall accumulate on a daily basis. Holders of 8.75%
Series Preferred Shares shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided on such shares. No
interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on 8.75% Series
Preferred Shares that may be in arrears. The initial dividend
shall be that proportion of a quarterly dividend that the number
of days (using a month of 30 days and a year of 360 days) from
the date of sale and delivery of such shares (including such
date) to January 14, 1991, (excluding such date) bears to ninety
days.
(b) Except as set forth in the next sentence, no dividends
shall be declared, paid or set apart for payment on, or any other
distributions made in respect of, shares of any class or series
ranking, as to the payment of dividends or as to the distribution
of assets upon liquidation, dissolution or winding up, on a
parity with the 8.75% Series Preferred Shares, unless full
cumulative dividends have been or contemporaneously are declared
and paid on the 8.75% Series Preferred Shares through the most
recent Quarterly Dividend Payment Date. When dividends are not
paid in full as aforesaid, upon the 8.75% Series Preferred
Shares, or on any such parity shares through the most recent
respective dividend payment date(s) thereof, all dividends
declared upon the 8.75% Series Preferred Shares and such parity
shares shall be declared contemporaneously and pro rate so that
the amount of dividends declared per share on the 8.75% Series
Preferred Shares and such parity shares shall in all cases bear
to each other the same ratio that accumulated dividends per share
on the 8.75% Series Preferred Shares and such other shares bear
to each other (for purposes of the foregoing, the amount of
dividends declared per share shall be based on the applicable
dividend rate for such shares for the dividend period(s) for
which dividends were not paid in full).
4. VOTING RIGHTS. The holders of 8.75% Series Preferred Shares
shall have voting rights only as provided by law or as specifically
set forth in this Section F.
(a) Each 8.75% Series Preferred Share shall entitle the
holder thereof to one vote on all matters on which the shares may
be voted.
(b) If at the time of any annual meeting of shareholders
for the election of directors a "default in preference dividends"
on the 8.75% Series Preferred Shares, or on any series of
Preferred Shares, ranking on a parity with the 8.75% Series
Preferred Shares as to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding
up, shall exist, the holders of the 8.75% Series Preferred Shares
12
and such parity shares shall have the right at such meeting,
voting together as a single class without regard to series, to
the exclusion of the holders of Common Shares and all other
securities of the Corporation, to elect two (2) directors of the
Corporation. Such right shall continue until there are no
dividends in arrears upon the 8.75% Series Preferred Shares.
Each director elected by the holders of Preferred Shares as
aforesaid and any such parity shares (a "Preferred Director")
shall continue to serve as such director for the full term for
which he shall have been elected, notwithstanding that prior to
the end of such term a default in preference dividends shall
cease to exist. Any Preferred Director may be removed by, and
shall not be removed except by, the vote of the holders of record
of the outstanding 8.75% Series Preferred Shares and any such
parity shares voting together as a single class without regard to
series, at a meeting of the shareholders or of the holders of
8.75% Series Preferred Shares and any such parity shares called
for the purpose. So long as a default in any preference
dividends on the 8.75% Series Preferred Shares or any such parity
shares shall exist, (i) any vacancy in the office of a Preferred
Director may be filled (except as provided in the following
clause (ii)) by an instrument in writing signed by the remaining
Preferred Director and filed with the Company and (ii) in the
case of the removal of any Preferred Director, the vacancy may be
filled by the vote of the holders of the outstanding 8.75% Series
Preferred Shares and any such parity shares voting together as a
single class without regard to series, at the same meeting at
which such removal shall be voted. Each director appointed as
aforesaid by the remaining Preferred Director shall be deemed,
for all purposes hereof, to be a Preferred Director. For the
purposes hereof, a "default in preference dividends" shall be
deemed to have occurred whenever the amount of accumulated
dividends upon the 8.75% Series Preferred Shares or any series of
shares ranking on a parity therewith as to the payment of
dividends and the distribution of assets upon liquidation,
dissolution or winding up shall be equivalent to four (4) full
quarterly dividends or more, and, having so occurred, such
default shall be deemed to exist thereafter until, but only
until, all accumulated dividends on all 8.75% Series Preferred
Shares and any such parity shares then outstanding shall have
been paid to the end of the last preceding quarterly dividend
period or equivalent thereof.
(c) The Corporation shall not, without the vote or consent
of the holders of two-thirds of the outstanding 8.75% Series
Preferred Shares and Preferred Shares ranking on a parity with
the 8.75% Series Preferred Shares as to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, amend its Articles of Incorporation to create or
authorize any class or series of shares, or any class or series
of securities convertible into any class or series of shares,
which would rank prior to the 8.75% Series Preferred Shares and
13
such parity shares as to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding
up.
5. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends payable on the 8.75%
Series Preferred Shares, as provided in paragraph 3 of this
Section F, are in arrears, or in the event the Corporation shall
have failed to redeem the 8.75% Series Preferred Shares on
January 14, 1996, in accordance with the provisions of Section 8
hereof, thereafter and until all accumulated and unpaid
dividends, whether or not earned or declared, on 8.75% Series
Preferred Shares outstanding shall have been paid in full, or
until such redemption shall have been effected, as the case may
be, the Corporation shall not:
(i) declare, pay or set apart for payment dividends, or
make any other distributions, on any shares ranking junior
(either as to the payment of dividends or as to the
distribution of assets upon liquidation, dissolution or
winding up) to the 8.75% Series Preferred Shares;
(ii) redeem or purchase or otherwise acquire for
consideration any shares ranking junior (either as to the
payment of dividends or as to the distribution of assets
upon liquidation, dissolution or winding up) to the 8.75%
Series Preferred Shares, provided that the Corporation may
at any time redeem, purchase or otherwise acquire any such
junior shares in exchange for any shares of the Corporation
ranking junior (either as to the payment of dividends or as
to the distribution of assets upon dissolution, liquidation
or winding up) to the 8.75% Series Preferred Shares; or
(iii) redeem or purchase or otherwise acquire for
consideration any 8.75% Series Preferred Shares, or any
shares ranking on a parity with the 8.75% Series Preferred
Shares, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of all such shares upon such terms
as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of the Corporation unless the Corporation could, under
paragraph 5(a) of this Section F, purchase or otherwise acquire
such shares at such time and in such manner.
14
6. REACQUIRED SHARES. Any 8.75% Series Preferred Shares
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued Preferred Shares and may be reissued as
part of a new series of Preferred Shares subject to the conditions and
restrictions on issuance set forth herein and in the Articles of
Incorporation of the Corporation creating a series of Preferred Shares
or any similar shares or as otherwise required by law.
7. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon the
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of 8.75% Series Preferred Shares
will be entitled to receive and to be paid out of the assets of the
Corporation available for distribution to its shareholders, before any
payment or distribution shall be made on the Common Shares or on any
other class of shares of the Corporation ranking junior to the 8.75%
Series Preferred Shares as to the distribution of assets upon
liquidation, dissolution or winding up, an amount equal to the
liquidation preference with respect to such shares plus an amount
equal to all dividends thereon (whether or not earned or declared)
accumulated but unpaid to the date of final distribution. The
liquidation preference for 8.75% Series Preferred Shares shall be
$100.00 per share. After the payment to the holders of 8.75% Series
Preferred Shares of the full preferential amounts provided for as
described herein, the holders of 8.75% Series Preferred Shares as such
shall have no right or claim to any of the remaining assets of the
Corporation. In the event the assets of the Corporation available for
distribution to the holders of 8.75% Series Preferred Shares upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled, no such distribution shall
be made on account of any shares of any other class or series of
Preferred Shares ranking on a parity with the 8.75% Series Preferred
Shares upon such liquidation, dissolution or winding up unless
proportionate distributive amounts shall be paid on account of the
shares of 8.75% Series Preferred Shares, ratable, in proportion to the
full distributable amounts for which holders of all such parity shares
are respectively entitled upon such liquidation. Subject to the
rights of the holders of shares of any series or class or classes of
shares ranking on a parity with the 8.75% Series Preferred Shares with
respect to the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, after payment shall have been made in
full to the holders of the 8.75% Series Preferred Shares as described
herein, but not prior thereto, any other series or class or classes of
shares ranking junior to the 8.75% Series Preferred Shares with
respect to the distribution of assets upon liquidation, dissolution or
winding up shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the 8.75%
Series Preferred Shares shall not be entitled to share therein.
15
8. REDEMPTION.
(a) The 8.75% Series Preferred Shares shall be redeemed in
whole by the Corporation on January 14, 1996, at the redemption
price of $100 per share plus all unpaid cumulative dividends
accumulated thereon to the date of redemption, whether or not
earned or declared. The Corporation shall give notice of such
redemption to the holders of the 8.75% Series Preferred Shares by
mail not more than sixty (60) but not less than thirty (30) days
prior to the redemption date, but failure to so mail such notice
or any defect therein or in the mailing thereof shall not affect
the validity of such redemption.
(b) The Corporation shall, after giving notice of
redemption as herein provided, or after giving to the bank or
trust company hereinafter referred to irrevocable authority to
give due notice, deposit at any time on or prior to the
redemption date specified in such notice, and after the earliest
date on which notice of redemption may be given as herein
provided, the amount of the aggregate redemption price plus all
unpaid cumulative dividends accumulated to the redemption date
(whether or not earned or declared) on the 8.75% Series Preferred
Shares to be redeemed, with a bank or trust company having a
capital and surplus of at least five million dollars and its
principal office in the City of Chicago, Illinois, designated in
such notice, in trust for the holders of such shares so to be
redeemed, payable to the holders thereof on the date fixed for
redemption, and then, from and after the date of such deposit,
such shares, notwithstanding that any certificate for such shares
so called for redemption shall not have been surrendered for
cancellation, shall no longer be deemed outstanding and shall be
deemed canceled and retired, and each holder thereof shall not
thereafter be entitled to receive any further dividends or be
entitled to exercise any rights as a holder of such shares,
excepting only the right to receive the redemption price thereof
plus all unpaid cumulative dividends accumulated thereon to the
date of redemption (whether or not earned or declared), but
without interest thereon. The moneys so deposited for the
redemption of such shares shall be paid to the holders of such
shares upon the surrender to the Corporation for cancellation of
the certificates representing such shares, properly endorsed in
blank for transfer or accompanied by proper instruments of
assignment in blank (if required by the Corporation) and bearing
all necessary stock transfer tax stamps thereto affixed and
canceled.
(c) In case the holder of any certificate for any 8.75%
Series Preferred Shares which shall have been redeemed shall not,
within six (6) years after such redemption date, claim the amount
deposited for the redemption thereof, any such bank or trust
company shall, upon demand, pay over to the Corporation such
unclaimed amount and shall thereupon be relieved of all
16
responsibility in respect thereof; provided such bank or trust
company, before being required to make any such payment, may (at
the expense of the Corporation) cause to be published once a week
on any business day of the week for two (2) consecutive weeks in
a newspaper of general circulation in the city of Chicago,
Illinois, customarily published on each business day, a notice
that such moneys have not been so called for and that after a
date named therein such moneys will be returned to the
Corporation.
9. CONVERSION. The 8.75% Series Preferred Shares shall not be
convertible into Common Shares or shares of any other class or series
of the Corporation.
10. RANK. The 8.75% Series Preferred Shares shall rank, with
respect to the payment of dividends and the distribution of assets
upon liquidation, dissolution or winding up, on a parity with all
series of Preferred Shares, unless the terms of any such series shall
provide otherwise. The Series A Preferred Shares shall rank junior to
the 8.75% Series Preferred Shares both as to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up.
11. AMENDMENT. The Articles of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or
change the designation, rights or preferences of the 8.75% Series
Preferred Shares so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of such shares
then outstanding.
ARTICLE VI
DIRECTORS
1. The Board of Directors of the Corporation shall consist of
ten (10) directors. The directors shall be divided into three
classes, and each class shall consist of one-third, or as near as may
be, of the total number of directors constituting the Board of
Directors. At the 1988 and at each succeeding annual meeting of
shareholders, successors to the class of directors whose terms expire
at that annual meeting shall be elected to hold office for a
three-year term, so that the term of office of one class of directors
shall expire in each year. In the event that the holders of Preferred
Shares are entitled at any shareholders meeting to elect directors,
then the term of office of all persons who may be directors shall
terminate upon the election of their successors at such meeting of
shareholders.
2. A director shall hold office until the annual meeting for the
year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death,
resignation, retirement, age and service limitations as may be set
17
forth in the Bylaws, disqualification or removal from office. Any
vacancy on the Board of Directors shall be filled by a majority of
the Board of Directors then in office even if less than a quorum, or
by a sole remaining director. Any director elected by the Board of
Directors shall hold office until the annual meeting for the year in
which the term for that Class of Directors shall expire.
3. A director may be removed by the directors or the
shareholders, but only for cause. If by directors, such action may be
taken only at a meeting of the Board, the meeting notice for which
must state that the purpose, or one of the purposes, of the meeting is
the removal of the director, and the affirmative vote of two-thirds of
the remaining directors is necessary to remove the director. If
removal is by vote of the shareholders, it may only be considered at
an annual meeting of shareholders, and the affirmative vote of
two-thirds of the shares then entitled to vote for the election of
directors is necessary to remove the director. For purposes of this
section, cause for removal shall be construed to exist only if a
director whose removal is proposed has been convicted of a felony by a
court of competent jurisdiction and such conviction is no longer
subject to appeal, or has been adjudged by a court of competent
jurisdiction to be liable for willful misconduct in the performance of
his or her duty to the Corporation in a matter of substantial
importance to the Corporation and such adjudication is no longer
subject to appeal.
ARTICLE VII
BUSINESS COMBINATIONS
A. MARKET VALUE REQUIRED.
Notwithstanding any other provision of these Articles of
Incorporation, the Corporation may not engage in any Business
Combination (hereinafter defined) with any Interested Shareholder
(hereinafter defined) of the Corporation unless the Business
Combination meets the requirement specified in either paragraphs 1, 2,
3 following:
1. A Business Combination approved by the Board of Directors of
the Corporation before the Interested Shareholders Acquisition Date,
or as to which the purchase of shares made by the Interested
Shareholder on the interested Shareholder's Acquisition Date had been
approved by the Board of Directors of the Corporation before the
Interested Shareholder's Acquisition Date.
2. A Business Combination approved by the affirmative vote of
the holders of a majority of the outstanding voting shares not
beneficially owned by the Interested Shareholder proposing the
Business Combination, or any Affiliate or Associate of the Interested
Shareholder proposing the Business Combination, at a meeting called
18
for that purpose no earlier than five (5) years after the Interested
Shareholder's Acquisition Date.
3. A Business Combination that meets all of the following
conditions:
(a) The aggregate amount of cash and the Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be
received per share by holders of Common Shares in such Business
Combination, shall be at least equal to the highest amount
determined under clauses (i) and (ii) below:
(i) the highest per share price paid by or behalf of the
Interested Shareholder when the Interested Shareholder was
the beneficial owner (directly or indirectly) of five
percent (5%) of the outstanding voting shares for any Common
Share in connection with the acquisition by the Interested
Shareholder of beneficial ownership of Common Shares (x)
within the five-year period immediately prior to the first
public announcement of the proposed Business Combination
(the "Announcement Date") or (y) in the transaction in which
it became an Interested Shareholder, whichever is higher,
plus, in either case, interest compounded annually from the
earliest date on which the highest per share acquisition
price was paid through the consummation date at the rate
specified in the Act less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid
other than in cash, per common share since the earliest
date, up to the amount of the interest.
(ii) the Market Value per Common Share on the Announcement
Date or on the date on which the Interested Shareholder
became an Interested Shareholder (the "Acquisition Date"),
whichever is higher, plus interest compounded annually from
that date through the consummation date at the rate
specified in the Act less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid
other than in cash, per common share since the earliest
date, up to the amount of the interest.
(b) The aggregate amount of cash and the Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be
received per share by holders of shares of any class or series of
outstanding Preferred Shares in such Business Combination shall
be at least equal to the highest amount determined under clauses
(i), (ii) and (iii) below:
(i) the highest per share price paid by or on behalf of the
Interested Shareholder at a time when the Interested
Shareholder was the beneficial owner, directly or
19
indirectly, of five percent (5%) or more of the outstanding
voting shares of the Corporation for any share of such class
or series of Preferred Shares in connection with the
acquisition by the Interested Shareholder of beneficial
ownership of shares of such class or series of Preferred
Shares (x) within the five-year period immediately prior to
the Announcement Date or (y) in the transaction in which it
became an Interested Shareholder, whichever is higher, plus
in either case, interest compounded annually from the
earliest date on which the highest per share acquisition
price was paid through the consummation date at the rate
specified in the Act less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid
other than in cash, per common share since the earliest
date, up to the amount of the interest.
(ii) the Market Value per share of such class or series of
Preferred Shares on the Announcement Date or on the
Acquisition Date, whichever is higher, plus interest
compounded annually from that date through the consummation
date at the rate specified in the Act less the aggregate
amount of any cash dividends paid, and the market value of
any dividends paid other than in cash, per common share
since the earliest date, up to the amount of the interest.
(iii) the highest preferential amount per share to which
the holders of shares of such class or series of Preferred
Shares would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, plus the aggregate amount of any
dividends declared or due as to which the holders are
entitled before payment of dividends on some other class or
series of shares, unless the aggregate amount of the
dividends is included in the preferential amount.
(c) The consideration to be received by holders of a
particular class or series of outstanding Capital Shares shall be
in cash or in the same form as previously has been paid by or on
behalf of the Interested Shareholder in connection with its
direct or indirect acquisition of beneficial ownership of shares
of such class or series of Capital Shares. If the consideration
previously paid by the Interested Shareholder to acquire shares
of any class or series of Capital Shares varied among the
recipients thereof as to form, the form of consideration to be
paid for such class or series of Capital Shares in connection
with the Business Combination shall be either cash or the form
used to acquire beneficial ownership of the largest number of
shares of such class or series of Capital Shares previously
acquired by the Interested Shareholder, and the consideration
shall be distributed promptly.
20
(d) After the Interested Shareholder's Acquisition Date and
before the Consummation Date with respect to the Business
Combination, the Interested Shareholder has not become the
Beneficial Owner of any additional voting shares of the
Corporation except: (i) as part of the transaction that resulted
in the Interested Shareholder becoming an Interested Shareholder;
(ii) by virtue of proportionate share splits, share dividends, or
other distributions of shares in respect of shares not
constituting a Business Combination; (iii) through a Business
Combination meeting all of the conditions of the Articles of
Incorporation or (iv) through purchase by the Interested
Shareholder at any price that, if the price had been paid in an
otherwise permissible Business Combination the Announcement Date
and Consummation Date of which were the date of the purchase,
would have satisfied the requirements of these Articles of
Incorporation.
B. EXCEPTIONS.
The provisions of the preceding Section A shall not be applicable
to any particular Business Combination if, in addition to any
affirmative vote required by law or these Articles of Incorporation,
such Business Combination shall be approved by the affirmative vote of
not less than eighty percent (80%) of the votes entitled to be cast by
the holders of all the outstanding Voting Shares (hereinafter
defined), voting together as a single class. Such Affirmative vote
shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage or separate class vote may be
specified, by law or in any agreement with any national securities
exchange or otherwise.
C. DEFINITIONS.
The following definitions shall apply with respect to this
ARTICLE VII:
1. The term "Business Combination" shall mean:
(a) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Shareholder or (ii) any other corporation (whether or not itself
an Interested Shareholder) which is or after such merger or
consolidation would be an Affiliate or Associate of an
Interested Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions) with or for the benefit of any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder involving any assets, securities or commitments of
the Corporation or any Subsidiary (i) having an aggregate Market
Value equal to ten percent (10%) or more of the aggregate Market
21
Value of (x) all the assets, determined on a consolidated basis,
of the Corporation, or (y) all the outstanding shares of the
Corporation or (ii) representing ten percent (10%) or more of the
earning power or net income, determined on a consolidated basis,
of the Corporation; or
c) the issuance or transfer by the Corporation or any
Subsidiary of the Corporation (in one (1) transaction or a series
on transactions) of any shares of the Corporation or any
Subsidiary of the Corporation that have an aggregate market value
equal to five percent (5%) or more of the aggregate market value
of all the outstanding shares of the Corporation to the
Interested Shareholder or an affiliate or the associate of the
Interested Shareholder except under the exercise of warrants or
rights to purchase shares offered, or a dividend or distribution
paid or made pro rata to all shareholders of the Corporation; or
(d) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation which is voted for
or consented to by any Interested Shareholder or any Affiliate or
Associate thereof; or
(e) any reclassification of securities (including any share
split, share dividend, or other distribution of shares in respect
of shares, or reverse share split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation,
with any of its Subsidiaries, or any other transaction (whether
or not with or otherwise involving an Interested Shareholder)
that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of outstanding shares
of any class or series of voting shares or any securities
convertible into voting shares of the Corporation or any
Subsidiary, that is beneficially owned by an Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
(f) any receipt by the Interested Shareholder or any
Affiliate or Associate of the Interested Shareholder of the
benefit (directly or indirectly, except proportionately as a
shareholder of the Corporation), of any loans, advances,
guarantees, pledges, or other financial assistance or any tax
credits or other tax advantages provided by or through the
Corporation.
2. The term "Capital Shares" shall mean all capital shares of
the Corporation authorized to be issued from time to time under
ARTICLE V of these Articles of Incorporation, and the term "Voting
Shares" shall mean all Capital Shares that by its terms may be voted
on all matters submitted to shareholders of the Corporation generally.
3. The term "Interested Shareholder" shall mean any person
(other than the Corporation or any Subsidiary) who (i) is the
22
beneficial owner directly or indirectly of Voting Shares representing
ten percent (10%) or more of the votes entitled to be cast by the
holders of all then outstanding Voting Shares or (ii) is an Affiliate
or Associate of the Corporation and at any time within the five-year
period immediately prior to the Announcement Date was the beneficial
owner of Voting Shares representing ten percent (10%) or more of the
votes entitled to be cast by the holders of all then outstanding
Voting Shares. For the purpose of determining whether a person is an
Interested Shareholder, the number of Voting Shares of the Corporation
considered to be outstanding includes shares considered to be
beneficially owned by the person, but does not include any other
unissued shares of Voting Shares of the Corporation that may be
issuable under any agreement, arrangement, or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
4. A person shall be a "Beneficial Owner" of any Capital Shares
(i) which such person individually or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (ii) which such
person individually or any of its Affiliates or Associates has,
directly or indirectly, (x) the right to acquire (whether such right
is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (y) the right to vote pursuant to any agreement,
arrangement or understanding; or (iii) which is beneficially owned,
directly or indirectly, by any other person with which such person or
any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of Capital Shares.
5. The term "Associate" when used to indicate a relationship
with any person, means: (1) Any corporation or organization of which
the person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of ten percent (10%) or more of any class of voting
shares; (2) Any trust or other estate in which the person has a
substantial beneficial interest or as to which the person serves as
trustee or in a similar fiduciary capacity; and (3) Any relative or
spouse of the person, or any relative of the spouse, who has the same
home as the person.
6. The term "Affiliate" means a person that directly or
indirectly through one (1) or more intermediaries, controls, is
controlled by, or is under common control with a specified person.
7. The term "Subsidiary" of the Corporation means any other
corporation of which voting shares constituting a majority of the
outstanding voting shares of the other corporation entitled to be cast
are owned (directly or indirectly) by the Corporation.
8. The term "Market Value" means (i) in the case of shares, the
highest closing sale price during the 30-day period immediately
preceding the date in question of such a share on the Composite Tape
23
for New York Stock Exchange listed shares, or, if such shares are not
quoted on the Composite Tape, on the New York Stock Exchange, or, if
such shares are not listed on such Exchange, on the principal United
States securities exchange on which such shares are listed, or, if
such shares are not listed on any such exchange, the highest closing
bid quotation with respect to such a share during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any similar
system then in use, or if no such quotations are available, the Market
Value on the date in question of such a share as determined by a
majority of the directors in good faith; and (ii) in the case of
property other than cash or shares, the Market Value of such property
on the date in question as determined in good faith by a majority of
the directors.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in subparagraphs 3(a) and 3(b) of Section A of this
ARTICLE VII shall include the Common Shares and/or the shares of any
other class or series of Capital Shares retained by the holders of
such shares.
ARTICLE VIII
INDEMNIFICATION
Each director and each officer of the Corporation shall be
indemnified by the Corporation to the fullest extent permitted by law
against expenses (including attorneys' fees) judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection within the defense of any proceeding in
which he or she was or is a party or is threatened to be made a party
by reason of being or having been a director or an officer of the
Corporation. Such right of indemnification is not exclusive of any
other rights to which such director or officer may be entitled under
any now or hereafter existing statute, any other provision of these
Articles of Incorporation, the by-laws, agreement, vote of
shareholders or otherwise. If the Indiana Business Corporation Law is
amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Indiana Business Corporation Law, as so
amended. Any repeal or modification of this ARTICLE VIII by the
shareholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE IX
AMENDMENTS
24
The Corporation reserves the right to amend, alter, change or
repeal any provision in these Articles of Incorporation as permitted
by law, and all rights conferred on shareholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the
provision of Articles VI, VII, VIII and this Article IX 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 seventy-five percent (75%) of the
outstanding shares entitled to vote thereon.
25
EXHIBIT A-2
-----------
BY-LAWS
OF
NISOURCE INC.
EFFECTIVE APRIL 14, 1999
ARTICLE I.
OFFICES.
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Indiana shall be at 5265 Hohman Avenue, in
the City of Hammond, County of Lake.
SECTION 1.2. PRINCIPAL BUSINESS OFFICE. The principal business
office of the Corporation shall be at 801 East 86th Avenue, in the
Town of Merrillville, County of Lake, in the State of Indiana.
ARTICLE II.
SHAREHOLDERS' MEETINGS.
SECTION 2.1. PLACE OF MEETINGS. Meetings of the shareholders of
the Corporation shall be held at such place, within or without the
State of Indiana, as may be specified by the Board of Directors in the
notice of such meeting, but if no such designation is made, then at
the principal business office of the Corporation.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of the
shareholders shall be held in each year on the second Wednesday in the
month of April, if not a legal holiday, and if a legal holiday, then
on the next succeeding business day that is not a legal holiday or on
such other day as the Board of Directors may determine; at the hour of
ten o'clock a.m. or at such other time as the Board of Directors may
determine, for the purpose of electing Directors and for the
transaction of such other business as may legally come before the
meeting.
If for any reason any annual meeting shall not be held at the
time herein provided, the same may be held at any time thereafter,
upon notice as hereinafter provided, or the business thereof may be
transacted at any special meeting of shareholders called for that
purpose.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed
by statute, may be called by the Chairman, the President, or the Board
of Directors, and shall be called by the Chairman at the request in
writing of a majority of the Board of Directors, or at the request in
writing of the shareholders holding at least one-fourth of all the
shares outstanding and entitled to vote on the business proposed to be
transacted thereat. All requests for special meetings of shareholders
shall state the time, place and the purpose or purposes thereof.
SECTION 2.4. NOTICE OF SHAREHOLDERS' MEETINGS. Notice of each
meeting of shareholders, stating the date, time and place, and, in the
case of special meetings, the purpose or purposes for which such
meeting is called, shall be given to each shareholder entitled to vote
thereat not less than 10 nor more than 60 days before the date of the
meeting unless otherwise prescribed by statute.
SECTION 2.5. RECORD DATES. (a) In order that the Corporation
may determine the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment of
any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of shares or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a
future date as the record date, which shall not be more than 60 nor
less than 10 days before the date of such meeting or any other action
requiring a determination by shareholders.
(b) If a record date has not been fixed as provided in preceding
subsection (a), then:
(i) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; and
(ii) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
(c) Only those who shall be shareholders of record on the record
date so fixed as aforesaid shall be entitled to such notice of, and to
vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding the transfer of any shares on the books of the
Corporation after the applicable record date; provided, however, the
Corporation shall fix a new record date if a meeting is adjourned to a
date more than 120 days after the date originally fixed for the
meeting.
SECTION 2.6. Quorum and Adjournment. The holders of a majority
of all the capital shares issued and outstanding and entitled to vote
at any meeting of the shareholders, represented by the holders thereof
2
in person or by proxy, shall be requisite at all meetings of the
shareholders to constitute a quorum for the election of Directors or
for the transaction of other business, unless otherwise provided by
law or by the Corporation's Articles of Incorporation, as amended (the
"Articles of Incorporation"). Whether or not there is such a quorum,
the chairman of the meeting or the shareholders present or represented
by proxy representing a majority of the shares present or represented
may adjourn the meeting from time to time without notice other than an
announcement at the meeting. At such adjourned meeting at which the
requisite number of voting shares shall be present or represented, any
business may be transacted which might have been transacted at the
meeting originally called.
SECTION 2.7. VOTING BY SHAREHOLDERS; PROXIES. Every shareholder
shall have the right at every shareholders' meeting to one vote for
each share standing in his name on the books of the Corporation,
except as otherwise provided by law or by the Articles of
Incorporation, and except that no share shall be voted at any meeting
upon which any installment is due and unpaid, or which belongs to the
Corporation. Election of directors at all meetings of the
shareholders at which directors are to be elected shall be by ballot,
and a plurality of the votes cast thereat shall be necessary to elect
any Director. If a quorum exists, action on a matter (other than the
election of directors) submitted to shareholders entitled to vote
thereon at any meeting shall be approved if the votes cast favoring
the action exceed the votes cast opposing the action, unless a greater
number of affirmative votes is required by law or by the Articles of
Incorporation. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or a duly authorized attorney
in fact. No proxy shall be valid after eleven months from the date of
its execution unless a longer time is expressly provided therein. All
voting at meetings of shareholders shall be by ballot, except that the
presiding officer of the meeting may call for a viva voce vote on any
matter other than the election of directors, unless the holder or
holders of ten percent (10%) or more of the shares entitled to vote
demands or demand a vote by ballot.
SECTION 2.8. LIST OF SHAREHOLDERS. The Secretary shall make, or
cause the agent having charge of the stock transfer books of the
Corporation to make, at least five (5) days before each meeting of
shareholders, a complete list of the shareholders entitled by the
Articles of Incorporation to vote at said meeting, arranged in
alphabetical order, with the address and number of shares so entitled
to vote held by each, which list shall be on file at the principal
business office of the Corporation and subject to inspection by any
shareholder within the usual business hours during said five (5) days
either at the principal business office of the corporation or a place
in the city where the meeting is to be held, which place shall be
specified in the notice of meeting, or, if not so specified, at the
place where said meeting is to be held. Such list shall be produced
and kept open at the time and place of the meeting and subject to the
inspection of any shareholder during the holding of such meeting.
3
SECTION 2.9. CONDUCT OF BUSINESS. (a) PRESIDING OFFICER. The
Chairman, when present, and in the absence of the Chairman the
President, shall be the presiding officer at all meetings of
shareholders, and in the absence of the Chairman and the President,
the Board of Directors shall choose a presiding officer. The
presiding officer of the meeting shall have plenary power to determine
procedure and rules of order and make definitive rulings at meetings
of the shareholders.
(b) ANNUAL MEETINGS OF SHAREHOLDERS. (i) Nominations of
persons for election to the Board of Directors of the Corporation and
the proposal of business to be considered by the shareholders may be
made at an annual meeting of shareholders (A) pursuant to the
Corporation's notice of meeting, (B) by or at the direction of the
Board of Directors or (C) by any shareholder of the Corporation who
was a shareholder of record at the time of giving of notice provided
for in this Section 2.9, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 2.9.
(ii) For nominations or other business to be properly
brought before any annual meeting by a shareholder pursuant to clause
(C) of paragraph (b)(i) of this Section 2.9, the shareholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered
to the Secretary at the principal business office of the Corporation
not later than 150 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by
the shareholder to be timely must be so delivered not later than the
150th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first
made. Such shareholder's notice shall set forth (A) as to each person
whom the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (C) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or
proposal is made (x) the name and address of such shareholder, as they
appear on the Corporation's books, and of such beneficial owner and
(y) the class and number of shares of the Corporation which are owned
beneficially and of record by such shareholder and such beneficial
owner.
4
(iii) The notice procedures of this Section 2.9 shall
not apply to any annual meeting if (A) with respect to annual meetings
of shareholders subsequent to the 1994 annual meeting of shareholders,
the Corporation shall not have set forth in its proxy statement for
the preceding annual meeting of shareholders the date by which notice
of nominations by shareholders of persons for election as directors or
of other business proposed to be brought by shareholders at the next
annual meeting of shareholders must be received by the Corporation to
be considered timely pursuant to this Section 2.9 or (B) with respect
to the 1994 annual meeting of shareholders, the Corporation shall have
failed to issue a public announcement setting forth such information
not less than 30 days prior to the date by which a shareholder's
notice must be received by the Corporation to be considered timely
pursuant to this Section 2.9.
(c) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall
be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the Corporation's notice of
meeting (A) by or at the direction of the Board of Directors or (B) by
any shareholder of the Corporation who is a shareholder of record at
the time of giving of notice provided for in this Section 2.9, who is
entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.9. Nominations by shareholders
of persons for election to the Board of Directors may be made at such
a special meeting of shareholders if a shareholder's notice containing
the information set forth in paragraph (b)(ii) of this Section 2.9
shall be delivered to the Secretary at the principal executive offices
of the Corporation not later than the 150th day prior to such Special
Meeting or the 10th day following the date on which public
announcement is first made of the date of the special meeting and of
the nominees proposed by the Board of Directors to be elected at such
meeting.
(d) GENERAL. (i) Only such persons who are nominated in
accordance with the procedures set forth in this Section 2.9 shall be
eligible to serve as directors and only such business shall be
conducted at a meeting of shareholders as shall have been brought
before the meeting in accordance with the procedures set forth in this
Section 2.9. The presiding officer at the meeting shall have the
power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 2.9 and, if any proposed
nomination or business is not in compliance with this Section 2.9, to
declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section 2.9, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or
a document publicly filed by the Corporation with the Securities and
5
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 2.9, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9.
Nothing in this Section 2.9 shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 2.10. ORGANIZATION OF MEETINGS. The Secretary, who may
call on any officer or officers of the Corporation for assistance,
shall make all necessary and appropriate arrangements for all meetings
of shareholders, receive all proxies and ascertain and report to each
meeting of shareholders the number of shares present, in person and by
proxy. In the absence of the Secretary, the Assistant Secretary shall
perform the foregoing duties. The certificate and report of the
Secretary or Assistant Secretary, as to the regularity of such
proxies and as to the number of shares present, in person and by
proxy, shall be received as prima facie evidence of the number of
shares present in person and by proxy for the purpose of establishing
the presence of a quorum at such meeting and for organizing the same,
and for all other purposes.
SECTION 2.11. INSPECTORS. At every meeting of shareholders it
shall be the duty of the presiding officer to appoint three (3)
shareholders of the Corporation inspectors of election to receive and
count the votes of shareholders. Each inspector shall take an oath
to fairly and impartially perform the duties of a inspector of the
election and to honestly and truly report the results thereof. Such
inspectors shall be responsible for tallying and certifying the vote
taken on any matter at each meeting which is required to be tallied
and certified by them in the resolution of the Board of Directors
appointing them or the appointment of the presiding officer at such
meeting as the case may be. Except as otherwise provided by these By-
Laws or by law, such inspectors shall also decide all questions
touching upon the qualification of voters, the validity of proxies and
ballots, and the acceptance and rejection of votes. The Board of
Directors shall have the authority to make rules establishing
presumptions as to the validity and sufficiency of proxies.
SECTION 2.12. MINUTES OF SHAREHOLDER MEETINGS. The presiding
officer, secretary, and inspectors of election serving at a
shareholders' meeting shall constitute a committee to correct and
approve the minutes of such meeting. The approval thereof shall be
evidenced by an endorsement thereon signed by a majority of the
committee.
6
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 3.1. POWERS. The Board of Directors shall have the
general direction, management and control of all the property,
business and affairs of the Corporation and shall exercise all the
powers that may be exercised or performed by the Corporation, under
the statutes, the Articles of Incorporation, and these By-Laws.
SECTION 3.2. NUMBER, ELECTION AND TERM OF OFFICE. The Board of
Directors shall consist of ten (10) members, classified with respect
to the time for which they shall severally hold office by dividing
them into three classes, and after being so classified one-third (1/3)
of the Directors, or as near as may be, shall be elected annually for
a term of three (3) years.
SECTION 3.3. VACANCIES. Any vacancy in the Board of Directors
caused by death, resignation or other reason shall be filled for the
remainder of the Director's term by a majority vote of the remaining
Directors although less than a quorum, or by the sole remaining
director, and any director so chosen shall hold office for a term
expiring at the annual meeting of shareholders at which the term of
office of the class of directors to which such director has been
elected expires. All Directors of the Corporation shall hold office
until their successors are duly elected and qualified.
SECTION 3.4. ANNUAL MEETINGS. A meeting of the Directors whose
terms have not expired and the newly elected Directors, to be known as
the annual meeting of the Board of Directors, for the election of
officers and for the transaction of such other business as may
properly come before the meeting, shall be held on the same day as the
annual meeting of the shareholders, at that time and place determined
by the Board of Directors or at such date, time and place otherwise
set by the Chairman.
SECTION 3.5. REGULAR MEETINGS. Regular monthly meetings of the
Board of Directors shall be held from time to time (either within or
without the state) as the Board may by resolution determine, without
call and without notice, and unless otherwise determined all such
regular monthly meetings shall be held at the principal business
office of the Corporation on the fourth Tuesday of each and every
month at 10:30 a.m.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman, by the President,
or by the Chairman upon the written request of any four (4) Directors
by giving, or causing the Secretary to give, to each Director, notice
in accordance with Article IV of these By-Laws.
SECTION 3.7. QUORUM. At all meetings of the Board of Directors,
a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of those present
shall be necessary and sufficient for the taking of any action
7
thereat, but a less number may adjourn the meeting from time to time
until a quorum is present.
SECTION 3.8. ACTION BY WRITTEN CONSENT. Unless otherwise
restricted by statute, the Articles of Incorporation or these By-Laws,
any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all directors or by
all members of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board of
Directors or of such committee.
SECTION 3.9. ATTENDANCE BY CONFERENCE TELEPHONE. Members of the
Board of Directors or any committee thereof may participate in a
meeting of such Board of Directors or committee by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such
meeting.
SECTION 3.10. COMMITTEES. (a) The Board of Directors may from
time to time, in its discretion, by resolution passed by a majority of
the Board, designate, and appoint, from the directors, committees of
one or more persons which shall have and may exercise such lawfully
delegable powers and duties conferred or authorized by the resolutions
of designation and appointment. The Board of Directors shall have
power at any time to change the members of any such committee, to fill
vacancies, and to discharge any such committee.
(b) Unless the Board of Directors shall provide otherwise, the
presence of one-half of the total membership of any committee of the
Board of Directors shall constitute a quorum for the transaction of
business at any meeting of such committee and the act of a majority of
those present shall be necessary and sufficient for the taking of any
action thereat.
ARTICLE IV.
NOTICES.
SECTION 4.1. NOTICES. Notices to directors and shareholders
shall be in writing and delivered personally or mailed to their
addresses appearing on the records of the Corporation or, if to
directors, by telegram, cable, telephone, telecopy, facsimile or a
nationally recognized overnight delivery service. Notice to directors
of special meetings by mail shall be given at least two days before
the meeting. Notice to directors of special meetings by telegram,
cable, personal delivery, telephone, telecopy or facsimile shall be
given a reasonable time before the meeting, but in no event less than
one hour before the meeting. Notice by mail or recognized overnight
delivery service shall be deemed to be given when sent to the director
at his or her address appearing on the records of the Corporation.
Notice by telegram or cable shall be deemed to be given when the
8
telegram or cable addressed to the director at his or her address
appearing on the records of the Corporation is delivered to the
telegraph company. Notice by telephone, telecopy or facsimile shall
be deemed to be given when transmitted by telephone, telecopy or
facsimile to the telephone, telecopy or facsimile number appearing on
the records of the Corporation for the director (regardless of whether
the director shall have personally received such telephone call or
telecopy or facsimile message).
SECTION 4.2. WAIVER OF NOTICE. Whenever any notice is required,
a waiver thereof signed by the person entitled to such notice, whether
before or after the time stated therein, and filed with the minutes or
corporate records, shall be deemed equivalent thereto. Attendance of
any person at any meeting of shareholders or directors shall
constitute a waiver of notice of such meeting, except when such person
attends only for the express purpose of objecting, at the beginning of
the meeting (or in the case of a director's meeting, promptly upon
such director's arrival), to the transaction of any business at the
meeting and does not thereafter vote for or assent to action taken at
the meeting.
ARTICLE V.
OFFICERS.
SECTION 5.1. DESIGNATION; NUMBER; ELECTION. The officers of the
Corporation shall be chosen by the Board of Directors and may consist
of a Chairman, a President, one or more Vice Presidents, a Secretary,
one or more Assistant Secretaries, a Treasurer, one or more Assistant
Treasurers, a Controller, one or more Assistant Controllers, an
Auditor, and an Environmental Officer and Counsel. One person may
hold any two offices except those of Chairman or President, and
Secretary.
SECTION 5.2. TERM OF OFFICE; VACANCIES; REMOVAL. Such officers
shall be elected by the Board of Directors at its annual meeting, and
shall hold office for one year and/or until their respective
successors shall have been duly elected. The Board of Directors may
from time to time, elect or appoint such other officers and agents as
it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as may be
prescribed by the Board of Directors. Vacancies among the officers of
the Corporation shall be filled by the Board of Directors. Any
officer or agent elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the whole
Board of Directors.
SECTION 5.3. COMPENSATION OF OFFICERS. The Board of Directors
or a committee of the Board shall have the authority to fix the
compensation of the officers of the Corporation.
SECTION 5.4. CHAIRMAN. The Chairman shall be the chief
executive officer of the Company and shall have general authority and
9
supervision over the management and direction of the affairs of the
Company, and supervision of all departments and of all officers of the
Company. The Chairman shall, subject to the other provisions of these
by-laws, have such other powers and perform such other duties as
usually devolve upon the chief executive officer of a company or as
may be prescribed by the Board of Directors, and shall, when present,
preside at all meetings of the shareholders and of the Board of
Directors. When the Board of Directors is not in session, the
Chairman shall have authority to suspend the authority of any other
officer or officers, subject, however, to the pleasure of the Board of
Directors at its next meeting. In case of the absence, disability,
death, resignation or removal from office of the Chairman, the powers
and duties of the Chairman shall for the time being devolve upon and
be exercised by the President, unless otherwise ordered by the Board
of Directors.
SECTION 5.5. PRESIDENT. The President shall be the chief
operating officer of the Corporation and shall have such general
authority and supervision over the management and direction of the
affairs of the Corporation, subject to the authority of the Chairman,
as shall usually devolve upon a chief operating officer of a
corporation. The President shall, subject to the other provisions of
these By-Laws, have such other powers and perform such other duties as
usually devolve upon the President of a corporation, and such further
duties as may be prescribed for the President by the Chairman or the
Board of Directors. In case of the absence, disability, death,
resignation or removal from office of the President, the powers and
duties of the President shall, for the time being, devolve upon and be
exercised by the Chairman, and in case of the absence, disability,
death, resignation, or removal from office of both the Chairman and
the President, the powers and duties of the President shall for the
time being devolve upon and be exercised by the Vice President so
appointed by the Board of Directors.
SECTION 5.6. VICE PRESIDENTS. Each of the Vice Presidents shall
have such powers and duties as may be prescribed by the Board of
Directors, the Chairman or the President.
SECTION 5.7. SECRETARY. The Secretary shall attend and keep the
minutes of all meetings of the Board of Directors and of the
shareholders. The Secretary shall have charge and custody of the
corporate records and corporate seal of the Corporation, and shall in
general perform all the duties incident to the office of secretary of
a corporation, subject at all times to the direction and control of
the Board of Directors, the Chairman and the President.
SECTION 5.8. ASSISTANT SECRETARIES. Each of the Assistant
Secretaries shall have such duties and powers as may be prescribed by
the Board of Directors or be delegated by the Chairman or the
President. In the absence or disability of the Secretary, the powers
and duties of the Secretary shall devolve upon such one of the
Assistant Secretaries as the Board of Directors, the Chairman or the
10
President may designate, or, if there be but one Assistant Secretary,
then upon such Assistant Secretary; and such Assistant Secretary shall
thereupon have and exercise such powers and duties during such absence
or disability of the Secretary.
SECTION 5.9. TREASURER. The Treasurer shall have charge of, and
shall be responsible for, the collection, receipt, custody and
disbursement of the funds of the Corporation, and shall also have the
custody of all securities belonging to the Corporation. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper receipts or making proper vouchers
for such disbursements, and shall at all times preserve the same
during the term of office. When necessary or proper, the Treasurer
shall endorse, on behalf of the Corporation, all checks, notes, or
other obligations payable to the Corporation or coming into possession
of the Treasurer for and on behalf of the Corporation, and shall
deposit the funds arising therefrom, together with all other funds of
the Corporation coming into possession of the Treasurer, in the name
and to the credit of the Corporation in such bank or banks as the
Board of Directors shall from time to time by resolution direct. The
Treasurer shall perform all duties which are incident to the office of
treasurer of a corporation, subject at all time to the direction and
control of the Board of Directors, the Chairman and the President.
The Treasurer shall give the Corporation a bond if required by
the Board of Directors in a sum, and with one or more sureties,
satisfactory to the Board, for the faithful performance of the duties
of the office of Treasurer, and for the restoration to the
Corporation, in case of the death, resignation, retirement or removal
from office of the Treasurer, of all books, papers, vouchers, money or
other property of whatever kind in the possession or under the control
of the Treasurer belonging to the Corporation.
SECTION 5.10. ASSISTANT TREASURERS. Each of the Assistant
Treasurers shall have such powers and duties as may be prescribed by
the Board of Directors or be delegated by the Chairman or the
President. In the absence or disability of the Treasurer, the powers
and duties shall devolve upon such one of the Assistant Treasurers as
the Board of Directors, the Chairman or the President may designate,
or, if there be but one Assistant Treasurer, then upon such Assistant
Treasurer who shall thereupon have and exercise such powers and duties
during such absence or disability of the Treasurer. Each Assistant
Treasurer shall likewise give the Corporation a bond if required by
the Board of Directors upon like terms and conditions as the bond
required of the Treasurer.
SECTION 5.11. CONTROLLER. The Controller shall have control
over all accounts and records pertaining to moneys, properties,
materials and supplies. The Controller shall have executive direction
of the bookkeeping and accounting departments, and shall have general
supervision over the records in all other departments pertaining to
moneys, properties, materials and supplies. The Controller shall have
11
charge of the preparation of the financial budget, and such other
powers and duties as are commonly incident to the office of controller
of a corporation, subject at all times to the direction and control of
the Board of Directors, the Chairman and the President.
SECTION 5.12. ASSISTANT CONTROLLERS. Each of the Assistant
Controllers shall have such powers and duties as may be prescribed by
the Board of Directors or be delegated by the Chairman or the
President. In the absence or disability of the Controller, the powers
and duties of the Controller shall devolve upon such one of the
Assistant Controllers as the Board of Directors, the Chairman or the
President may designate, or, if there be but one Assistant Controller,
then upon such Assistant Controller who shall thereupon have and
exercise such powers and duties during such absence or disability of
the Controller.
SECTION 5.13. AUDITOR. The Auditor shall review and monitor the
activities of the Corporation and its subsidiaries, including
development of and compliance with policies and procedures, and shall
in general perform all the duties incident to the office of auditor of
a corporation, subject at all times to direction and control of the
Board of Directors, the Chairman and the President.
SECTION 5.14. ENVIRONMENTAL OFFICER AND COUNSEL. The
Environmental Officer and Counsel shall supervise, review and monitor
the environmental affairs of the Corporation and its subsidiaries,
including the development of and compliance with policies and
procedures, and shall in general perform all the duties incident to
such an office, subject at all times to the direction and control of
the Board of Directors, the Chairman and the President.
ARTICLE VI.
CONDUCT OF BUSINESS.
SECTION 6.1. CONTRACTS, DEEDS AND OTHER INSTRUMENTS. All
agreements evidencing obligations of the Corporation, including but
not limited to contracts, trust deeds, promissory notes, sight drafts,
time drafts and letters of credit (including applications therefor),
may be signed by any one of the Chairman, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary, any
Assistant Secretary, any other person authorized by a resolution of
the Board of Directors, and any other person authorized by the
Chairman, as evidenced by a written instrument of delegation. Any
such authorization by the Board of Directors or the Chairman shall
remain in effect until rescinded by action of the Board of Directors
or (in the case of a delegation by the Chairman) by the Chairman and,
where it identifies the authorized signatory by office rather than by
name, shall not be rescinded solely by virtue of a change in the
person holding that office or a temporary vacancy in that office.
A certified copy of these By-Laws and/or any authorization given
hereunder may be furnished as evidence of the authorities herein
12
granted, and all persons shall be entitled to rely on such authorities
in the case of a specific contract, conveyance or other transaction
without the need of a resolution of the Board of Directors
specifically authorizing the transaction involved.
SECTION 6.2. CHECKS. Checks and other negotiable instruments
for the disbursement of Corporation funds may be signed by any one of
the Chairman, the President, any Vice President, the Treasurer, the
Controller and the Secretary in such manner as shall from time to time
be determined by resolution of the Board of Directors. Electronic or
wire transfers to funds may be authorized by any officer of the
Corporation who is authorized pursuant to this Section 6.2 to disburse
Corporation funds by check or other negotiable instrument.
SECTION 6.3. DEPOSITS. Securities, notes and other evidences of
indebtedness shall be kept in such places, and deposits of checks,
drafts and funds shall be made in such banks, trust companies or
depositories, as shall be recommended and approved by any two of the
Chairman, the President, any Vice President and the Treasurer.
SECTION 6.4. VOTING OF STOCK. Unless otherwise ordered by the
Board of Directors, the Chairman, the President or any Vice President
shall have the power to execute and deliver on behalf of the
Corporation proxies on stock owned by the Corporation appointing a
person or persons to represent and vote such stock at any meeting of
stockholders, with full power of substitution, and shall have power to
alter or rescind such appointment. Unless otherwise ordered by the
Board of Directors, the Chairman, the President or any Vice President
shall have the power on behalf of the Corporation to attend and to act
and vote at any meeting of stockholders of any corporation in which
the Corporation holds stock and shall possess and may exercise any
and all rights and powers incident to the ownership of such stock,
which, as the owner thereof, the Corporation might have possessed and
exercised if present. The Board may confer like powers upon any other
person or persons.
SECTION 6.5. TRANSFER OF STOCK. Such form of transfer or
assignment customary or necessary to effect a transfer of stocks or
other securities standing in the name of the Corporation shall be
signed by the Chairman, the President, any Vice President or the
Treasurer, and the Secretary or an Assistant Secretary shall sign as
witness if required on the form. A corporation or person transferring
any such stocks or other securities pursuant to a form of transfer or
assignment so executed shall be fully protected and shall be under no
duty to inquire whether the Board of Directors has taken action in
respect thereof.
13
ARTICLE VII.
SHARE CERTIFICATES AND THEIR TRANSFER.
SECTION 7.1. SHARE CERTIFICATES. Certificates for shares of the
Corporation shall be signed by the Chairman, the President or any Vice
President, and by the Secretary or any Assistant Secretary, and shall
not be valid unless so signed. Such certificates shall be
appropriately numbered and contain the name of the registered holder,
the number of shares and the date of issue. If such certificate is
countersigned (a) by a transfer agent other than the Corporation or
its employee, or (b) by a registrar other than the Corporation or its
employee, any other signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before
such certificate is issued, it may be issued by the Corporation with
the same effect as if he, she or it were such officer, transfer agent,
or registrar at the date of issue.
SECTION 7.2. TRANSFER OF SHARES. Upon surrender to the
Corporation or a transfer agent of the Corporation of a certificate
for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty
of the Corporation and such transfer agent to issue a new certificate
to the person entitled thereto, cancel the old certificate and record
the transaction. No certificate shall be issued in exchange for any
certificate until the former certificate for the same number of shares
of the same class and series shall have been surrendered and
cancelled, except as provided in Section 7.4.
SECTION 7.3. REGULATIONS. The Board of Directors shall have
authority to make rules and regulations concerning the issue, transfer
and registration of certificates for shares of the Corporation.
SECTION 7.4. LOST, STOLEN AND DESTROYED CERTIFICATES. The
Corporation may issue a new certificate or certificates for shares in
place of any issued certificate alleged to have been lost, stolen or
destroyed upon such terms and conditions as the Board of Directors may
prescribe.
SECTION 7.5. REGISTERED SHAREHOLDERS. The Corporation shall be
entitled to treat the holder of record (according to the books of the
Corporation) of any share or shares as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other party
whether or not the Corporation shall have express or other notice
thereof, except as expressly provided by law.
SECTION 7.6. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may from time to time appoint a transfer agent and a
registrar in one or more cities, may require all certificates
14
evidencing shares of the Corporation to bear the signatures of a
transfer agent and a registrar, may provide that such certificates
shall be transferable in more than one city, and may provide for the
functions of transfer agent and registrar to be combined in one
agency.
ARTICLE VIII.
INDEMNIFICATION.
SECTION 8.1. LITIGATION BROUGHT BY THIRD PARTIES. The
Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, formal or informal (other than an action by or in the
right of the Corporation) (an "Action") by reasons of the fact that he
or she is or was a director, officer, employee or agent of the
Corporation (a "Corporate Person"), or is or was serving at the
request of the Corporation as a director, officer, employee, agent,
partner, trustee or member or in another authorized capacity
(collectively, an "Authorized Capacity") of or for another
corporation, unincorporated association, business trust, partnership,
joint venture, trust, individual or other legal entity, whether or not
organized or formed for profit (collectively, "Another Entity"),
against expenses (including attorneys' fees), judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such Action ("Expenses") if he or she
acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The termination of
any Action by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal
action or proceeding, that the person had reasonable cause to believe
his or her conduct was unlawful.
SECTION 8.2. LITIGATION BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact
that he or she is or was a Corporate Person, or is or was serving at
the request of the Corporation in an Authorized Capacity of or for
Another Entity against Expenses actually and reasonably incurred by
him or her in connection with that defense or settlement of such
action if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for willful negligence or misconduct
in the performance of his duty to the Corporation unless and only to
15
the extent that a court of equity or the court in which such action
was pending shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
such expenses which such court of equity or other court shall deem
proper.
SECTION 8.3. SUCCESSFUL DEFENSE. To the extent that a person
who is or was a Corporate Person or is or was serving in an Authorized
Capacity of Another Entity at the request of the Corporation and has
been successful on the merits or otherwise in defense of any action,
referred to in Section 8.1 or 8.2 of this Article, or in defense of
any claim, issue or matter therein, he or she shall be indemnified
against Expenses actually and reasonably incurred by him or her in
connection therewith.
SECTION 8.4 DETERMINATION OF CONDUCT. Any indemnification under
Section 8.1 or 8.2 of this Article (unless ordered by a court) shall
be made by the Corporation only upon a determination that
indemnification of the person is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in said
Section 8.1 or 8.2. Such determination shall be made (a) by the Board
of Directors by a majority vote of a quorum consisting of directors
not at the time parties to such action, suit or proceeding, or (b) if
a quorum cannot be obtained, by a majority vote of a committee duly
designated by the Board of Directors (in which designation directors
who are parties may participate) consisting of two or more directors
not at the time parties to such action, suit or proceeding, or (c) by
special legal counsel, or (d) by the shareholders; provided, however,
that shares owned by or voted under the control of persons who are at
the time parties to such action, suit or proceeding may not be voted
on the determination.
SECTION 8.5. ADVANCE PAYMENT. The Corporation shall advance
Expenses reasonably incurred by any Corporate Person in any Action in
advance of the final disposition thereof upon the undertaking of such
party to repay the advance unless it is ultimately determined that
such party is entitled to indemnification hereunder, if (a) the
indemnitee furnishes the Corporation a written affirmation of his or
her good faith belief that he or she has satisfied the standard of
conduct in Section 8.1 or 8.2 and (b) a determination is made by those
making the decision pursuant to Section 8.4 that the facts then known
would not preclude indemnification under these By-Laws.
SECTION 8.6. BY-LAW NOT EXCLUSIVE. The indemnification provided
by this Article 8 shall not be deemed exclusive of any other rights to
which any person may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to
action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall
16
inure to the benefit of the heirs, executors and administrators of
such a person.
SECTION 8.7. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a Corporate
Person or is or was serving at the request of the Corporation in an
Authorized Capacity of or for Another Entity against any liability
asserted against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify him or her against
such liability under the provisions of this Article 8 or the Indiana
Business Corporation Law.
SECTION 8.8. EFFECT OF INVALIDITY. The invalidity or
unenforceability of any provision of this Article 8 shall not affect
the validity or enforceability of the remaining provisions of this
Article 8.
SECTION 8.9. DEFINITION OF CORPORATION. For purposes of this
Article 8, references to "the Corporation" shall include, in addition
to the surviving or resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger.
SECTION 8.10. CHANGE IN LAW. Notwithstanding the foregoing
provisions of Article 8, the Corporation shall indemnify any person
who is or was a Corporate Person or is or was serving at the request
of the Corporation in an Authorized Capacity of or for Another Entity
to the full extent permitted by the Indiana Business Corporation Law
or by any other applicable law, as may from time to time be in effect.
ARTICLE IX.
GENERAL.
SECTION 9.1. FISCAL YEAR. The fiscal year of the Corporation
shall begin on the 1st day of January and end on the 31st day of
December in each year.
SECTION 9.2. CORPORATE SEAL. The corporate seal shall be
circular in form and shall have inscribed thereon the words "NiSource
Inc. - Corporate Seal - Indiana."
SECTION 9.3. AMENDMENTS. These By-Laws may be altered, amended
or repealed in whole or in part, and new By-Laws may be adopted, at
any annual, regular or special meeting of the Board of Directors by
the affirmative vote of a majority of a quorum of the Board of
Directors.
SECTION 9.4. DIVIDENDS. Subject to any provisions of any
applicable statute or of the Articles of Incorporation, dividends may
be declared upon the capital stock of the Corporation by the Board of
17
Directors at any regular or special meeting thereof; and such
dividends may be paid in cash, property or shares of the Corporation.
SECTION 9.5. CONTROL SHARES. The Terms "control shares" and
"control share acquisition" used in this Section 9.5 shall have the
meanings set forth in Indiana Business Corporation Law Section 23-1-
42-1, ET SEQ. (the "Act"). Control shares of the Corporation acquired
in a control share acquisition shall have only such voting rights as
are conferred by the Act.
Control shares of the Corporation acquired in a control share
acquisition with respect to which the acquiring person has not filed
with the Corporation the Statement required by the Act may, at any
time during the period ending sixty days after the last acquisition of
control shares by the acquiring person, be redeemed by the
Corporation at the fair value thereof pursuant to procedures
authorized by a resolution of the Board of Directors. Such authority
may be exercised generally or confined to specific instances.
Control shares of the Corporation acquired in a control share
acquisition with respect to which the acquiring person was not granted
full voting rights by the shareholders as provided in the Act may, at
any time after the shareholder vote required by the Act, be redeemed
by the Corporation at the fair value thereof pursuant to procedures
authorized by a resolution of the Board of Directors. Such authority
may be exercised generally or confined to specific instances.
18
EXHIBIT A-5
-----------
CERTIFICATE OF INCORPORATION
of
CEG ACQUISITION CORP.
The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of
the Delaware General Corporation Law, hereby certifies that:
FIRST: The name of the corporation is CEG Acquisition Corp.
(hereinafter called the "Corporation").
SECOND: The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock that the
Corporation is authorized to issue is 1,000 shares of Common Stock,
par value $.0l each.
FIFTH: The name and address of the incorporator is Andrew
W. Smith, 425 Lexington Avenue, New York City, New York 10017.
SIXTH:
(1) To the fullest extent permitted by the laws of the
State of Delaware:
(a) The Corporation shall indemnify any person (and such
person's heirs, executors or administrators) who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (brought in the
right of the Corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal,
including appeals, by reason of the fact that such person is or
was a director or officer of the Corporation or, while a director
or officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise,
for and against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person or such heirs, executors or
administrators in connection with such action, suit or
proceeding, including appeals. Notwithstanding the preceding
sentence, the Corporation shall be required to indemnify a person
2
described in such sentence in connection with any action, suit or
proceeding (or part thereof) commenced by such person only if the
commencement of such action, suit or proceeding (or part thereof)
by such person was authorized by the Board of Directors of the
Corporation. The Corporation may indemnify any person (and such
person's heirs, executors or administrators) who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (brought in the
right of the Corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal,
including appeals, by reason of the fact that such person is or
was an employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, limited liability company or
other enterprise, for and against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit
or proceeding, including appeals.
(b) The Corporation shall promptly pay expenses incurred by
any person described in the first sentence of subsection (a) of
this Article Sixth, Section (1) in defending any action, suit or
proceeding in advance of the final disposition of such action,
suit or proceeding, including appeals, upon presentation of
appropriate documentation.
(c) The Corporation may purchase and maintain insurance on
behalf of any person described in subsection (a) of this Article
Sixth, Section (1) against any liability asserted against such
person, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions
of this Article Sixth, Section (1) or otherwise.
(d) The provisions of this Article Sixth, Section (1) shall
be applicable to all actions, claims, suits or proceedings made
or commenced after the adoption hereof, whether arising from acts
or omissions to act occurring before or after its adoption. The
provisions of this Article Sixth, Section (1) shall be deemed to
be a contract between the Corporation and each director or
officer who serves in such capacity at any time while this
Article Sixth, Section (1) and the relevant provisions of the
laws of the State of Delaware and other applicable law, if any,
are in effect, and any repeal or modification hereof shall not
affect any rights or obligations then existing with respect to
any state of facts or any action, suit or proceeding then or
theretofore existing, or any action, suit or proceeding
thereafter brought or threatened based in whole or in part on any
such state of facts. If any provision of this Article Sixth,
Section (1) shall be found to be invalid or limited in
application by reason of any law or regulation, it shall not
3
affect the validity of the remaining provisions hereof. The
rights of indemnification provided in this Article Sixth, Section
(1) shall neither be exclusive of, nor be deemed in limitation
of, any rights to which an officer, director, employee or agent
may otherwise be entitled or permitted by contract, this
Certificate of Incorporation, vote of stockholders or directors
or otherwise, or as a matter of law, both as to actions in such
person's official capacity and actions in any other capacity
while holding such office, it being the policy of the Corporation
that indemnification of any person whom the Corporation is
obligated to indemnify pursuant to the first sentence of
subsection (a) of this Article Sixth, Section (1) shall be made
to the fullest extent permitted by law.
(e) For purposes of this Article Sixth, references to
"other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references
to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries.
(2) A director of the Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended. Any amendment, modification or repeal of the
foregoing sentence shall not adversely affect any right or protection
of a director of the Corporation hereunder in respect of any act or
omission occurring prior to the time of such amendment, modification
or repeal.
SEVENTH: The Board of Directors of the Corporation, acting
by majority vote, may alter, amend or repeal the By-Laws of the
Corporation.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Incorporation on June 21, 1999.
/s/ Andrew W. Smith
----------------------------------
Andrew W. Smith
Sole Incorporator
EXHIBIT A-6
-----------
BY-LAWS
OF
CEG ACQUISITION CORP.
===============
(A Delaware corporation)
ARTICLE 1
OFFICES; REGISTERED AGENT
SECTION 1.1 REGISTERED OFFICE AND AGENT. The Corporation
shall maintain in the State of Delaware a registered office and a
registered agent whose business office is identical with such
registered office.
SECTION 1.2 PRINCIPAL BUSINESS OFFICE. The Corporation shall
have its principal business office at such location within or without
the State of Delaware as the board of directors may from time to time
determine.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETINGS. Annual meetings of the
stockholders for the purpose of electing directors, and for the
transaction of such other business as may properly come before the
meeting, shall be held at a time and place to be set by the consent of
the stockholders of the Corporation, on the second Wednesday in the
month of April.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the
stockholders for any purpose or purposes may be called by the
chairman, the board of directors or by the president.
SECTION 2.3 PLACE OF MEETINGS. The board of directors may
designate any place, either within or without the State of Delaware,
as the place of meeting for any annual meeting or for any special
meeting called by the board of directors, but if no designation is
made, or if a special meeting be otherwise called, the place of
meeting shall be the principal business office of the Corporation;
provided, however, that for any meeting of the stockholders for which
a waiver of notice designating a place is signed by all of the
stockholders, then that shall be the place for the holding of such
meeting.
SECTION 2.4 NOTICE OF MEETINGS. Written or printed notice
stating the place, date and hour of the meeting of the stockholders
and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given to each stockholder of
record entitled to vote at the meeting, not less than 10 nor more than
60 days before the date of the meeting, or in the case of a meeting
called for the purpose of acting upon a merger or consolidation not
less than 20 nor more than 60 days before the meeting. Such notice
shall be given by or at the direction of the secretary. If mailed,
such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his or her address as it
appears on the records of the corporation, with postage thereon
prepaid. If delivered (rather than mailed) to such address, such
notice shall be deemed to be given when so delivered.
When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than 30 days or unless a new
record date is fixed for the adjourned meeting.
SECTION 2.5 QUORUM AND VOTE REQUIRED FOR ACTION. Except as
may otherwise be provided in the certificate of incorporation of the
Corporation, the holders of the stock of the Corporation having a
majority of the total votes which all of the outstanding stock of the
Corporation would be entitled to cast at the meeting, when present in
person or by proxy, shall constitute a quorum at any meeting of the
stockholders. Unless a different number of votes is required by
statute or the certificate of incorporation of the Corporation, in all
matters submitted to a meeting of stockholders, if a quorum is present
at any meeting of the stockholders, a majority of the votes entitled
to be cast by those stockholders present in person or by proxy shall
be the act of the stockholders.
SECTION 2.6 PROXIES. Each stockholder entitled to vote at a
meeting of the stockholders or to express consent to corporate action
in writing without a meeting may authorize another person or persons
to act for him by proxy, but no proxy shall be valid after eleven
months from its date unless otherwise provided in the proxy. Such
proxy shall be in writing and shall be filed with the secretary of the
Corporation before or at the time of the meeting or the giving of such
written consent, as the case may be.
SECTION 2.7 VOTING OF SHARES. Each stockholder of the
Corporation shall be entitled to such vote (in person or by proxy) for
each share of stock having voting power held of record by such
stockholder as shall be provided in the certificate of incorporation
of the Corporation or, absent provision therein fixing or denying
voting rights, shall be entitled to one vote per share.
SECTION 2.8 INFORMAL ACTION. Any corporate action upon which
a vote of stockholders is required or permitted may be taken without a
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meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and
voted and shall be delivered to the Corporation in the manner required
by law at its registered office within the State of Delaware or at its
principal place of business or to an officer or agent of the
Corporation having custody of the book in which proceedings of
meetings of stockholders of the Corporation are recorded. Every
written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days
of the earliest dated consent delivered, as aforesaid, written
consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner required by law at its
registered office within the State of Delaware or at its principal
place of business or to an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders
of the Corporation are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not so consented
in writing.
ARTICLE 3
DIRECTORS
SECTION 3.1 POWERS. The business and affairs of the
Corporation shall be managed under the direction of its board of
directors which may do all such lawful acts and things as are not by
statute or by the certificate of incorporation of the Corporation or
by these by-laws directed or required to be exercised or done by the
stockholders.
SECTION 3.2 NUMBER, ELECTION, TERM OF OFFICE AND QUALI-
FICATIONS. The board of directors shall consist of two members, who
shall be elected at the annual meeting of the stockholders, except as
provided in Section 3.3, and each director elected shall hold office until
his or her successor is elected and qualified or until his or her
earlier death, resignation or removal in a manner permitted by statute
or these by-laws. Directors need not be stockholders.
SECTION 3.3. VACANCIES. Vacancies occurring in the board of
directors and newly-created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a
sole remaining director, and any director so chosen shall hold office
until the next annual election of directors and until his or her
successor is duly elected and qualified or until his or her earlier
death, resignation or removal in a manner permitted by statute or
these by-laws. If the vote of the remaining directors then in office
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shall result in a tie, the vacancy shall be filled by shareholders at
the annual meeting or a special meeting called for the purpose.
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the board
of directors shall be held immediately following the close of, and at
the same place as, each annual meeting of stockholders. No notice of
any such meeting, other than this by-law, shall be necessary in order
legally to constitute the meeting, provided a quorum shall be present.
In the event such meeting is not held at such time and place, the
meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the board
of directors or as shall be specified in a written waiver signed by
all of the directors. The board of directors may provide, by
resolution, the time and place for the holding of additional regular
meetings without notice other than such resolution.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the board
may be called by the president or any director. The person or persons
calling a special meeting of the board shall fix the time and place at
which the meeting shall be held and such time and place shall be
specified in the notice of such meeting.
SECTION 3.6 NOTICE. Notice of any special meeting of the
board of directors shall be given at least two days previous thereto
by written notice to each director at his or her business address or
such other address as he or she may have advised the secretary of the
Corporation to use for such purpose. If delivered, such notice shall
be deemed to be given when delivered to such address or to the person
to be notified. If mailed, such notice shall be deemed to be given
two business days after deposit in the United States mail so
addressed, with postage thereon prepaid. If given by facsimile
transmission (as evidenced by facsimile confirmation of transmission),
such notice shall be deemed to be given when actually received by the
director to be notified. Such notice may also be given by telephone
or other means not specified herein, and in each such case shall be
deemed to be given when actually received by the director to be
notified. Notice of any meeting of the board of directors shall set
forth the time and place of the meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of
directors (regular or special) need be specified in the notice or
waiver of notice of such meeting.
SECTION 3.7 WAIVER OF NOTICE. A written waiver of notice,
signed by a director entitled to notice of a meeting of the board of
directors or of a committee of such board of which the director is a
member, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice to that director.
Attendance of a director at a meeting of the board of directors or of
a committee of such board of which the director is a member shall
constitute a waiver of notice of such meeting except when the director
attends the meeting for the express purpose of objecting, at the
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beginning of the meeting, to the transaction of any business because
the meeting is not lawfully called or convened.
SECTION 3.8 QUORUM AND VOTE REQUIRED FOR ACTION. At all
meetings of the board of directors, a majority of the total number of
directors fixed by these by-laws shall constitute a quorum for the
transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of
the board of directors except as may be otherwise specifically
provided by statute, the certificate of incorporation of the
Corporation or these by-laws. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present
thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present.
SECTION 3.9 ATTENDANCE BY CONFERENCE TELEPHONE. Members of
the board of directors or any committee designated by the board may
participate in a meeting of such board or committee by means of
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in
person at such a meeting.
SECTION 3.10 PRESUMPTION OF ASSENT. A director of the
Corporation who is present at a duly convened meeting of the board of
directors at which action on any corporate matter is taken shall be
conclusively presumed to have assented to the action taken unless his
or her dissent shall be entered in the minutes of the meeting or
unless he or she shall file his or her written dissent to such action
with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered or
certified mail to the secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply
to a director who voted in favor of such action.
SECTION 3.11 INFORMAL ACTION. Unless otherwise restricted by
statute, the certificate of incorporation of the Corporation or these
by-laws, any action required or permitted to be taken at any meeting
of the board of directors or of any committee thereof may be taken
without a meeting, if a written consent thereto is signed by all the
directors or by all the members of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of
the board of directors or of such committee.
SECTION 3.12 COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of
directors and at each meeting of a committee of the board of directors
of which they are members. The board of directors, irrespective of
any personal interest of any of its members, shall have authority to
fix compensation of all directors for services to the Corporation as
directors, officers or otherwise.
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SECTION 3.13 REMOVAL. Any director or the entire board of
directors may be removed by the stockholders, with or without cause,
by a majority of the votes entitled to be cast at an election of
directors.
SECTION 3.14 COMMITTEE OF DIRECTORS. The board of directors
may, by resolution adopted by a majority of the whole board, designate
one or more committees, including without limitation an Executive
Committee, to have and exercise such power and authority as the board
of directors shall specify. In the absence or disqualification of a
member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he, she or
they constitute a quorum, may unanimously appoint another director to
act at the meeting in place of any such absent or disqualified member.
SECTION 3.15 COMMITTEE RECORDS. Each committee shall keep
regular minutes of its meetings and report the same to the board of
directors when required.
ARTICLE 4
OFFICERS
SECTION 4.1 DESIGNATION; NUMBER; ELECTION. The board of
directors, at its initial meeting and thereafter at its first regular
meeting after each annual meeting of stockholders, shall choose the
officers of the Corporation. Such officers shall be a chairman, a
president, one or more vice presidents, a secretary and such other
additional officers with such titles as the board of directors may
choose. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board. Any two or more
offices may be held by the same person. Except as provided in Article
5, election or appointment as an officer shall not of itself create
contract rights.
SECTION 4.2 SALARIES. The salaries of all officers and agents
of the Corporation chosen by the board of directors shall be fixed by
the board of directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director
of the Corporation.
SECTION 4.3 TERM OF OFFICE; REMOVAL; VACANCIES. Each officer
of the Corporation chosen by the board of directors shall hold office
until the next annual appointment of officers by the board of
directors and until his or her successor is appointed and qualified,
or until his or her earlier death, resignation or removal in the
manner hereinafter provided. Any officer or agent chosen by the board
of directors may be removed at any time by the board of directors
whenever in its judgment the best interests of the Corporation would
be served thereby, but such removal shall be without prejudice to the
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contract rights, if any, of the person so removed. Any vacancy
occurring in any office of the Corporation at any time or any new
offices may be filled by the board of directors for the unexpired
portion of the term.
SECTION 4.4 CHAIRMAN. The chairman of the board shall, if
present, preside at all meetings of the board of directors and
exercise and perform such other powers and duties as may be from time
to time assigned to him by the board of directors.
SECTION 4.5 PRESIDENT. The president shall be the chief
executive officer of the Corporation and, subject to the direction and
control of the board of directors, shall be in charge of the business
of the Corporation. In general, the president shall discharge all
duties incident to the principal executive office of the Corporation
and such other duties as may be prescribed by the board of directors
from time to time. Without limiting the generality of the foregoing,
the president shall see that the resolutions and directions of the
board of directors are carried into effect except in those instances
in which that responsibility is specifically assigned to some other
person by the board of directors; shall preside at all meetings of the
stockholders and, if he or she is a director of the Corporation, of
the board of directors; and, except in those instances in which the
authority to execute is expressly delegated to another officer or
agent of the Corporation or a different mode of execution is expressly
prescribed by the board of directors, may execute for the Corporation
certificates for its shares of stock (the issue of which shall have
been authorized by the board of directors), and any contracts, deeds,
mortgages, bonds, or other instruments which the board of directors
has authorized, and may (without previous authorization by the board
of directors) execute such contracts and other instruments as the
conduct of the Corporation's business in its ordinary course requires,
and may accomplish such execution in each case either under or without
the seal of the Corporation and either individually or with the
secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of
the form of the instrument. The president may vote all securities
which the Corporation is entitled to vote except as and to the extent
such authority shall be vested in a different officer or agent of the
Corporation by the board of directors.
SECTION 4.6 VICE PRESIDENTS. The vice president (and, in the
event there is more than one vice president, each of the vice
presidents) shall render such assistance to the president in the
discharge of his or her duties as the president may direct and shall
perform such other duties as from time to time may be assigned by the
president or by the board of directors. In the absence of the
president or in the event of his or her inability or refusal to act,
the vice president (or in the event there may be more than one vice
president, the vice presidents in the order designated by the board of
directors, or by the president if the board of directors has not made
such a designation, or in the absence of any designation, then in the
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order of seniority of tenure as vice president) shall perform the
duties of the president, and when so acting, shall have all the powers
of and be subject to all the restrictions upon the president. Except
in those instances in which the authority to execute is expressly
delegated to another officer or agent of the Corporation or a
different mode of execution is expressly prescribed by the board of
directors or these by-laws, the vice president (or each of them if
there are more than one) may execute for the Corporation certificates
for its shares of stock (the issue of which shall have been authorized
by the board of directors), and any contracts, deeds, mortgages, bonds
or other instruments which the board of directors has authorized, and
may (without previous authorization by the board of directors) execute
such contracts and other instruments as the conduct of the
Corporation's business in its ordinary course requires, and may
accomplish such execution in each case either under or without the
seal of the Corporation and either individually or with the secretary,
any assistant secretary, or any other officer thereunto authorized by
the board of directors, according to the requirements of the form of
the instrument.
SECTION 4.7 SECRETARY. The secretary shall perform all duties
incident to the office of secretary and such other duties as from time
to time may be assigned by the board of directors or president.
Without limiting the generality of the foregoing, the secretary shall
(a) record the minutes of the meetings of the stockholders and the
board of directors in one or more books provided for that purpose and
shall include in such books the actions by written consent of the
stockholders and the board of directors; (b) see that all notices are
duly given in accordance with the provisions of these by-laws or as
required by statute; (c) be the custodian of the corporate records and
the seal of the Corporation; (d) keep a register of the post office
address of each stockholder which shall be furnished to the secretary
by such stockholder; (e) sign with the president, or a vice president,
or any other officer thereunto authorized by the board of directors,
certificates for shares of stock of the Corporation (the issue of
which shall have been authorized by the board of directors), and any
contracts, deeds, mortgages, bonds, or other instruments which the
board of directors has authorized, and may (without previous
authorization by the board of directors) sign with such other officers
as aforesaid such contracts and other instruments as the conduct of
the Corporation's business in its ordinary course requires, in each
case according to the requirements of the form of the instrument,
except when a different mode of execution is expressly prescribed by
the board of directors; and (f) have general charge of the stock
transfer books of the Corporation.
ARTICLE 5
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall, to the fullest extent to which it is empowered to
do so by the General Corporation Law of Delaware or any other
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applicable laws, as may from time to time be in effect, indemnify any
person (and such person's heirs, executors or administrators) who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action
by or in the right of the Corporation), whether civil, criminal,
administrative or investigative, and whether formal or informal,
including appeals, by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, limited liability company or other enterprise, for and against
all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person or
such heirs, executors or administrators in connection with such
action, suit or proceeding, including appeals.
SECTION 5.2 ADVANCEMENT OF EXPENSES. Expenses (including
attorneys' fees) incurred by an officer or director of the Corporation
in defending a civil, criminal, administrative or investigative
action, suit or proceeding, including appeals, shall be paid by the
Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall be ultimately
determined that he or she is not entitled to be indemnified as
authorized by the General Corporation Law of Delaware, as amended.
SECTION 5.3 CONTRACT WITH THE CORPORATION. The provisions of
this Article 5 shall be deemed to be a contract between the
Corporation and each person who serves as such officer or director in
any such capacity at any time while this Article and the relevant
provisions of the General Corporation Law of Delaware, as amended, or
other applicable laws, if any, are in effect, and any repeal or
modification of any such law or of this Article 5 shall not affect any
rights or obligations then existing with respect to any state of facts
then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.
SECTION 5.4 INDEMNIFICATION OF EMPLOYEES AND AGENTS. Persons
who are not covered by the foregoing provisions of this Article 5 and
who are or were employees or agents of the Corporation, or are or were
serving at the request of the Corporation as employees or agents of
another Corporation, partnership, joint venture, trust or other
enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
SECTION 5.5 OTHER RIGHTS OF INDEMNIFICATION. The
indemnification and the advancement of expenses provided or permitted
by this Article 5 shall not be deemed exclusive of, nor deemed in
limitation of any other rights to which those indemnified may be
entitled by the certificate of incorporation of the Corporation, vote
of stockholders or directors, by law or otherwise, and shall continue
- 9 -
as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE 6
LIMITATION ON DIRECTOR'S LIABILITY
The personal liability for monetary damages to the
Corporation or its stockholders of a person who serves as a director
of the Corporation shall be limited if and to the extent provided at
the time in the certificate of incorporation of the Corporation, as
then amended.
ARTICLE 7
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 7.1 FORM AND EXECUTION OF CERTIFICATES. Every holder
of stock in the Corporation shall be entitled to have a certificate
signed by, or in the name of, the Corporation by the president or a
vice president and by the secretary of the Corporation, certifying the
number of shares owned. Such certificates shall be in such form as
may be determined by the board of directors. During any period while
more than one class of stock of the Corporation is authorized there
will be set forth on the face or back of the certificates which the
Corporation shall issue to represent each class or series of stock a
statement that the Corporation will furnish, without charge to each
stockholder who so requests, the designations, preferences and
relative, participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights. In case any
officer, transfer agent or registrar of the Corporation who has
signed, or whose facsimile signature has been placed upon, any such
certificate shall have ceased to be such officer, transfer agent or
registrar of the Corporation before such certificate is issued by the
Corporation, such certificate may nevertheless be issued and delivered
by the Corporation with the same effect as if the officer, transfer
agent or registrar who signed, or whose facsimile signature was placed
upon, such certificate had not ceased to be such officer, transfer
agent or registrar of the Corporation.
SECTION 7.2 REPLACEMENT CERTIFICATES. The board of directors
may direct a new certificate to be issued in place of any certificate
evidencing shares of stock of the Corporation theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of the fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate, or
his legal representative, to advertise the same in such manner as it
shall require and may require such owner to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that
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may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed. The board of
directors may delegate its authority to direct the issuance of
replacement stock certificates to the transfer agent or agents of the
Corporation upon such conditions precedent as may be prescribed by the
board.
SECTION 7.3 TRANSFERS OF STOCK. Subject to the terms and
conditions of any written agreement between the stockholders regarding
restrictions on the transfer of stock of the Corporation, upon
surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares of stock of the Corporation duly endorsed
or accompanied by proper evidence of succession, assignment, or other
authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books, provided the
Corporation or a transfer agent of the Corporation shall not have
received a notification of adverse interest and that the conditions of
Section 8-401 of Title 6 of the Delaware Code have been met.
SECTION 7.4 REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to treat the holder of record (according to the books of the
Corporation) of any share or shares of its stock as the holder in fact
thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other
party whether or not the Corporation shall have express or other
notice thereof, except as expressly provided by the laws of the State
of Delaware.
ARTICLE 8
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 8.1 CONTRACTS. The board of directors may authorize
any officer or officers, or agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or
confined to specific instances; provided, however, that this Section 8.1
shall not be a limitation on the powers of office granted under
Article 4 of these by-laws.
SECTION 8.2 LOANS. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the board of directors.
Such authority may be general or confined to specific instances.
SECTION 8.3 CHECKS, DRAFTS AND OTHER INSTRUMENTS. All checks,
drafts or other orders for the payment of money and all notes or other
evidences of indebtedness issued in the name of the Corporation shall
be signed by such officer or officers or such agent or agents of the
Corporation and in such manner as from time to time may be determined
by the resolution of the board of directors or by an officer or
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officers of the Corporation designated by the board of directors to
make such determination.
SECTION 8.4 DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit
of the Corporation in such banks, trust companies or other
depositaries as the board of directors, or an officer or officers
designated by the board of directors, may select.
ARTICLE 9
MISCELLANEOUS PROVISIONS
SECTION 9.1 FISCAL YEAR. The fiscal year of the Corporation
shall begin at the beginning of the first day of January and end at
the close of last day of December next succeeding.
SECTION 9.2 DIVIDENDS. Subject to any provisions of any
applicable statute or of the certificate of incorporation, dividends
may be declared upon the capital stock of the Corporation by the board
of directors at any regular or special meeting thereof; and such
dividends may be paid in cash, property or shares of stock of the
Corporation.
SECTION 9.3 RESERVES. Before payment of any dividends, there
may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the board of directors from time to
time, in its discretion, determines to be proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such
other purpose as the board of directors shall determine to be
conducive to the interests of the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was
created.
SECTION 9.4 VOTING STOCK OF OTHER CORPORATIONS. In the
absence of specific action by the board of directors, the president
shall have authority to represent the Corporation and to vote, on
behalf of the Corporation, the securities of other corporations, both
domestic and foreign, held by the Corporation.
SECTION 9.5 SEVERABILITY. If any provision of these by-laws,
or its application thereof to any person or circumstances, is held
invalid, the remainder of these by-laws and the application of such
provision to other persons or circumstances shall not be affected
thereby.
SECTION 9.6 AMENDMENT. These by-laws may be amended or
repealed, or new by-laws may be adopted, by the board of directors of
the Corporation. These by-laws may also be amended or repealed, or
new by-laws may be adopted, by action taken by the stockholders of the
Corporation.
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EXHIBIT H-1
-----------
UNITED STATE OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
Public Utility Holding Company Act of 1935
Release No. / , 1999
In the Matter of: )
)
NiSource Inc. and CEG Acquisition Corp. )
801 East 86th Avenue )
Merrillville, Indiana 46410 )
)
(70- ) )
CEG Acquisition Corp. ("Acquisition Corp."), a Delaware
corporation and a wholly owned subsidiary of NiSource Inc., an Indiana
corporation whose principal executive offices are located at 801 East
86th Avenue, Merrillville, Indiana 46410 ("NiSource"), and NiSource
have filed an Application/Declaration under Sections 4, 5, 8, 9(a),
10, 11(b), 13 and 21 of the Public Utility Holding Company Act of 1935
as amended ("Act") and Rules 51, 80-91, 93 and 94 thereunder.
On June 25, 1999, Acquisition Corp. commenced a tender offer
pursuant to the Securities Exchange Act of 1934 to purchase all of the
outstanding shares of common stock of Columbia Energy Corp.
("Columbia"), at $68 per share, in cash, on the terms and subject to
the conditions set forth in Acquisition Corp.'s Offer to Purchase and
Related Letter of Transmittal (the "Offer"). The Offer initially
expired on August 6, 1999. At that time, Columbia shareholders
tendered 49,638,497 shares of stock pursuant to the Offer which
represents over 60% of Columbia's outstanding common shares. Due to
the Offer's initial success, NiSource extended the Offer until
midnight October 15, 1999. The acquisition by Acquisition Corp. of
the stock of Columbia and the subsequent merger of these companies is
referred to as the "Transaction."
The purpose of the Offer and the Transaction is to enable
NiSource to acquire control of, and the entire equity interest in,
Columbia. The terms of the Offer comply with the provisions of Rule
51. The Offer is conditioned on, among other things, approval under
the Act. No fees are payable with respect to the Offer; no indemnity
is provided for market or investment risk; no transfers of tendered
shares will be made by Acquisition Corp.; and tendered shares may be
withdrawn under the circumstances contemplated by Rule 51. Upon
acquisition of the shares of Columbia common stock, and after
necessary approvals under the Act, NiSource and Acquisition Corp. will
each register as a holding company pursuant to Section 5 of the Act.
Pursuant to Sections 9(a)(2) and 10 of the Act, NiSource and
Acquisition Corp. request authorization and approval of the Commission
(i) to acquire, pursuant to the Offer and the Transaction, all of the
issued and outstanding common stock of Columbia, and indirectly, all
of the outstanding voting securities of the direct and indirect
subsidiaries of Columbia and (ii) for the subsequent merger of
Acquisition Corp. and Columbia. Approval is also requested for the
retention of NiSource's electric utility operations, the retention of
the non-utility businesses of NiSource and Columbia and for the
provision of services to the resulting direct or indirect subsidiaries
of NiSource by a service company subsidiary of NiSource under Section
13 of the Act and the rules promulgated thereunder.
NiSource and Acquisition Corp. believe that the Transaction
will provide important strategic and financial benefits to NiSource's
shareholders and the shareholders of Columbia, as well as to their
respective employees and customers and the communities in which they
provide public utility service. Among other things, NiSource believes
that the Transaction will provide benefits in the form of an enhanced
ability to take advantage of future strategic opportunities in the
increasingly competitive and rapidly evolving markets for energy and
energy services in the United States. Further, NiSource believes
that, following the Transaction, the combined companies will be better
positioned to take advantage of operating economies and efficiencies
through, among other measures, joint management and optimization of
their respective portfolios of gas supply, transportation and storage
assets. The combination of Columbia's gas utilities with NiSource's
electric utility operations will enhance the competitive position of
Columbia's gas utilities as the convergence of the utility/energy
business continues to accelerate.
NiSource Capital Markets Inc. ("Capital Markets"), a wholly
owned subsidiary of NiSource, will issue notes due 364 days after
issuance in the approximate amount of, but not to exceed, $6 billion
("Tender Notes") to a consortium of banks in order to obtain funds
necessary for the acquisition of the stock of Columbia pursuant to the
Offer. These notes will be refinanced with longer-term financing that
will include the issuance of equity. Prior to completion of the
Transaction, NiSource will file one or more additional
Application/Declarations under the Act with respect to the ongoing
financing activities, non-utility businesses, other investments of,
and other matters pertaining to, the combined company after giving
effect to the Transaction and the registration of NiSource and
Acquisition Corp. as holding companies. Among the transactions
included in such filings will be NiSource's issuance of common stock
and other securities to refinance the Tender Notes.
NiSource, formerly NIPSCO Industries, Inc., is currently an
exempt holding company pursuant to Section 3(a)(1) of the Act that
owns five public utility companies: Northern Indiana Public Service
Company ("Northern Indiana"), Kokomo Gas and Fuel Company ("Kokomo
Gas"), Northern Indiana Fuel and Light Company, Inc. ("NIFL"), Bay
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State Gas Company ("Bay State") and Northern Utilities, Inc.
("Northern"). Northern Indiana is a combination gas and electric
utility that distributes gas to approximately 673,300 customers and
transmits and sells electricity to 421,000 customers in a service
territory of about 12,000 square miles in the northern part of
Indiana. Kokomo Gas supplies natural gas to approximately 34,200
retail customers in a six county area of north central Indiana having
a population of approximately 100,000. NIFL supplies natural gas to
approximately 34,800 retail customers in five counties in the
northeast corner of Indiana having a population of approximately
66,700. These three Indiana operating utility subsidiaries of NiSource
are subject to regulation by the Indiana Utility Regulatory Commission
as to rates, service and other matters.
Bay State provides gas service to approximately 266,570
residential, commercial and industrial customers in three separate
areas of Massachusetts covering approximately 1,344 square miles and
having a combined population of approximately 1,340,000. Bay State is
subject to regulation by the Massachusetts Department of
Telecommunications and Energy as to rates, service and other matters.
Northern provides gas service to approximately 46,460 residential,
commercial and industrial customers in an area of approximately 808
square miles in New Hampshire and Maine having a population of
approximately 450,000. Northern is subject to regulation by the New
Hampshire Public Utilities Commission and the Maine Public Utilities
Commission as to rates, service and other matters.
NiSource owns non-utility subsidiaries engaged in the
following activities: (i) natural gas pipeline, storage and gathering,
(ii) oil and gas exploration and production, (iii) energy marketing,
(iv) energy-related projects, (v) energy management services, (vi)
HVAC services, (vii) customer information services, (viii) water
utilities, (ix) waste water treatment, (x) utility related services,
(xi) financing and (xii) real estate investments.
For the twelve months ended June 30, 1999, the gas and
electric public utility subsidiaries of NiSource reported segment
profit of $237.8 million ($47.0 million gas and $190.8 million
electric) on combined operating gas and electric utility revenues of
approximately $2.73 billion. Gas sales (including transportation
service) accounted for approximately 53% and electric sales accounted
for approximately 47% of NiSource's gross utility revenues.
Consolidated assets of NiSource and its subsidiaries as of June 30,
1999, were approximately $6.4 billion, consisting of $4.1 billion in
net gas and electric utility plant ($1.8 gas and $2.3 electric) and
associated facilities and $2.3 billion in net non-utility plant and
other non-utility assets.
Columbia, formerly The Columbia Gas System, Inc., is
currently a registered holding company which owns five natural gas
distribution utilities: Columbia Gas of Kentucky, Inc., Columbia Gas
of Maryland, Inc., Columbia Gas of Ohio, Inc., Columbia Gas of
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Pennsylvania, Inc. and Columbia Gas of Virginia, Inc. Columbia's
distribution utilities provide natural gas service to nearly 2.1
million residential, commercial and industrial customers in Ohio,
Pennsylvania, Virginia, Kentucky and Maryland. The distribution
utilities are subject respectively to regulation by the Kentucky
Public Service Commission, Maryland Public Service Commission, Public
Utilities Commission of Ohio, Pennsylvania Public Utility Commission
and the Virginia State Corporation Commission as to rates, service and
other matters.
Columbia also owns non-utility subsidiaries engaged in the
following activities: (i) natural gas transportation and storage, (ii)
oil and natural gas exploration and production, (iii) energy
marketing, (iv) propane, petroleum and liquefied natural gas sales,
(v) development, ownership and operation of natural gas-fired
cogeneration plants and (vi) telecommunication service.
The Application/Declaration and any amendments thereto are
available for public inspection through the Commission s Office of
Public Reference. Interested persons wishing to comment or request a
hearing should submit their views in writing by ________, 1999 to the
Secretary, Securities and Exchange Commission, Washington, D.C. 20549,
and serve a copy on NiSource at the address specified above. Proof of
service (by affidavit or, in the case of an attorney at law, by
certificate) should be filed with the request. Any request for
hearing shall identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the manner. After ________, 1999, the Application/Declaration, as
filed or as it may be amended, may be permitted to become effective.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
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