<PAGE> 1
[NISOURCE LOGO][COLUMBIA ENERGY GROUP LOGO]
April 24, 2000
Dear Fellow Shareholders:
The boards of directors of NiSource Inc. and Columbia Energy Group have
agreed to merge our two companies to create a leading super-regional energy
company. After the merger, the combined company will be owned by the
shareholders of NiSource and, if the NiSource shareholders approve the merger
agreement, by shareholders of Columbia who elect to receive common shares in the
merger. The merger and the consideration to be issued to Columbia shareholders
are explained in detail beginning on page 31 of this joint proxy
statement/prospectus.
This is an exciting and important event in the history of each of our
companies. It is also an important decision for you as a shareholder. This
document provides you with detailed information about the merger. We urge you to
read it carefully and, when you have finished, to vote your shares. Your failure
to vote will have the same effect as a vote against the merger.
Once you have voted, you will not need to take further action with respect
to the merger at this time. As we obtain necessary approvals and anticipate
completing the merger, we will send Columbia shareholders instructions about
making any applicable elections and exchanging their shares.
NiSource shareholders are also being asked to vote on the election of
directors and the approval of an amended and restated long-term incentive plan,
as described in the attached notice of annual meeting.
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Sincerely, Sincerely,
/s/ Oliver G. Richard III /s/ Oliver G. Richard III
Gary L. Neale Oliver G. Richard III
Chairman, President and Chief Executive Chairman, President and Chief Executive
Officer, NiSource Inc. Officer, Columbia Energy Group
</TABLE>
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DESCRIPTION OF CERTAIN
RISKS ASSOCIATED WITH THE MERGER.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger, the securities to be issued in the merger
or the fairness of the merger, nor have they determined if this document is
accurate or adequate. Any representation to the contrary is a criminal offense.
The date of this joint proxy statement/prospectus is April 24, 2000, and we
are first mailing it to shareholders on or about April 27, 2000.
<PAGE> 2
[NISOURCE LOGO]
NISOURCE INC.
801 E. 86th Avenue - Merrillville, IN 46410 - (219) 853-5200
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING
April 24, 2000
To the Holders of Common Shares of
NiSource Inc.:
The annual meeting of the shareholders of NiSource Inc. will be held at the
Capitol Theatre, 3rd Floor, 77 South High Street, Columbus, Ohio, on Thursday,
June 1, 2000, at 10:00 a.m., local time, for the following purposes:
(1) To elect three members of the board of directors, each for a term of
three years;
(2) To consider and approve a merger agreement that provides for the
formation of a new holding company in our acquisition of Columbia
Energy Group and for the change of the name of the new holding company
to NiSource Inc.;
(3) To approve an amended and restated long-term incentive plan; and
(4) To transact any other business that may properly come before the
meeting.
All persons who are shareholders of record at the close of business on
April 27, 2000 will be entitled to vote at the annual meeting.
Please act promptly to vote your shares with respect to the proposals
described above. You may vote your shares by marking, signing, dating and
mailing the enclosed proxy card. You may also vote by telephone or through the
internet by following the instructions set forth on the proxy card. If you
attend the annual meeting, you may vote in person, even if you have previously
submitted a proxy.
PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET OR BY PROMPTLY
MARKING, DATING, SIGNING AND RETURNING THE ENCLOSED PROXY CARD.
/s/ Oliver G. Richard III
Nina M. Rausch
Secretary
<PAGE> 3
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
June 2, 2000
- --------------------------------------------------------------------------------
[COLUMBIA ENERGY GROUP LOGO]
You are cordially invited to attend the Special Meeting of Stockholders of
Columbia Energy Group, a Delaware corporation, which will be held at the PNC
Bank Center, 222 Delaware Avenue, Wilmington, Delaware, on Friday, June 2, 2000,
at 2:00 p.m., local time, to consider and act upon the following proposals:
1. To adopt a merger agreement with NiSource Inc.; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on April 27, 2000,
as the record date for determination of stockholders entitled to notice of and
to vote at the Special Meeting or any adjournment thereof.
As a service to our stockholders, in addition to the traditional paper
proxy card, you may vote by telephone by following the directions on your proxy
card. Please vote, sign, date and mail the enclosed proxy card or vote by
telephone even if you intend to attend the special meeting. A self-addressed
envelope for returning your completed proxy card is enclosed for your
convenience. No postage is required if mailed within the United States. Any
stockholder present at the special meeting may nevertheless vote personally on
all matters with respect to which such stockholder is entitled to vote. More
information concerning voting is contained on page 28 of the joint proxy
statement/prospectus.
By order of the Board of Directors.
/s/ Carolyn McKinney Afshar
Carolyn McKinney Afshar
Secretary
Herndon, Virginia
April 24, 2000
Office of the Secretary
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
<PAGE> 4
TABLE OF CONTENTS
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SUMMARY............................. 1
The Primary Parties............... 1
The Merger........................ 2
What You Will Receive in the
Merger......................... 2
Election Process for Columbia
Shareholders................... 3
Material United States Federal
Income Tax Consequences........ 3
The SAILS(SM)..................... 4
Listing on an Exchange............ 5
Appraisal Rights.................. 6
Our Reasons for the Merger........ 6
Opinions of Financial Advisors.... 6
Recommendations to Shareholders... 7
Votes Required to Approve the
Merger......................... 7
Accounting Treatment.............. 7
Financing the Merger.............. 7
Ownership of New NiSource
Following the Merger........... 7
Board of Directors and Management
of New NiSource Following the
Merger......................... 7
Material Differences in the Rights
of Shareholders................ 8
Interests of Officers and
Directors in the Merger........ 8
Regulatory Approvals.............. 8
Other Conditions to the Merger.... 8
Termination of the Merger
Agreement...................... 9
Termination Fees.................. 10
No Solicitation................... 10
Risks Associated with the
Merger......................... 10
Historical Market Price and Dividend
Information....................... 11
Recent Financial Results............ 13
Selected Historical Consolidated
Financial Information............. 14
Selected Unaudited Pro Forma
Combined Financial Information.... 16
Comparative Per Share and Dividend
Information....................... 17
RISK FACTORS........................ 19
Transaction Risks................. 19
Business Risks.................... 23
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Risks Relating to the New NiSource
Common Shares.................. 24
Risks Relating to the SAILS....... 25
Cautionary Statements Concerning
Forward-Looking Statements..... 27
THE SHAREHOLDER MEETINGS............ 28
Dates, Times and Places........... 28
Purposes.......................... 28
Voting Rights; Votes Required for
Approval....................... 28
Proxies........................... 29
THE MERGER.......................... 31
Overview.......................... 31
Merger Consideration.............. 31
Alternative Merger Structure...... 33
Background of the Merger.......... 33
NiSource's Reasons for the Merger;
Recommendation of NiSource's
Board.......................... 37
Recommendation and Considerations
of the Columbia Board of
Directors...................... 40
Financing the Transaction......... 43
Accounting Treatment.............. 44
Interests of Officers and
Directors in the Merger........ 45
Columbia Shareholders' Appraisal
Rights......................... 48
OPINIONS OF FINANCIAL ADVISORS...... 52
Opinion of NiSource's Financial
Advisor........................ 52
Opinions of Columbia's Financial
Advisors....................... 56
THE MERGER AGREEMENT................ 72
The Merger........................ 72
Effective Time.................... 72
Election of Consideration by
Columbia Shareholders.......... 72
Exchange of Columbia Share
Certificates................... 73
Representations and Warranties.... 74
Material Covenants................ 75
Conditions to the Merger.......... 77
Termination....................... 78
Termination Fees.................. 79
Amendment and Waiver.............. 80
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i
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REGULATORY MATTERS.................. 81
Antitrust Considerations.......... 81
Public Utility Holding Company Act
of 1935........................ 81
Federal Power Act................. 83
Public Utility Regulatory Policies
Act of 1978.................... 84
Natural Gas Act................... 84
State Regulatory Approvals........ 84
Affiliate Contracts and
Arrangements................... 86
Other Regulatory Matters.......... 86
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES...................... 87
General........................... 87
Material United States Federal
Income Tax Consequences of the
Merger......................... 88
Material United States Federal
Income Tax Consequences of the
Alternative Merger Structure... 91
Material United States Federal
Income Tax Consequences of
Owning SAILS................... 91
UNAUDITED PRO FORMA FINANCIAL
INFORMATION....................... 96
DIRECTORS AND MANAGEMENT OF NEW
NISOURCE FOLLOWING THE MERGER..... 102
Directors......................... 102
Executive Officers................ 102
SECURITY OWNERSHIP OF NISOURCE,
COLUMBIA AND NEW NISOURCE......... 102
DESCRIPTION OF THE SAILS............ 106
SAILS............................. 106
Creating Treasury SAILS........... 107
Recreating SAILS.................. 108
No Current Payments............... 108
Listing of the SAILS.............. 108
Purchase by Issuer................ 108
Book-Entry Issuance............... 109
Description of the Purchase
Contracts...................... 110
Certain Provisions of the Purchase
Contracts, the Purchase
Contract Agreement and the
Pledge Agreement............... 116
Description of the Debentures..... 119
DESCRIPTION OF NEW NISOURCE CAPITAL
STOCK FOLLOWING THE MERGER........ 125
General........................... 125
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Common Shares..................... 125
Preferred Shares.................. 125
New York Stock Exchange Listing;
Delisting of NiSource and
Columbia Shares................ 125
Federal Securities Law
Consequences; Stock Transfer
Restriction Agreements......... 125
Stock Incentive Plans............. 126
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF NEW NISOURCE, NISOURCE AND
COLUMBIA.......................... 126
Voting Rights..................... 127
Number, Vacancy and Removal of
Directors...................... 127
Meetings of Shareholders.......... 128
Shareholder Action Without a
Meeting........................ 128
Shareholder Inspection Rights and
Shareholders' Lists............ 129
Dividends......................... 129
Amendments to Articles or
Certificate of Incorporation... 130
Amendments to Bylaws.............. 130
Liability of Directors............ 131
Indemnification................... 131
Certain Business Combinations and
Share Purchases................ 132
Dissenters' or Appraisal Rights... 135
Shareholder Rights Plan........... 136
Voluntary Dissolution............. 136
Liquidation Rights................ 137
DESCRIPTION OF NISOURCE............. 138
NiSource's Business Strategy...... 138
Recent Acquisitions in Utility and
Energy Services Businesses..... 138
Natural Gas....................... 139
Electricity....................... 140
Water............................. 140
Non-Regulated Energy Services..... 140
DESCRIPTION OF COLUMBIA............. 142
General........................... 142
Transmission and Storage
Operations..................... 142
Distribution Operations........... 142
</TABLE>
ii
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Exploration and Production
Operations..................... 143
Energy Marketing Operations....... 143
Power Generation, LNG and Other
Operations..................... 143
Competition....................... 144
Other Relevant Business
Information.................... 145
LEGAL MATTERS....................... 146
EXPERTS............................. 146
FUTURE SHAREHOLDER PROPOSALS........ 146
WHERE YOU CAN FIND MORE
INFORMATION....................... 147
ADDITIONAL MATTERS FOR NISOURCE'S
ANNUAL MEETING.................... 149
ELECTION OF NISOURCE DIRECTORS...... 149
Nominees for Election as NiSource
Directors...................... 149
Meetings and Committees of the
NiSource Board of Directors.... 151
Compensation of NiSource
Directors...................... 152
Certain Relationships and Related
Transactions................... 153
Security Ownership of Certain
Beneficial Owners and
Management..................... 153
NISOURCE EXECUTIVE COMPENSATION..... 154
Nominating and Compensation
Committee Report on Executive
Compensation................... 154
Compensation of NiSource Executive
Officers....................... 157
</TABLE>
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Pension Plan and Supplemental
Executive Retirement Plan...... 161
NiSource Change in Control and
Termination Agreements......... 162
NISOURCE STOCK PRICE PERFORMANCE
GRAPH............................. 163
APPROVAL OF NISOURCE'S AMENDED AND
RESTATED LONG-TERM INCENTIVE
PLAN.............................. 164
Background........................ 164
General Description of the Amended
and Restated Long-Term
Incentive Plan................. 164
Plan Provisions................... 165
Vote Required for Approval of the
Amended and Restated Incentive
Plan........................... 171
INDEPENDENT PUBLIC ACCOUNTANTS...... 171
ANNEXES............................. 172
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ANNEX I AGREEMENT AND PLAN OF MERGER
ANNEX II SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
ANNEX III OPINION OF CREDIT SUISSE FIRST
BOSTON CORPORATION
ANNEX IV OPINION OF MORGAN STANLEY & CO.
INCORPORATED
ANNEX V OPINION OF SALOMON SMITH BARNEY
INC.
ANNEX VI NISOURCE INC. AMENDED AND
RESTATED LONG-TERM INCENTIVE PLAN
</TABLE>
iii
<PAGE> 7
SUMMARY
We have summarized below selected basic information regarding the proposed
merger of NiSource and Columbia. Because it is just a summary, it does not
contain all of the information regarding the merger. To understand the merger
more fully, and for a more complete description of the terms of the merger
agreement, you should read carefully this entire document and the other
available information referred to in "Where You Can Find More Information" on
page 147. We have included page references parenthetically to direct you to a
more complete description of the topics presented in this summary. The merger
agreement is included as Annex I to this document. It is the legal document that
governs the merger, and we encourage you to read it.
THE PRIMARY PARTIES (SEE PAGES 138 AND 142)
NiSource. NiSource is an energy and utility-based holding company that
provides natural gas, electricity, water and related services for residential,
commercial and industrial uses. NiSource distributes natural gas to more than
751,000 customers in 41 counties across northern Indiana and to more than
320,000 customers in 12 counties in New England. NiSource also generates and
distributes electricity to approximately 426,000 customers in 30 counties in the
northern part of Indiana and operates the sixth largest investor-owned water
utility business in the United States, serving approximately 275,000 customers
in Indianapolis and surrounding areas. NiSource also operates an interstate
pipeline extending from the northwestern corner of Indiana eastward into Ohio
and an interstate pipeline in New England.
NiSource also provides other utility-related services. It owns one of the
largest underground utility locating and marking service businesses in the
country. NiSource also owns businesses that install, repair and maintain
underground pipelines. NiSource invests in real estate and venture capital
projects and provides a variety of energy-related services, including gas
marketing, gas transmission, supply and storage services. Additionally, NiSource
develops unregulated power projects and markets products and services, such as
propane, energy efficiency design and energy advisory services, in various
states.
NiSource's headquarters are located at 801 East 86th Avenue, Merrillville,
Indiana 46410. NiSource's telephone number is (219) 853-5200.
Columbia. Columbia Energy Group is one of the nation's largest integrated
natural gas systems engaged in natural gas transmission, natural gas
distribution, and exploration for and production of natural gas and oil.
Columbia owns approximately 16,250 miles of interstate pipelines extending from
offshore in the Gulf of Mexico to Lake Erie, New York and the eastern seaboard.
Columbia's distribution subsidiaries provide natural gas service to nearly 2.1
million residential, commercial and industrial customers in Ohio, Pennsylvania,
Virginia, Kentucky and Maryland.
Columbia explores for, develops, gathers and produces natural gas and oil
in Appalachia and Canada. Columbia sells propane at wholesale and retail to more
than 350,600 customers in 31 states and the District of Columbia. It owns and
operates petroleum assets with approximately 42,600 customers in five states.
Columbia owns an unregulated electric generation company whose primary focus is
the development, ownership and operation of clean, natural gas fueled power
projects.
SUMMARY
1
<PAGE> 8
Columbia provides telecommunications and information services and assists
personal communications service providers and other microwave radio service
licensees in locating and constructing antenna facilities. Columbia has begun
the construction of a telecommunications network along the Washington, D.C. to
New York City corridor, and it plans to build and maintain a fiber optics
network for voice and data communications on 260 miles of Columbia's pipeline
rights-of-way.
Columbia's headquarters are located at 13880 Dulles Corner Lane, Herndon,
Virginia 20171-4600. Columbia's telephone number is (703) 561-6000.
THE MERGER (SEE PAGE 31)
The structure that is used to complete the merger will depend on how the
NiSource shareholders vote on approval of the merger agreement. The preferred
structure for the merger involves the creation of a new holding company,
currently named New NiSource Inc., and two separate but concurrent mergers. One
wholly-owned subsidiary of New NiSource will merge into NiSource, and another
wholly-owned subsidiary of New NiSource will merge into Columbia. NiSource and
Columbia will be the surviving corporations in those mergers and will become
wholly owned by New NiSource. This structure will allow both Columbia
shareholders and NiSource shareholders to exchange their shares tax-free for New
NiSource common shares. Immediately after these mergers, NiSource will merge
into New NiSource. New NiSource will then change its name to "NiSource Inc." and
serve as a holding company for Columbia and its subsidiaries and the
subsidiaries of NiSource.
If the NiSource shareholders do not approve the merger agreement, the
merger between NiSource and a wholly-owned subsidiary of New NiSource will not
occur, and Columbia will become a wholly-owned subsidiary of NiSource itself,
rather than of New NiSource. Shareholders will receive different consideration
under this alternative structure than under the new holding company structure.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE 31)
If, as we expect, we complete the merger using the new holding company
structure:
- NiSource shareholders will receive one common share of New NiSource for
each of their NiSource common shares.
- Columbia shareholders, other than shareholders who exercise their
appraisal rights as described in "The Merger -- Columbia Shareholders'
Appraisal Rights" on page 48, will receive, for each of their Columbia
common shares, either:
(1) $70 in cash and $2.60 stated amount of a New NiSource SAILS(SM), which
is a unit consisting of a zero coupon debt security and a forward
equity contract having the terms described under "Description of the
SAILS" on page 106, or
(2) if the Columbia shareholder elects, the number of New NiSource common
shares equal to $74 divided by the average trading price of NiSource
common
SUMMARY
2
<PAGE> 9
shares for the 30 consecutive trading days ending two trading days
before the completion of the merger, but never more than 4.4848
shares.
Stock elections are subject to proration if the elections exceed 30% of
Columbia's outstanding shares. Also, unless Columbia shareholders make
stock elections for at least 10% of Columbia's outstanding shares, all
Columbia shareholders will receive cash and New NiSource SAILS in the
merger.
- The consideration to be paid to Columbia shareholders in the merger will
include an additional amount reflecting an interest factor, if the
merger is not completed by February 27, 2001. This will be an amount in
cash equal to interest at 7% per annum on $72.29 for the period
beginning on February 27, 2001 and ending on the day before the
completion of the merger, less the amount of any cash dividends paid on
Columbia common shares with a record date after February 27, 2001.
If, however, we complete the merger using the alternative merger structure,
NiSource common shares will remain unchanged and will not be converted into
common shares of New NiSource. Columbia shareholders, other than shareholders
who exercise their appraisal rights, will receive, for each of their Columbia
common shares, $70 in cash and $3.02 stated amount of a NiSource SAILS, a unit
consisting of a zero coupon debt security and a forward equity contract having
the terms described under "Description of the SAILS" on page 106, and, as in the
case of the new holding company structure, an additional amount if the merger is
not completed by February 27, 2001. Columbia shareholders will have no right to
elect to receive stock consideration if the alternative merger structure is
used.
ELECTION PROCESS FOR COLUMBIA SHAREHOLDERS (SEE PAGE 72)
Shortly before completion of the merger, Columbia shareholders will be sent
an election form to use to elect to receive stock in the merger. Election forms
will be due two business days before the closing -- NiSource and Columbia will
announce this date once it is established. Columbia shareholders may change or
revoke their elections at any time until that date. Columbia shareholders who do
not submit election forms will receive cash and SAILS in the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 87)
The exchange of NiSource common shares for New NiSource common shares by
NiSource shareholders will be tax-free to them for United States federal income
tax purposes. The exchange of Columbia shares solely for New NiSource common
shares by Columbia shareholders pursuant to a stock election will be tax-free to
them, but the receipt of cash for a fractional share or the additional amount
payable if the merger is not completed before February 27, 2001 will be taxable.
Columbia shareholders who receive the cash and SAILS consideration will
recognize taxable gain or loss for United States federal income tax purposes, as
will Columbia shareholders who properly exercise appraisal rights.
If you own SAILS, you will be required to include in gross income your
allocable share of the original issue discount that accrues with respect to the
debentures included in your SAILS, even though you will receive no cash payment.
We will not be able to
SUMMARY
3
<PAGE> 10
determine the amount that you will have to include as taxable income until the
SAILS are publicly traded after the merger.
The tax consequences to you of the merger and of your ownership of SAILS
will depend on the facts of your own situation. You should therefore consult
your tax advisor for a full understanding of the tax consequences to you.
THE SAILS(SM)* (SEE PAGE 106)
Each SAILS is a unit consisting of a share purchase contract and a
debenture. The share purchase contract represents your obligation to purchase
common shares on the fourth anniversary of completion of the merger, and the
debenture is pledged to secure that obligation.
Share Purchase Contract (see page 110). Under the share purchase contract,
you will receive for each SAILS, on the fourth anniversary of the completion of
the merger, the following number of New NiSource common shares:
- if the average closing price of the common shares on the New York Stock
Exchange over a 30-day period before the fourth anniversary equals or
exceeds $23.10, you will receive 0.1126 common shares;
- if the average closing price is less than $23.10 but greater than $16.50,
you will receive a number of common shares equal to $2.60 divided by the
average closing price; and
- if the average closing price is less than or equal to $16.50, you will
receive 0.1576 common shares.
The number of New NiSource common shares you will receive will be subject to
antidilution adjustments. Because the combined company will issue only whole
common shares, you will receive the value of any fractional share in cash.
Debenture (see page 119). The debenture that is initially part of each New
NiSource SAILS will have a stated amount of $2.60. The debenture will not pay
interest for the first four years after the merger. After that time, the
debenture will pay interest at a market rate until its maturity two years later.
Limited Voting Rights of the SAILS (see page 117). As a holder of SAILS,
your only voting rights will be with respect to the modification of the purchase
contracts or the debentures. You will not have any voting or other rights with
respect to the common shares until you purchase them.
Treasury SAILS and Substitution of Collateral (see page 107). Once you own
SAILS, you may create Treasury SAILS by substituting U.S. Treasury securities
for the debentures that are a part of the SAILS. You may create Treasury SAILS
only in integral multiples of 5,000 by depositing Treasury securities having a
principal amount at maturity of $13,000 (equal to 5,000 times $2.60). If you
create Treasury SAILS, your debenture will become an independently tradeable
security that is no longer pledged to secure your obligation under the share
purchase contract. Once you have created Treasury SAILS, you may subsequently
recreate SAILS by substituting debentures for the Treasury securities.
- -------------------------
* "SAILS(SM)" and "Stock Appreciation Income Linked Securities(SM)" are service
marks of Credit Suisse First Boston Corporation.
SUMMARY
4
<PAGE> 11
Settlement of Purchase Contract; Remarketing of Debenture (see page
113). Unless you choose to make a cash payment of $2.60 to settle your purchase
contract, your debenture that is pledged as collateral will be
remarketed -- that is, sold to the public -- shortly before the fourth
anniversary of the merger, and the proceeds will be used to pay the amount you
otherwise would owe under your purchase contract. If you do choose to pay cash
to settle your purchase contract, your debenture will not be remarketed, and you
will continue to own it, free of any pledge related to the SAILS.
If the remarketing is successful, proceeds from the sale will be delivered
to New NiSource as payment for the common shares. If the remarketing agent
cannot remarket the debentures, New NiSource will exercise its rights as a
secured party and take possession of your debentures. In either case, your
obligation to purchase will be fully satisfied, you will not need to pay any
additional amount, and you will receive the common shares.
Acceleration on Change in Control (see page 115). If there is a change in
control of New NiSource before the fourth anniversary of the completion of the
merger, the date on which the purchase contracts settle will be accelerated.
Termination of the Purchase Contracts (see page 116). The purchase
contracts will terminate immediately and automatically if certain bankruptcy,
insolvency or reorganization events occur with respect to New NiSource or if an
event of default occurs under the indenture with respect to the debentures. If
the purchase contracts terminate, you will have no obligation to pay for, and no
right to receive, common shares. Under those circumstances, you would receive
your debenture or Treasury securities, free of any pledge related to the SAILS.
Book Entry Issuance of SAILS (see page 109). You will not be entitled to
receive certificates representing the SAILS. Both the SAILS and any debentures
that are separately traded will be issued in accordance with the book-entry
procedures described under "Description of the SAILS -- Book-Entry Issuance."
Alternative Merger Structure (see pages 33 and 111). If we complete the
merger using the alternative merger structure, the SAILS, including the related
debentures, will be issued by NiSource rather than New NiSource. In that case,
the stated amount of each SAILS will be $3.02 rather than $2.60, and the number
of common shares to be received will be based on a formula under which you will
receive 0.1830 of a NiSource common share if the average closing price of
NiSource common shares over a 30-day period before the fourth anniversary of the
completion of the merger is $16.50 or less, and 0.1307 of a NiSource common
share if the average closing price is equal to or more than $23.10. For prices
between $16.50 and $23.10, the number of common shares will be $3.02 divided by
the average closing price for the same measurement period. Under the alternative
merger structure, you may create Treasury SAILS only in integral multiples of
50,000 by depositing Treasury securities having a principal amount at maturity
of $151,000 (equal to 50,000 times $3.02). In all other ways, NiSource SAILS
would work the same as New NiSource SAILS.
LISTING ON AN EXCHANGE (SEE PAGE 125)
NiSource's common shares are traded on the New York Stock Exchange, the
Chicago Stock Exchange and the Pacific Exchange. New NiSource has applied for
listing of its common shares (under the symbol "NI") and the SAILS on the New
York Stock Exchange.
SUMMARY
5
<PAGE> 12
APPRAISAL RIGHTS (SEE PAGE 48)
Under Delaware law, Columbia shareholders are entitled to an appraisal of
the value of their Columbia common shares and to receive this value entirely in
cash. To exercise appraisal rights, a Columbia shareholder must not vote for the
merger and must strictly comply with all of the procedures required by Delaware
law. These procedures are described more fully beginning on page 48, and a copy
of the relevant portions of Delaware law is attached as Annex II to this
document.
Under Indiana law, NiSource shareholders are not entitled to appraisal
rights in connection with the merger.
OUR REASONS FOR THE MERGER (SEE PAGES 37 AND 40)
NiSource. NiSource believes that the merger will enable the company and its
shareholders to participate in a significantly larger and more diverse company
that will have strategic and operational opportunities that would not be
available to NiSource as a separate company. In particular, NiSource believes
that the combined company will have three elements that are key to success in
the increasingly deregulated and competitive energy marketplace: (1) increased
size, scope and scale, (2) access to strategic geographic markets and (3) a
broad range of complementary assets.
Columbia. Columbia considered how possible consolidation and restructuring
in the utility industry could affect Columbia's competitive position. After a
thorough examination of all strategic alternatives, including remaining
independent, Columbia and its board of directors determined that a merger with
NiSource was in the best interests of Columbia and its shareholders.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 52 AND 56)
NiSource. NiSource's financial advisor, Credit Suisse First Boston
Corporation, has delivered a written opinion to the NiSource board of directors
as to the fairness to NiSource, from a financial point of view, of the merger
consideration set forth in the merger agreement. The full text of Credit Suisse
First Boston's written opinion is attached to this document as Annex III. We
encourage you to read this opinion carefully in its entirety for a description
of the procedures followed, assumptions made, matters considered and limitations
on the review undertaken. CREDIT SUISSE FIRST BOSTON'S OPINION IS DIRECTED TO
THE NISOURCE BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO ANY MATTER RELATING TO THE MERGER.
Columbia.
Opinion of Morgan Stanley & Co. Incorporated. In deciding to approve the
merger, the Columbia board of directors considered the opinion, dated February
27, 2000, of its financial advisor, Morgan Stanley & Co. Incorporated, as to the
fairness, from a financial point of view, as of that date and subject to and
based upon the considerations in the opinion, to the Columbia shareholders of
the consideration to be received by such shareholders pursuant to the merger
agreement. The written opinion of Morgan Stanley & Co. Incorporated dated
February 27, 2000 is attached as Annex IV to this joint proxy
statement/prospectus. WE ENCOURAGE COLUMBIA SHAREHOLDERS TO READ THIS OPINION
CAREFULLY AND IN ITS ENTIRETY.
SUMMARY
6
<PAGE> 13
Opinion of Salomon Smith Barney Inc. In deciding to approve the merger, one
of the factors Columbia's board of directors considered was the opinion from its
financial advisor, Salomon Smith Barney Inc., that, as of February 27, 2000, the
merger consideration was fair, from a financial point of view, to the holders of
Columbia common shares. This opinion is attached as Annex V to this joint proxy
statement/prospectus. We urge you to read the opinion in its entirety. The
opinion of Salomon Smith Barney is directed to the board of directors and does
not constitute a recommendation to you as to how you should vote with respect to
matters relating to the proposed merger.
RECOMMENDATIONS TO SHAREHOLDERS (SEE PAGES 37 AND 40)
Both the NiSource and the Columbia boards believe that the merger is in the
best interests of their shareholders and unanimously recommend that you vote FOR
the proposal to approve and adopt the merger agreement.
VOTES REQUIRED TO APPROVE THE MERGER (SEE PAGE 28)
For both NiSource and Columbia, approval and adoption of the merger
agreement requires the affirmative vote of at least a majority of the shares
entitled to vote at that company's shareholder meeting.
ACCOUNTING TREATMENT (SEE PAGE 44)
The merger will be accounted for under the purchase method of accounting as
a purchase of Columbia by NiSource.
FINANCING THE MERGER (SEE PAGE 43)
NiSource anticipates, regardless of the actual structure used, that the
cash consideration to be paid in the merger initially will be funded through
bank credit facilities. After completing the merger, New NiSource plans to
refinance a significant portion or all of the bank borrowings with proceeds from
offerings of public debt or other security issuances, proceeds from asset sales
and cash flow from operations.
OWNERSHIP OF NEW NISOURCE FOLLOWING THE MERGER (SEE PAGE 102)
Depending on whether the NiSource shareholders approve the merger agreement
and on how many Columbia shareholders elect to receive New NiSource common
shares in the merger, former NiSource shareholders will own at least 53% and as
much as 100% of the outstanding New NiSource common shares after the merger, and
former Columbia shareholders will own up to 47% of the outstanding New NiSource
common shares after the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF NEW NISOURCE FOLLOWING THE MERGER (SEE PAGE
102)
The NiSource directors at the time of the merger will become the directors
of New NiSource. Gary L. Neale will serve as chief executive officer of New
NiSource, and its board will elect the remaining officers of New NiSource.
SUMMARY
7
<PAGE> 14
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (SEE PAGE 126)
Columbia and New NiSource are Delaware corporations, and NiSource is an
Indiana corporation. Upon completion of the merger, your rights as a shareholder
of New NiSource will be governed by New NiSource's certificate of incorporation
and bylaws, which will be similar to Columbia's certificate of incorporation and
bylaws, and by Delaware law. Your rights as a shareholder of New NiSource will
be similar to the rights of a Columbia shareholder before the merger, but there
are differences that Columbia shareholders should consider. NiSource
shareholders should consider that New NiSource's certificate of incorporation
and bylaws, as well as Delaware law, differ in some material respects from
NiSource's articles of incorporation and bylaws and Indiana law. If we complete
the merger using the alternative merger structure, NiSource shareholders' rights
will not change, but Columbia shareholders' rights will differ from their
current rights. Columbia shareholders should therefore read the description of
the rights of current NiSource shareholders to understand their rights after the
merger if that structure is used.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 45)
Some of the executive officers and directors of NiSource and Columbia have
interests in the merger that may be different from, or in addition to, yours as
shareholders. These interests include employment or severance agreements,
accelerated vesting of stock-based compensation and arrangements for their
continuation as directors or officers of New NiSource.
REGULATORY APPROVALS (SEE PAGE 81)
Before we can complete the merger, we must receive approvals from a number
of federal and state regulatory agencies. At the federal level, these approvals
include final orders from the Securities and Exchange Commission and the Federal
Energy Regulatory Commission, as well as an extension of our current authority
to complete a transaction under the premerger notification rules of the U.S.
antitrust laws. At the state level, we need approvals from public utility
commissions in Kentucky, Maine, Pennsylvania and Virginia and are filing a
formal petition with the public utilities commission in New Hampshire. We also
intend to seek appropriate letters from the utility commissions in Indiana,
Massachusetts, Maryland and Ohio.
Under the merger agreement, we have agreed to use our reasonable best
efforts to obtain all necessary governmental authorizations for the merger.
OTHER CONDITIONS TO THE MERGER (SEE PAGE 77)
We will complete the merger only if a number of other conditions are
satisfied or waived including:
- Columbia shareholders adopt the merger agreement;
- the representations and warranties in the merger agreement are correct,
and the parties have performed their obligations under the merger
agreement in all material respects;
- no law, rule, regulation or court order prohibits the merger;
SUMMARY
8
<PAGE> 15
- the final orders relating to material governmental approvals do not
impose terms or conditions that would have a material adverse effect on
the combined company;
- Columbia receives an opinion of counsel that the merger will qualify for
the tax treatment discussed under "United States Federal Income Tax
Consequences -- Material United States Federal Income Tax Consequences of
the Merger"; and
- there has been no material adverse change in Columbia's business since
the date of the merger agreement, other than those resulting from changes
in economic conditions generally or changes generally affecting the gas
or electric utility industries.
We cannot use the new holding company structure unless NiSource
shareholders approve the merger agreement. If NiSource shareholders do not
approve the merger agreement, we will accomplish the merger of NiSource and
Columbia using the alternative merger structure.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 78)
NiSource and Columbia may agree to terminate the merger agreement at any
time, even after shareholder approval. In addition, either company may terminate
the merger agreement if:
- we do not complete the merger by June 30, 2001; however, this date will
be extended to March 31, 2002 if, on June 30, 2001, we are still awaiting
regulatory approvals but the other conditions to the merger have been
satisfied or remain capable of being satisfied;
- the Columbia shareholders do not adopt the merger agreement;
- a law, regulation or court order permanently prohibits the merger; or
- the other party is in material breach of the merger agreement and fails
to cure that breach following written notice.
Columbia may terminate the merger agreement at any time before the Columbia
shareholders adopt the merger agreement, if the Columbia board of directors
approves a superior proposal to acquire Columbia, provided that:
- Columbia gives NiSource three days' prior written notice;
- Columbia has not solicited the proposal in violation of the merger
agreement;
- Columbia's board concludes in good faith, on the basis of the advice of
its independent financial advisor of national reputation, that the
proposal is a superior proposal; and
- Columbia pays NiSource a $200 million termination fee.
SUMMARY
9
<PAGE> 16
NiSource may terminate the merger agreement at any time before completion
of the merger if:
- the Columbia board of directors withdraws or adversely modifies its
approval of the merger agreement or its recommendation that the Columbia
shareholders adopt the merger agreement; or
- the Columbia board of directors approves or recommends a superior
proposal.
TERMINATION FEES (SEE PAGE 79)
Columbia will pay NiSource a termination fee of $200 million if:
- Columbia terminates the merger agreement to accept a superior proposal;
- NiSource terminates the merger agreement because Columbia's board
adversely modifies its support for the merger or approves a superior
proposal; or
- either party terminates the merger agreement because the Columbia
shareholders do not adopt the merger agreement where:
- after the date of the merger agreement and before the Columbia
shareholder meeting, a third party proposes a business combination
with Columbia; and
- within one year after termination, Columbia enters into an agreement
for a business combination with that third party.
If NiSource or Columbia terminates the merger agreement because (1) a final
and non-appealable order permanently prohibits the merger or (2) any required
governmental consents have not been obtained or waived by March 31, 2002,
NiSource will pay Columbia a termination fee of $50 million.
NO SOLICITATION (SEE PAGE 75)
Columbia has agreed not to initiate any discussions with another party
regarding a business combination while the merger is pending.
RISKS ASSOCIATED WITH THE MERGER (SEE PAGE 19)
You should be aware of and carefully consider the risks relating to the
merger described under "Risk Factors."
SUMMARY
10
<PAGE> 17
HISTORICAL MARKET PRICE AND DIVIDEND INFORMATION
NISOURCE
The NiSource common shares are listed for trading on the New York Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange under the
symbol "NI". The Columbia common shares are listed for trading on the New York
Stock Exchange under the symbol "CG". The following table sets forth, for the
fiscal quarters indicated, the dividends paid and the high and low sale prices
of NiSource and Columbia common shares as reported under the New York Stock
Exchange Composite Transactions Reports in The Wall Street Journal. Amounts for
NiSource have been restated to reflect a two-for-one stock split effective
February 20, 1998. Amounts for Columbia have been restated to reflect a
three-for-two common stock split, in the form of a stock dividend, effective
June 15, 1998.
<TABLE>
<CAPTION>
NISOURCE COLUMBIA
COMMON SHARES COMMON SHARES
-------------------------------------- --------------------------------------
CALENDAR QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---------------- ---- ----------- --------- ---- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter......... $20 1/8 $19 $.225 $43 11/12 $38 5/12 $.100
Second Quarter........ 21 1/16 19 7/16 .225 44 11/12 37 1/3 .166
Third Quarter......... 21 9/32 20 11/32 .225 48 1/6 43 11/24 .166
Fourth Quarter........ 24 15/16 21 1/16 .225 52 5/12 46 1/3 .166
1998
First Quarter......... 28 1/2 24 21/32 .240 52 17/24 47 1/3 .166
Second Quarter........ 28 3/8 25 11/16 .240 57 11/12 50 1/3 .200
Third Quarter......... 32 7/8 26 5/8 .240 60 3/8 47 1/2 .200
Fourth Quarter........ 33 3/4 28 .240 60 3/4 54 1/4 .200
1999
First Quarter......... 29 15/16 25 7/16 .255 58 44 5/8 .200
Second Quarter 28 1/4 25 3/4 .255 64 1/4 43 7/8 .225
Third Quarter......... 26 7/8 21 7/16 .255 64 11/16 54 1/4 .225
Fourth Quarter........ 22 15/16 16 3/8 .255 66 1/4 55 1/16 .225
2000
First Quarter......... 21 11/16 12 3/4 .270 66 5/16 54 3/16 .225
Second Quarter
(through April
24)................ 17 3/4 16 3/16 --* 62 3/16 59 5/16 --
</TABLE>
- ---------------
* On March 28, 2000, NiSource's board declared a dividend of $.27 per share
payable May 19, 2000 to shareholders of record at the close of business on
April 28, 2000.
SUMMARY
11
<PAGE> 18
PER SHARE DATA
The information presented in the table below represents closing sale prices
reported under the New York Stock Exchange Composite Transaction Reports in The
Wall Street Journal for both NiSource common shares and Columbia common shares,
on June 4, 1999, the last trading day before the first public announcement of
NiSource's proposal to acquire Columbia; June 23, 1999, the last trading day
before NiSource commenced its tender offer for Columbia common shares; February
25, 2000, the last trading day before the public announcement of the merger
agreement; and April 24, 2000, the last practicable day for which closing sale
prices were available at the time of mailing this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
NISOURCE COLUMBIA
SHARE PRICE SHARE PRICE
----------- -----------
<S> <C> <C>
June 4, 1999.................................. $28 3/16 $55 3/4
June 23, 1999................................. $27 3/8 $63 3/4
February 25, 2000............................. $15 9/16 $57 1/16
April 24, 2000................................ $17 11/16 $62 1/8
</TABLE>
We urge you to obtain current market quotations before making any decision
with respect to the merger.
Following the merger, the Columbia common shares and the existing NiSource
common shares will cease to be traded on the New York Stock Exchange. We expect
that the common shares of New NiSource, which will be renamed "NiSource Inc.,"
will then be listed on the New York Stock Exchange under the symbol "NI". If we
complete the merger using the alternative structure, Columbia common shares will
cease to be traded on the New York Stock Exchange and NiSource common shares
will continue to be traded on the New York Stock Exchange under the symbol "NI".
NEW NISOURCE'S DIVIDEND POLICY
We expect that, after the merger, New NiSource will pay quarterly cash
dividends on its common shares initially in an amount of $0.27 per share, or
$1.08 per share on an annual basis. These amounts are equal to the dividends
currently being paid on NiSource common shares. NiSource's current dividend
policy is to declare dividends on a quarterly basis on or about the 20th day of
February, May, August and November in each year, with a goal of maintaining a
payout ratio tied to projected growth in earnings. We expect that New NiSource
will initially maintain a similar policy. The payment of dividends will be in
the discretion of the New NiSource board and will be determined after
consideration of various factors, including the earnings and financial condition
of New NiSource and its subsidiaries.
Debt and other financing for the merger will likely include provisions that
could directly or indirectly limit dividend payments by New NiSource. Also, New
NiSource will be a holding company whose earnings depend on dividends paid to it
by its operating subsidiaries. The ability of these subsidiaries to pay
dividends to New NiSource will be subject to any limitations contained in
outstanding debt securities and preferred shares of the subsidiaries. The
Securities and Exchange Commission and other regulatory authorities may also
impose restrictions on dividends.
SUMMARY
12
<PAGE> 19
Because Columbia's subsidiaries do not have outstanding any preferred
shares or publicly held indebtedness, they are not currently subject to
limitations on their ability to pay dividends to Columbia. The mortgage
indenture of Northern Indiana Public Service Company, NiSource's largest
subsidiary, provides that Northern Indiana may not declare or pay cash dividends
on its capital stock (other than preferred or preference stock) except out of
earned surplus or net profits of Northern Indiana. At December 31, 1999,
Northern Indiana had approximately $136.1 million of retained earnings (earned
surplus) available for the payment of dividends. Furthermore, as long as any of
Northern Indiana's cumulative preferred shares are outstanding, Northern Indiana
may not declare or pay cash dividends on its common shares in excess of 75% of
its net income, provided that Northern Indiana may declare and pay cash
dividends if the sum of (1) Northern Indiana's capital applicable to stock
junior to cumulative preferred stock plus (2) the surplus, after giving effect
to such dividends is at least 25% of the sum of (a) all of Northern Indiana's
obligations under any outstanding bonds, notes, debentures or other securities
plus (b) Northern Indiana's total capital and surplus.
RECENT FINANCIAL RESULTS
NISOURCE
For the quarter ended March 31, 2000, NiSource's net income was $79.6
million, or $0.64 basic earnings per common share, compared to $76.6 million, or
$0.62 per share, in the first quarter of 1999. Results for the two periods are
not directly comparable, since the results for 2000 include Bay State Gas
Company, which NiSource acquired in early February 1999, and TPC Corporation
(renamed EnergyUSA-TPC Corp.) and Market Hub Partners, which NiSource acquired
later in 1999.
COLUMBIA
On April 13, 2000, Columbia reported its financial results for the quarter
ended March 31, 2000. For the first quarter of 2000, income from continuing
operations was $149.7 million, or $1.83 per share, compared to $160.4 million,
or $1.92 per share, in the first quarter of 1999. Excluding the one-time $20.6
million after-tax gain recorded in 1999, related to a producer settlement,
income from continuing operations was up $9.9 million, or 16 cents per share,
over the same period last year. All per share amounts are on a diluted basis.
SUMMARY
13
<PAGE> 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This information is only a
summary, and you should read it together with the historical consolidated
financial statements of NiSource and Columbia and the related notes incorporated
by reference in this document. See "Where You Can Find More Information" on page
147.
NISOURCE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total operating revenues......... $3,144.6 $2,932.8 $2,586.5 $1,987.9 $1,769.3
Earnings on common shares........ 160.4 193.9 190.8 176.6 172.4
PER SHARE DATA*
Basic earnings per common
share......................... $ 1.29 $ 1.60 $ 1.54 $ 1.44 $ 1.36
Average common shares outstanding
(000)......................... 124,343 120,778 123,849 122,382 126,562
Diluted earnings per common
share......................... $ 1.27 $ 1.59 $ 1.53 $ 1.43 $ 1.35
Diluted average common shares
outstanding (000)............. 125,339 121,335 124,223 122,705 126,801
Dividends:
Per share..................... $ 1.02 $ 0.96 $ 0.90 $ 0.84 $ 0.78
Payout ratio (%).............. 79.1 60.0 58.4 58.3 57.4
BALANCE SHEET DATA
Capitalization:
Common stock equity........... $1,353.5 $1,149.7 $1,264.8 $1,100.5 $1,122.2
Preferred stock
without mandatory
redemption............... 85.6 85.6 85.6 81.1 81.3
with mandatory redemption... 54.0 56.4 58.8 61.2 98.7
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trust....................... 345.0 -- -- -- --
Long-term debt................ 1,975.2 1,668.0 1,667.9 1,127.1 1,175.7
-------- -------- -------- -------- --------
Total............................ 3,813.3 2,959.7 3,077.1 2,369.9 2,477.9
-------- -------- -------- -------- --------
Total assets..................... $6,835.2 $4,986.5 $4,937.0 $4,288.9 $3,999.5
OTHER FINANCIAL DATA
Capitalization ratio:
Common stock equity........... 35% 39% 41% 46% 45%
Preferred stock............... 4% 5% 5% 6% 7%
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trust....................... 9% 0% 0% 0% 0%
Debt.......................... 52% 56% 54% 48% 48%
Capital expenditures............. $ 341.3 $ 245.8 $ 218.9 $ 207.9 $ 193.0
Net cash from operations......... 453.0 484.1 434.6 305.4 390.0
Book value per common share...... 10.90 9.78 10.17 9.20 9.00
Return on average common
equity........................ 12.8% 16.1% 16.1% 15.9% 15.5%
</TABLE>
- -------------------------
* All per share amounts, average common shares outstanding and diluted average
common shares have been restated to reflect a two-for-one stock split
effective February 20, 1998.
SUMMARY
14
<PAGE> 21
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total operating revenues...................... $3,189.2 $2,628.0 $3,014.1 $3,353.0 $2,635.2
Earnings (Loss) before discontinued
operations, extraordinary item and
accounting changes.......................... 355.0 300.3 280.3 218.2 (433.4)
Earnings (Loss) before extraordinary item and
accounting changes.......................... 249.2 269.2 273.3 221.6 (432.3)
Earnings (Loss) on common stock............... 249.2 269.2 273.3 221.6 (360.7)
PER SHARE DATA*
Earnings (Loss) per common share:
Continuing operations....................... $ 4.31 $ 3.60 $ 3.37 $ 2.71 $ (5.72)
Discontinued operations..................... (1.28) (0.37) (0.08) 0.04 0.01
Before extraordinary item and accounting
changes................................... 3.03 3.23 3.29 2.75 (5.71)
Earnings (Loss) per common share............ 3.03 3.23 3.29 2.75 (4.76)
Average common shares outstanding (000)....... 82,210 83,382 83,100 80,681 75,708
Diluted earnings (loss) per common share:
Continuing operations....................... $ 4.29 $ 3.58 $ 3.35 $ 2.70 $ (5.72)
Discontinued operations..................... (1.28) (0.37) (0.08) 0.04 0.01
Before extraordinary item and accounting
changes................................... 3.01 3.21 3.27 2.74 (5.71)
Diluted earnings (loss) per common share.... 3.01 3.21 3.27 2.74 (4.76)
Diluted average common shares outstanding
(000)....................................... 82,709 83,748 83,594 80,919 75,708
Dividends:
Per share................................... $ 0.875 $ 0.77 $ 0.60 $ 0.40 --
Payout ratio (%)............................ 28.9 23.8 18.2 14.5 N/A
BALANCE SHEET DATA
Capitalization
Common stock equity......................... $2,064.0 $2,005.3 $1,790.7 $1,553.6 $1,114.0
Preferred stock............................. -- -- -- -- 399.9
Long-term debt.............................. 1,639.7 2,003.1 2,003.5 2,003.8 2,004.5
Short-term debt............................. 465.5 N/A N/A N/A N/A
Current maturities of long-term debt........ 311.3 0.4 0.5 0.8 0.5
-------- -------- -------- -------- --------
Total....................................... 4,480.5 4,008.8 3,794.7 3,558.2 3,518.9
-------- -------- -------- -------- --------
Total assets.................................. $7,095.9 $6,531.4 $6,259.4 $5,905.8 $6,033.4
OTHER FINANCIAL DATA
Capitalization ratio (including current
maturities**):
Common stock equity......................... 46.1% 50.0% 47.2% 43.7% 31.7%
Preferred stock............................. -- -- -- -- 11.4%
Debt........................................ 53.9% 50.0% 52.8% 56.3% 56.9%
Capital expenditures.......................... $ 867.3 $ 479.2 $ 563.2 $ 314.0 $ 420.8
Net cash from operations...................... 831.6 707.6 504.1 461.0 (798.0)
Book value per common share................... 25.39 24.01 21.51 18.74 15.09
Return on average common equity before
discontinued operations, extraordinary item
and accounting changes...................... 17.5% 15.8% 16.8% 16.4% (33.6)%
</TABLE>
- -------------------------
Dilutive potential common shares were not included in the 1995 computation of
diluted earnings per share as the effect would be antidilutive.
* All per share amounts, average common shares outstanding and diluted average
common shares have been restated to reflect a three-for-two common stock
split, in the form of a stock dividend, effective June 15, 1998.
** Short-term borrowings were used in 1999 to finance acquisitions and to fund
Columbia's stock repurchase program. Inclusion of the short-term debt in 1999
makes the historical ratio more meaningful.
SUMMARY
15
<PAGE> 22
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
We present below summary pro forma combined financial information for
NiSource and Columbia. This summary pro forma financial information is derived
from the unaudited pro forma combined condensed consolidated financial
statements and related notes beginning on page 96 of this document. This
information does not purport to represent what the financial position or results
of operations of NiSource, Columbia or the combined company would actually have
been had the merger occurred at January 1, 1999 or to project NiSource's,
Columbia's or the combined company's results of operations for any future period
or date. The data set forth below should be read together with the pro forma
financial statements included elsewhere in this document and the separate
historical financial statements and notes of NiSource and Columbia incorporated
by reference into this document.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS,
EXCEPT
PER SHARE
AMOUNTS)
<S> <C>
INCOME STATEMENT DATA
Operating revenues.......................................... $ 6,333,776
Operating expenses.......................................... $ 2,484,845
Operating income............................................ $ 1,003,480
Net income from continuing operations....................... $ 176,335
Basic earnings per share.................................... $ 0.84
Diluted earnings per share.................................. $ 0.84
BALANCE SHEET DATA
Total assets................................................ $18,020,245
Capitalization:
Long-term debt (including portion due within one year).... $ 8,757,100
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust......................... 345,000
Preferred stocks of subsidiaries:
Not subject to mandatory redemption.................... 85,611
Subject to mandatory redemption........................ 54,030
Common shareholders' equity............................... 2,711,734
-----------
Total capitalization........................................ $11,953,475
===========
Book value per share........................................ $ 13.05
</TABLE>
SUMMARY
16
<PAGE> 23
COMPARATIVE PER SHARE AND DIVIDEND INFORMATION
The following table summarizes the per share information for our companies
on a historical, pro forma combined and equivalent basis. The pro forma
comparative per share data, which is derived from the unaudited pro forma
combined financial statements and notes thereto beginning on page 96 of this
document, does not purport to represent what the financial position or results
of operations of NiSource, Columbia or the combined company would actually have
been had the merger occurred at January 1, 1999 or to project NiSource's,
Columbia's or the combined company's results of operations for any future period
or date. The data set forth below is presented on the assumption that 23% of
Columbia common shares are exchanged for New NiSource common shares in the
merger. The data should be read together with the pro forma financial statements
and the separate historical financial statements and notes of NiSource and
Columbia, which are included elsewhere in, or incorporated by reference into,
this document.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
--------------------------------
HISTORICAL PRO FORMA(1)(2)(3)
---------- ------------------
<S> <C> <C>
NISOURCE
Book value per share............................. $10.90 $13.05
Cash dividends declared per share................ $1.035 $1.035
Basic earnings per share......................... $ 1.29 $ 0.84
Diluted earnings per share....................... $ 1.27 $ 0.84
Payout ratio..................................... 80% 123%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL EQUIVALENT(3)(4)
---------- ----------------
<S> <C> <C>
COLUMBIA
Book value per share................................ $25.39 $58.53
Cash dividends declared per share................... $0.875 $ 4.64
Basic earnings per share from continuing
operations....................................... $ 4.31 $ 3.76
Diluted earnings per share from continuing
operations....................................... $ 4.29 $ 3.76
</TABLE>
- -------------------------
(1) The pro forma per share data for NiSource are prepared based on the
assumptions that: (a) the aggregate purchase price is $6.0 billion; (b) the
NiSource common share price is $16.50; (c) the consideration paid by
NiSource in the merger will be comprised of 23% New NiSource common shares
and 77% cash and SAILS; and (d) all outstanding Columbia employee stock
options will be settled for cash as provided in the merger agreement. The
merger is being accounted for by the purchase method. The purchase price has
been allocated to the assets acquired and liabilities assumed based upon
their estimated fair values. The accompanying allocation anticipates that
the fair value of Columbia's regulated operations reasonably approximates
the underlying book values of these operations. As a result, the purchase
price paid in excess of the estimated fair value of non-regulated operations
and the book value, which is a proxy for fair value, of regulated operations
has been allocated to goodwill. Allocations included in the pro forma
combined condensed consolidated financial statements are based on analyses
that are not yet completed. Accordingly, the final value of the purchase
price and its allocation may differ, perhaps significantly, from the amounts
included in the accompanying pro forma statements.
SUMMARY
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(2) Changing the assumptions in (1) to 30% common shares and 70% cash and SAILS
would increase NiSource's pro forma book value per share to $13.43, with pro
forma basic earnings per average common share of $0.84 and with a dividend
payout ratio of 123%. Changing the assumptions in (1) to 0% common shares
and 100% cash and SAILS would decrease NiSource's pro forma book value per
share to $10.74, increase pro forma basic earnings per average common share
to $0.87 and decrease the dividend payout ratio to 119%.
(3) The cash dividend information included in the data is based on the dividends
declared during 1999. On December 17, 1999, NiSource increased its quarterly
dividend to $.27 per NiSource common share, which is equivalent to an annual
rate of $1.08 per share. On this basis, the pro forma equivalent cash
dividend declared per Columbia common share would be $4.84, rather than
$4.64.
(4) The pro forma equivalent per share data for Columbia assume a ratio of
4.4848 New NiSource common shares for each Columbia common share converted
into New NiSource common shares, based upon an assumed NiSource common share
price of $16.50.
SUMMARY
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RISK FACTORS
In deciding whether to approve the merger agreement, you should consider
the following risks related to the merger and to your investment in the combined
company following the merger. You should consider carefully these risks along
with the other information in this document and in the other documents to which
we refer you. See "Where You Can Find More Information" on page 147.
TRANSACTION RISKS
WE MAY NOT BE ABLE TO OBTAIN REQUIRED REGULATORY APPROVALS IN A TIMELY
MANNER OR ON SATISFACTORY TERMS.
Before we can complete the merger, we must receive final approvals from a
number of state utility regulators under applicable state laws, from the
Securities and Exchange Commission under the Public Utility Holding Company Act
of 1935, and from the Federal Energy Regulatory Commission under the Federal
Power Act. In addition, our current clearance under the premerger notification
requirements of the antitrust laws will expire in August 2000, and we will need
to refile for a new clearance. Obtaining these regulatory approvals will likely
delay the merger for several months after the shareholder meetings. We cannot
assure you that we will obtain all the regulatory approvals that we need or, if
we obtain them, that the terms and conditions of the approvals will be
satisfactory. Also, interveners may seek to appeal orders approving the merger,
which could further delay the merger.
Both NiSource and Columbia are obligated to use their reasonable best
efforts to obtain all necessary governmental authorizations for the merger.
NiSource has also agreed to use its best efforts to take all actions, including
divesting assets of Columbia or NiSource if needed, to prevent or eliminate any
government order that would prohibit the merger. However, we do not have to
complete the merger if the regulators impose conditions that would be reasonably
likely to have a material adverse effect on the combined company.
See "The Merger Agreement -- Conditions to the Merger" on page 77 and
"Regulatory Matters" on page 81 for a more complete discussion of the regulatory
approvals required for the merger.
THE COMBINED COMPANY WILL BE SIGNIFICANTLY MORE LEVERAGED.
NiSource plans initially to finance the cash component of the merger with
borrowings under bank credit facilities. Depending on Columbia shareholders'
elections and the structure of the merger, as well as the proceeds of non-core
asset sales, the combined company will need to borrow at least $3 billion and as
much as $6 billion to pay Columbia shareholders in the merger. NiSource has a
commitment letter from Credit Suisse First Boston, New York Branch -- an
affiliate of Credit Suisse First Boston we refer to as CSFB -- and Barclays Bank
PLC for a $6 billion credit facility. After the merger, New NiSource plans to
refinance a significant portion or all of the credit facility with proceeds from
the issuance of public debt, with proceeds from sales of assets that we do not
consider essential to the core businesses of the combined company and with cash
flow from operations. Depending on how many common shares are issued in the
merger, New NiSource will also consider increased asset sales, as well as public
and private sales of
RISK FACTORS
19
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common shares or related securities. In addition, we expect approximately $2.4
billion of Columbia's existing debt to remain outstanding after the merger. See
"The Merger -- Financing the Transaction" on page 43.
As a result of the merger financing, assuming New NiSource common shares
are exchanged for 30% of Columbia's shares in the merger and no asset sales
occur, the pro forma consolidated capital structure of New NiSource at closing
will be approximately 68.9% debt, 3.7% Premium Income Equity
Securities(SM) -- known as PIES(SM)* -- and SAILS, 1.1% preferred stock and
26.3% common stock, a significantly more leveraged capital structure than either
Columbia or NiSource has at present. The PIES are NiSource's currently
outstanding units, each consisting of a company-obligated mandatorily redeemable
preferred security of a subsidiary trust and a forward equity contract to
purchase NiSource common shares in 2003. Assuming that New NiSource common
shares are exchanged for 30% of Columbia's shares and we sell assets immediately
after the merger for net proceeds of $900 million, the pro forma consolidated
capital structure of the combined company will be approximately 66.3% debt, 3.9%
PIES and SAILS, 1.3% preferred stock and 28.5% common stock. To the extent fewer
common shares are issued in the merger, New NiSource would be more leveraged. If
no New NiSource common shares are issued in the merger, or if we complete the
merger using the alternative structure, and no asset sales occur, the pro forma
consolidated capital structure of the combined company at closing will be
approximately 83.9% debt, 4.0% PIES and SAILS, 1.2% preferred stock and 11.3%
common stock. The percentages presented are based on a hypothetical closing date
of December 31, 1999 and will vary, to a limited degree, depending on when the
merger is completed.
Although we currently expect that New NiSource will have an investment
grade credit rating after completion of the merger even if no New NiSource
common shares are issued in the merger, no assurances can be given. The
anticipated increase in total indebtedness of the combined company after the
merger may have a negative impact on the credit ratings of New NiSource,
NiSource and Columbia, as compared to NiSource's and Columbia's current credit
ratings. Any downgrade in credit rating would likely lead to increased borrowing
costs, more restrictive covenants and the extension of less open credit by
suppliers and counter parties in the future, all of which could negatively
affect profitability. Under the terms of the commitment letter from CSFB and
Barclays Bank PLC, it is a condition to NiSource's borrowing to finance the
merger that the borrower's senior unsecured long-term debt be rated investment
grade by both Moody's Investors Service, Inc. and Standard & Poor's Rating
Services.
NISOURCE WILL HAVE TO RENEGOTIATE ITS FINANCIAL COMMITMENT IF WE DO NOT
COMPLETE THE MERGER BY FEBRUARY 2001.
The commitment that NiSource has received from CSFB and Barclays Bank PLC
expires on February 17, 2001 if NiSource has not borrowed funds by that date.
Therefore, if we do not complete the merger by February 17, 2001, NiSource will
need to seek a new commitment. There can be no assurance that CSFB and Barclays
Bank PLC will be willing to renew their commitment at that time or, if they are,
whether it will be on the same terms as their existing commitment. There can
also be no assurance that, if CSFB
- -------------------------
* "Premium Income Equity Securities(SM)" and "PIES(SM)" are service marks of
Lehman Brothers Inc.
RISK FACTORS
20
<PAGE> 27
and Barclays Bank PLC do not renew their commitment, another institution will be
willing to lend the necessary funds to NiSource.
NEW NISOURCE MAY NOT BE ABLE TO SELL ASSETS OR EQUITY ON A TIMELY BASIS AND
ON FAVORABLE TERMS.
New NiSource expects to sell some assets and businesses of NiSource and
Columbia in connection with the merger and to use the proceeds from the sales
principally to retire debt. Depending on the number of New NiSource common
shares issued to Columbia shareholders in the merger, New NiSource may consider
additional asset sales, as well as public and private sales of New NiSource
common shares or related securities. Some of those asset and securities sales
will require approval of the Securities and Exchange Commission and possibly
other regulatory authorities. We do not yet know all of the assets and
businesses that will be offered for sale, nor can we predict the prices that
will be received or if New NiSource will be able to obtain any necessary
approvals to sell particular assets on acceptable terms. As a result, New
NiSource may not receive the proceeds it needs from the asset sales or may not
be able to complete the sales or do so in a timely manner. New NiSource's
ability to issue new common shares on favorable terms after the merger will be
affected by stock market conditions generally and the market for energy
companies, as well as by factors specific to New NiSource, including its
operating results, financial condition and prospects. We can give no assurance
that sales of New NiSource common shares can be accomplished, or can be
completed at prices and on terms that are acceptable. The Securities and
Exchange Commission must approve NiSource's issuance of common shares, and we
can give no assurance that we will obtain approval on acceptable terms.
COLUMBIA WILL BE REQUIRED TO DISPOSE OF INTERESTS IN FOUR QUALIFYING
FACILITIES.
Subsidiaries of Columbia own interests in several facilities which are
"qualifying cogeneration facilities", as that term is defined in the Public
Utility Regulatory Policies Act of 1978 and the federal regulations implementing
the statute. Under that law, no more than 50% of the equity interests in a QF
may be held by a company that is an electric utility or an electric utility
holding company or any combination of such companies. Electric utility holding
companies now own up to 50% of the equity interests in each of the QFs in which
Columbia holds an interest. Columbia currently is not an electric utility
holding company for purposes of this ownership test, but, as a result of its
transaction with NiSource, its interests in QFs will be indirectly held by an
electric utility holding company. Consequently, Columbia's interest in
combination with the interests of other electric utility affiliates
participating in each of the QF projects would exceed 50 percent. In order to
avoid jeopardizing the QF status of the projects and to comply with Columbia's
obligations to other participants in the projects, Columbia plans to relinquish
its ownership interests in the four QFs before completion of the merger and is
currently evaluating the transfer of its interests in those facilities.
If Columbia were to divest all of its interest in each of the projects,
there would be a reduction in approximately 365 MW (net) of Columbia's electric
generating capacity. These interests had a book value of $28.7 million at
December 31, 1999. The proceeds from any sale of these interests will be used to
reduce debt or for other corporate purposes. We cannot assure you that Columbia
will be able to sell its interests or restructure these investments on a timely
basis or on satisfactory terms.
RISK FACTORS
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<PAGE> 28
DIRECTORS AND OFFICERS OF THE COMPANIES MAY HAVE INTERESTS THAT ARE
DIFFERENT FROM OR IN ADDITION TO YOUR INTERESTS AS A SHAREHOLDER.
When considering the recommendations of the board of directors of each
company, you should be aware that some members of the Columbia and NiSource
boards of directors and some officers of Columbia and NiSource may have
interests in the merger that are different from, or in addition to, your
interests as shareholders.
Following the merger, the directors of NiSource will be the directors of
New NiSource. Gary L. Neale will serve as Chairman, President and Chief
Executive Officer of New NiSource, and the New NiSource board will elect the
remaining officers.
A number of Columbia's officers have entered into employment or severance
agreements with Columbia and participate in benefit and compensation plans.
Under the merger agreement, all stock options under Columbia's long-term
incentive plans will be converted at the time the merger occurs into the right
to receive cash, based on the estimated average value of the consideration to be
received by Columbia shareholders in the merger. In addition, the phantom shares
under Columbia's Phantom Stock Plan for Outside Directors will be canceled and
converted into the right to receive cash upon completion of the merger. See "The
Merger -- Interests of Officers and Directors in the Merger" on page 45.
IF THE NISOURCE SHAREHOLDERS DO NOT APPROVE THE MERGER AGREEMENT, NISOURCE
WILL BE OBLIGATED TO COMPLETE THE ACQUISITION OF COLUMBIA ON TERMS THAT MAY
BE LESS FAVORABLE TO NISOURCE.
Under the merger agreement, NiSource has committed that, if the NiSource
shareholders do not approve the merger agreement, NiSource will, subject to the
regulatory and other conditions, complete its acquisition of Columbia through
the alternative merger structure. Under the terms of the alternative merger,
Columbia will become a subsidiary of NiSource, and each Columbia share will be
exchanged for $70 in cash and $3.02 stated amount of NiSource SAILS, rather than
$70 in cash and $2.60 stated amount of New NiSource SAILS. Also, because no
common shares will be issued to Columbia shareholders under the alternative
merger, NiSource will likely be more leveraged under this alternative than with
the proposed holding company structure. See "-- The Combined Company Will Be
Significantly More Leveraged" on page 19.
COLUMBIA SHAREHOLDERS MAY NOT RECEIVE THE NEW NISOURCE SHARES THAT THEY
ELECT.
Because the merger agreement includes both a maximum number of Columbia
shares that will be exchanged for stock and a condition that no stock will be
available unless the holders of at least 10% of the Columbia shares elect to
receive stock, Columbia shareholders who make stock elections may nevertheless
receive the cash and SAILS consideration for some or all of their Columbia
shares. If Columbia shareholders make stock elections with respect to more than
30% of the outstanding Columbia shares, the New NiSource common shares to be
issued will be prorated so that only a portion of each Columbia shareholder's
shares is exchanged for New NiSource common shares. Alternatively, if the
Columbia shareholders fail to make stock elections with respect to at least 10%
of the outstanding Columbia shares, no New NiSource common shares will be issued
in the merger, and all Columbia shareholders will receive the cash and SAILS
consideration for all of their shares. In addition, if the NiSource shareholders
do not approve the merger agreement, no New NiSource common shares will be
issued, and all
RISK FACTORS
22
<PAGE> 29
Columbia shareholders will receive cash and NiSource SAILS for all of their
shares under the alternative merger structure. See "The Merger -- Merger
Consideration" on page 31 and "-- Alternative Merger Structure" on page 33.
BUSINESS RISKS
WE MAY NOT ACHIEVE THE EXPECTED COST SAVINGS, REVENUE ENHANCEMENTS AND
OTHER BENEFITS OF THE MERGER.
We may not be able to achieve the cost savings, revenue enhancements and
other benefits that we hope to achieve after the merger, either because of
difficulties in combining our operations or because the regulatory approvals
include terms and conditions that adversely affect the profitability and
operational flexibility of the combined company following the merger.
After the merger, we will need to coordinate the operations of two large,
diverse companies and their subsidiaries, combining some businesses while
keeping others separate. Coordinating the operations will involve a number of
risks, including:
- difficulties in combining and coordinating operations and systems;
- difficulties in retaining employees, customers and suppliers;
- difficulties in managing combined businesses that are significantly
larger than either NiSource or Columbia alone;
- potential diversion of management's attention away from ongoing
operations; and
- the possibility that we will not achieve anticipated cost savings, or
that any savings are offset by utility rate reductions and so do not
benefit the shareholders.
Among the factors the NiSource board of directors considered in approving
the merger agreement were the opportunities for operating efficiencies and
economies of scale that could result from the merger. NiSource has estimated
that the combined company will achieve cost savings and revenue enhancements, on
a pre-tax basis, of approximately $98 million in the first year following the
merger, increasing to approximately $185 million in the fifth year, from the
elimination of redundant management functions and other administrative overhead
as well as revenue enhancements. Our estimates are based on many assumptions,
including future revenue levels and other operating results, the availability of
funds for investment, the ability to integrate operations and the timing of
events, as well as general industry and business conditions. Many of these
factors are beyond our control. Our actual cost savings, revenue enhancements
and other benefits, if any, could differ from our estimates, and these
differences could be material. Unforeseen factors may offset the estimated cost
savings, revenue enhancements or other components of our plan. They also may
result in delays in the realization of these benefits.
NEW NISOURCE WILL BECOME SUBJECT TO ADDITIONAL REGULATION FOLLOWING THE
MERGER.
As a result of the merger, New NiSource will become a registered holding
company under the Public Utility Holding Company Act, as Columbia is currently.
If we complete the merger using the alternative merger structure, NiSource will
register as a holding company. The Holding Company Act imposes a number of
restrictions on the operations of registered holding company systems, including
requirements that certain securities
RISK FACTORS
23
<PAGE> 30
issuances, as well as sales of assets or securities of utility companies or
mergers of interests in any other business, be approved by the Securities and
Exchange Commission. The Holding Company Act also limits the ability of
registered holding companies to engage in activities unrelated to their utility
operations and regulates holding company system service companies and the
rendering of services by holding company affiliates to other companies in their
system. In this regard, the Securities and Exchange Commission may require as a
condition to its approval of the merger under the Holding Company Act that
NiSource divest its water utility subsidiaries within a specified period of time
following the merger. The water utility subsidiaries had a book value of $329.4
million at December 31, 1999. NiSource does not anticipate that the Securities
and Exchange Commission will require it to dispose of any of its other
subsidiaries. See "-- New NiSource May Not Be Able to Sell Assets or Equity on a
Timely Basis and on Favorable Terms" on page 21.
COMPETITIVE AND REGULATORY CONDITIONS.
The utility industry has been undergoing dramatic structural change for
several years, resulting in increasing competitive pressures faced by electric
and natural gas utility companies. Increased competition may create greater
risks to the stability of utility earnings generally and, in the future, may
reduce earnings from retail natural gas and electric sales. In a deregulated
environment, formerly regulated utility companies that are not responsive to a
competitive energy marketplace will likely suffer erosion in market share,
revenues and profits as competitors gain access to their retail customers.
RISKS RELATING TO THE NEW NISOURCE COMMON SHARES
THE NUMBER AND VALUE OF NEW NISOURCE COMMON SHARES ISSUED TO COLUMBIA
HOLDERS WHO ELECT STOCK WILL VARY DEPENDING ON THE NISOURCE STOCK PRICE
PRIOR TO COMPLETION OF THE MERGER.
The number of New NiSource shares comprising the stock consideration will
vary with the average closing prices of NiSource common shares over a 30-trading
day period preceding completion of the merger. If the average NiSource closing
stock price for that period is $16.50 or above, Columbia shareholders who elect
to receive the stock consideration will receive, for each Columbia share, $74 of
New NiSource shares, based on that average price. If, however, the NiSource
average closing stock price for that period is less than $16.50, those Columbia
shareholders will receive 4.4848 New NiSource shares for each Columbia share.
Thus, if the average price is less than $16.50, the aggregate market value of
the shares received, measured on the same basis, will be less than $74 per
Columbia common share.
There will likely be a period of several months between the dates when
shareholders vote at the shareholder meetings and the date when Columbia
shareholders can make stock elections prior to completion of the merger. The
market values of Columbia common shares and NiSource common shares are likely to
fluctuate during that period.
THE MARKET PRICE FOR THE NEW NISOURCE COMMON SHARES IS UNCERTAIN.
It is impossible to predict the market price of New NiSource common shares
immediately after completion of the merger and therefore impossible to predict
the value of the stock consideration. The value of the stock consideration may
be higher or lower than the value of the cash and SAILS consideration. Numerous
factors can influence the trading prices of the New NiSource common shares.
These factors include changes in
RISK FACTORS
24
<PAGE> 31
New NiSource's financial condition, results of operations and prospects and
complex and interrelated political, economic, financial and other factors that
can affect the capital markets generally, the stock exchanges on which the
common shares are traded and the market segments of which New NiSource will be a
part.
The market for the common shares likely will influence, and be influenced
by, any market that develops for the SAILS. For example, investors' anticipation
of the distribution into the market of substantial amounts of common shares,
including the additional common shares issuable upon settlement of the SAILS,
could depress the price of the common shares and increase their volatility. The
price of the common shares also could be affected by hedging or arbitrage
trading activity that may develop involving the SAILS and the common shares.
RISKS RELATING TO THE SAILS
Although the following risk factors discuss the SAILS New NiSource will
issue under the holding company structure, they are equally relevant to the
NiSource SAILS that NiSource would issue under the alternative merger structure.
In that event, the security to be issued upon settlement of the SAILS would be
NiSource common shares, rather than New NiSource common shares.
THE SAILS PAY NO INTEREST, BUT HOLDERS OF SAILS WILL BE TAXED AS IF THEY
HAD RECEIVED INTEREST PAYMENTS.
The SAILS include "zero coupon" debentures that pay no interest before the
fourth anniversary of completion of the merger. COLUMBIA SHAREHOLDERS WHO
RECEIVE SAILS IN THE MERGER WILL BE REQUIRED TO INCLUDE IN GROSS INCOME AN
ALLOCABLE SHARE OF THE ORIGINAL ISSUE DISCOUNT THAT ACCRUES WITH RESPECT TO
THOSE DEBENTURES, EVEN THOUGH THEY WILL RECEIVE NO CASH PAYMENT. Also, there is
no statutory, judicial or administrative authority directly addressing the tax
treatment of the SAILS or instruments similar to the SAILS. See "United States
Federal Income Tax Consequences -- Material United States Federal Income Tax
Consequences of Owning SAILS" on page 91.
THE NUMBER OF COMMON SHARES RECEIVED UPON SETTLEMENT OF A SAILS WILL DEPEND
ON NEW NISOURCE'S FUTURE COMMON SHARE PRICE; SAILS HOLDERS WILL BEAR THE
RISK OF A LOWER EQUITY VALUE.
The number of New NiSource common shares that holders of SAILS will receive
upon the settlement of a SAILS is not fixed, but instead will depend on the
market value of the New NiSource common shares over a 30 trading-day measurement
period before the settlement date, which is the fourth anniversary of completion
of the merger. The aggregate market value of the New NiSource common shares that
holders of SAILS will receive upon settlement of a SAILS may be more or less
than the stated amount per SAILS. If the market value of the New NiSource common
shares over the measurement period is less than $16.50, the aggregate market
value of the New NiSource common shares issuable upon settlement generally will
be less than the stated amount per SAILS. Therefore, you will bear the full risk
of a lower market value of the New NiSource common shares prior to settlement of
the SAILS.
The market value of the New NiSource common shares receivable upon
settlement of a SAILS generally will exceed the stated amount per SAILS only if
the average closing price of the New NiSource common shares over the measurement
period before settlement
RISK FACTORS
25
<PAGE> 32
is $23.10 or more. See "Description of the SAILS -- Description of the Purchase
Contracts -- Settlement Rate" on page 110 for an illustration of the number of
New NiSource common shares that SAILS holders would receive at various average
market prices.
THE NUMBER OF COMMON SHARES ISSUABLE UPON SETTLEMENT OF SAILS WILL BE
ADJUSTED ONLY FOR SPECIFIED TRANSACTIONS.
The number of common shares issuable upon settlement of SAILS is subject to
adjustment only for share splits and combinations, share dividends and other
specified transactions involving New NiSource. See "Description of the
SAILS -- Description of the Purchase Contracts -- Anti-Dilution Adjustments" on
page 114. The number of common shares is not subject to adjustment for other
events, such as employee share option grants, offerings of common shares for
cash or in connection with mergers or certain other transactions involving New
NiSource, which may adversely affect the price of the New NiSource common
shares. The terms of the SAILS do not restrict New NiSource's ability to offer
common shares in the future or to engage in other transactions that could dilute
the common shares. New NiSource has no obligation to consider the interests of
the holders of the SAILS in making any determinations.
SAILS HOLDERS HAVE NO SHAREHOLDER RIGHTS.
Until you acquire New NiSource common shares upon settlement of your SAILS,
you will have no rights with respect to those New NiSource common shares,
including voting rights, rights to respond to tender offers and rights to
receive any dividends or other distributions on the common shares. Upon
settlement of your SAILS, you will be entitled to exercise the rights of a
holder of New NiSource common shares only as to actions for which the applicable
record date is after the settlement date.
THE TRADING MARKET FOR THE SAILS IS SUBJECT TO UNCERTAINTIES.
It is impossible to predict how the SAILS will trade in the secondary
market or whether the market for these securities will be liquid or illiquid.
There will be no secondary market for SAILS until the merger, and we can give no
assurance as to the liquidity of any trading market that may develop after that
time, the ability of holders to sell their securities in that market or whether
the market will continue. New NiSource has applied to list the SAILS on the New
York Stock Exchange. Listing on the New York Stock Exchange does not guarantee
the depth or liquidity of the market for the SAILS.
THE SAILS DO NOT CONTAIN CERTAIN RESTRICTIVE COVENANTS.
The terms of the debentures that are part of the SAILS do not contain
several types of restrictive covenants that would protect holders of debentures
from transactions that may adversely affect the holders. In particular, the
debentures do not contain covenants that limit New NiSource's ability to pay
dividends or make distributions on, or redeem or repurchase, its capital shares
and do not contain provisions that would give holders of SAILS the right to
require New NiSource to repurchase the debentures in the event of a decline in
the credit rating of New NiSource which could result from a recapitalization or
similar restructuring. In addition, the SAILS do not limit New NiSource's
ability to incur additional indebtedness and therefore do not contain provisions
that afford holders of SAILS protection in the event of a highly leveraged
transaction or other similar transaction involving New NiSource that may
adversely affect the holders.
RISK FACTORS
26
<PAGE> 33
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the
federal securities laws. These statements concern our plans, expectations and
objectives for future operations of NiSource, Columbia and New NiSource. Any
statement in this document that is not a historical fact is a forward-looking
statement. We use the words "estimate," "intend," "expect," "believe,"
"anticipate" and similar expressions to identify forward-looking statements, but
some of these statements may use other phrasing. None of NiSource, Columbia or
New NiSource undertakes any obligation to release any revisions to these
forward-looking statements publicly to reflect events or circumstances after the
date of this document or to reflect the occurrence of unanticipated events.
While we make the forward-looking statements in good faith and believe they are
based on reasonable assumptions, these statements are subject to risks and
uncertainties. Important factors that could cause actual results to differ
materially from those suggested by the forward-looking statements are described
in this Risk Factors section and also in the documents that we have incorporated
by reference into this document. These other factors include:
- weather;
- federal and state regulatory environments;
- the economic climate;
- growth in the service territories served by NiSource and Columbia;
- customers' usage patterns and preferences;
- the degree to which and the speed with which competition changes the
utility industry;
- fluctuations in supply and demand for energy commodities and the timing
and extent of changes in commodity prices;
- changing conditions in the capital and equity markets; and
- other uncertainties, all of which are difficult to predict, and many of
which are beyond our control.
Accordingly, you should not rely on the accuracy of predictions contained
in forward-looking statements. These statements speak only as of the date of
this document, or, in the case of documents incorporated by reference, the date
of those documents.
RISK FACTORS
27
<PAGE> 34
THE SHAREHOLDER MEETINGS
NiSource and Columbia will each hold a shareholder meeting. We are sending
you this document in order to solicit your proxy for use at the shareholder
meetings.
DATES, TIMES AND PLACES
NiSource. The NiSource annual meeting will be held at the Capitol Theatre,
3rd Floor, 77 South High Street, Columbus, Ohio, on Thursday, June 1, 2000, at
10:00 a.m., local time.
Columbia. The Columbia special meeting will be held at the PNC Bank Center,
222 Delaware Avenue, Wilmington, Delaware on Friday, June 2, 2000, at 2:00 p.m.,
local time.
PURPOSES
NiSource. The purpose of the NiSource meeting is to approve the merger
agreement, to elect directors and to approve NiSource's amended and restated
long-term incentive plan. The merger agreement provides for the formation of a
new holding company to effect the acquisition of Columbia and for the change of
the name of the new holding company to "NiSource Inc."
Columbia. The purpose of the Columbia meeting is to adopt the merger
agreement.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
NiSource. Only NiSource shareholders of record as of the close of business
on April 27, 2000, are entitled to receive notice of and to vote at the NiSource
meeting. On the record date, there were approximately 40,300 shareholders of
record holding an aggregate of approximately 121,058,500 outstanding common
shares.
Each NiSource common share is entitled to one vote. Approval of the merger
agreement requires the affirmative vote of a majority of the outstanding shares.
Election of directors requires a plurality of the votes cast. Approval of the
NiSource incentive plan requires the affirmative vote of a majority of the votes
cast, assuming a quorum is present.
The presence, in person or by proxy, of at least a majority of the NiSource
common shares entitled to vote at the NiSource meeting is necessary to
constitute a quorum. Abstentions and broker non-votes will count in determining
a quorum. For purposes of obtaining the required vote for approval of the merger
agreement, an abstention or a broker non-vote is the same as a vote against the
merger agreement. Abstentions and broker non-votes will not be counted as votes
cast in the election of directors or on the proposal to approve the incentive
plan. As a result, abstentions and broker non-votes will not have any effect on
these proposals, other than in determining the existence of a quorum.
At the close of business on the record date, directors and executive
officers of NiSource and their affiliates beneficially owned and were entitled
to vote approximately 1,339,000 NiSource common shares, which represented
approximately one percent of the NiSource common shares outstanding on that
date. All of NiSource's directors and executive officers have indicated their
present intention to vote, or cause to be voted, their NiSource common shares
FOR approval of the merger agreement at NiSource's shareholder meeting.
THE SHAREHOLDER MEETINGS
28
<PAGE> 35
Columbia. Only Columbia shareholders of record as of the close of business
on April 27, 2000, are entitled to receive notice of and to vote at the Columbia
meeting. On the record date, there were approximately 31,800 shareholders of
record holding an aggregate of approximately 80,101,250 outstanding shares of
Columbia common shares.
Each share of Columbia common shares is entitled to one vote. Adoption of
the merger agreement requires the affirmative vote of a majority of the
outstanding shares.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Columbia common shares entitled to vote at the Columbia
meeting is necessary to constitute a quorum. Abstentions and broker non-votes
will be counted in determining whether a quorum is present. For purposes of
obtaining the required vote for adoption of the merger agreement, an abstention
or a broker non-vote is the same as a vote against the adoption of the merger
agreement.
At the close of business on the record date, directors and executive
officers of Columbia and their affiliates beneficially owned and were entitled
to vote approximately 117,746 Columbia common shares, which represented less
than one percent of the Columbia common shares outstanding on that date. All of
Columbia's directors and executive officers have indicated their present
intention to vote, or cause to be voted, their Columbia common shares FOR
adoption of the merger agreement at Columbia's shareholder meeting.
PROXIES
The boards of directors of each of NiSource and Columbia are soliciting
proxies for use at their shareholder meetings. If you sign, complete and return
a proxy, and your company receives the proxy before or at your shareholder
meeting, your proxy will be voted as you instructed. All proxies returned
without instructions will be voted FOR the approval or adoption of the merger
agreement and, in the case of NiSource, FOR the election of all nominees for
director and FOR the adoption of the incentive plan.
NiSource is also providing shareholders with the opportunity to submit
proxies with voting instructions by telephone or through the internet by
following the instructions on the accompanying proxy card. If you are a record
holder of NiSource common shares, you have been assigned a unique control number
which has been printed on your proxy card. If you submit your proxy by telephone
or through the internet, you will be required to provide your assigned control
number before your proxy will be accepted. If you submit your proxy with voting
instructions by telephone or through the internet, you will receive confirmation
that your proxy has been successfully submitted.
Columbia is also providing shareholders with the opportunity to submit
proxies with voting instructions by telephone by calling the telephone number
printed on the accompanying proxy card. Columbia shareholders should follow the
instructions that are set forth on the reverse side of the proxy card. If you
are a record holder of Columbia common shares, you have been assigned a unique
control number which has been printed on your proxy card. If you submit your
proxy by telephone, you will be required to provide your assigned control number
before your proxy will be accepted. In addition to the instructions that appear
on the proxy card, step-by-step instructions will be provided by a recorded
telephone message for those shareholders submitting proxies by telephone. If you
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29
<PAGE> 36
submit your proxy with voting instructions by telephone, you will receive
confirmation on the telephone that your proxy has been successfully submitted.
If your shares are held in the name of a broker, bank or other record
holder, you must either direct the record holder how to vote your shares or
obtain a proxy from the record holder to vote at your shareholder meeting. Under
the rules of the New York Stock Exchange, brokers who hold shares in street name
for a customer who is the beneficial owner of those shares may not give a proxy
to vote those shares in the absence of specific instructions from the customer.
Shares for which no instructions are received are referred to as "broker
non-votes" and will be treated as described under "Voting Rights; Votes Required
for Approval" on page 28.
If any other matters are properly presented for consideration at either
shareholder meeting, the persons named in the proxies will have discretion to
vote or not vote on those matters in accordance with their best judgment, unless
authorization to use that discretion is withheld. Proxies marked AGAINST
approval or adoption of the merger agreement will be voted against any proposal
to adjourn the meeting for the purpose of soliciting additional proxies. We are
unaware of any business for consideration at the shareholder meetings other than
as described in this document.
You may revoke your proxy at any time prior to its use. If you are a
NiSource shareholder, to revoke your proxy, you must deliver to NiSource's
corporate secretary a signed notice of revocation or a later-dated proxy
changing your vote. If you are a Columbia shareholder, you must deliver to
Columbia, c/o Harris Trust and Savings Bank, P.O. Box 7051, Rockford, IL
61125-9945, a signed notice of revocation or a later-dated proxy changing your
vote. In addition, whether you are a shareholder of NiSource or Columbia, you
may attend your shareholder meeting and choose to vote in person. Simply
attending the meeting will not by itself revoke your proxy. If you are not the
record holder of your shares, you may not vote your shares at the meeting
without a proper proxy from the record holder.
Each company will pay the costs associated with soliciting proxies from its
shareholders. In addition to solicitation by mail, we will make arrangements
with brokerage houses and other custodians, nominees and fiduciaries to send
proxy materials to beneficial owners. NiSource and Columbia, as appropriate,
will reimburse these parties for their reasonable expenses. NiSource has
retained Morrow & Company to aid in the solicitation of proxies for a fee of
$10,500 plus certain other charges and expenses. Columbia also has retained
Morrow & Company to aid in the solicitation of proxies for a fee of $25,000 plus
certain other charges and expenses.
PLEASE ASSIST US BY PROMPTLY RETURNING YOUR PROXY WITHOUT DELAY.
SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES.
THE SHAREHOLDER MEETINGS
30
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THE MERGER
OVERVIEW
HOLDING COMPANY STRUCTURE
The merger agreement provides for a business combination of NiSource and
Columbia. The structure that is used to complete the merger will depend on how
the NiSource shareholders vote on approval of the merger agreement. The
preferred structure for the merger involves the creation of a new holding
company, currently named New NiSource, and two separate but concurrent mergers.
One wholly-owned subsidiary of New NiSource will merge into NiSource, and
another wholly-owned subsidiary of New NiSource will merge into Columbia.
NiSource and Columbia will be the surviving corporations in these mergers and
will become wholly owned by New NiSource. This structure will allow both
Columbia shareholders and NiSource shareholders to exchange their shares
tax-free for New NiSource common shares. New NiSource will then change its name
to "NiSource Inc." and serve as a holding company for Columbia and its
subsidiaries and the subsidiaries of NiSource. Throughout this document we
generally refer to the NiSource merger and the Columbia merger collectively as
"the merger." Immediately after the merger, NiSource will merge into New
NiSource.
ALTERNATIVE STRUCTURE
If the NiSource shareholders do not approve the merger agreement, the
merger between NiSource and a subsidiary of New NiSource will not occur.
Assuming receipt of all necessary approvals, the Columbia merger will occur, and
Columbia will become a wholly-owned subsidiary of NiSource itself, rather than
of a new holding company. The consideration received by Columbia shareholders
under this alternative structure will be different than under the holding
company structure. For a description of this alternative structure, see
"-- Alternative Merger Structure" on page 33.
MERGER CONSIDERATION
NISOURCE SHAREHOLDERS
Upon completion of the merger between NiSource and a subsidiary of the new
holding company, each NiSource common share will be converted into one common
share of New NiSource. The NiSource common shares will cease to exist and,
without any action on your part, your certificates representing those shares
will then represent an equivalent number of New NiSource common shares.
COLUMBIA SHAREHOLDERS
Upon completion of the merger, each Columbia common share, other than
shares held by holders who exercise their appraisal rights under Delaware law as
described in "-- Columbia Shareholders' Appraisal Rights" on page 48, will be
converted into the right to receive either (1) the cash and SAILS consideration
or (2) for Columbia shareholders who so elect, and subject to the proration and
other conditions described below, the stock consideration.
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Cash and SAILS Consideration. The cash and SAILS consideration will consist
of:
- $70 in cash;
- $2.60 stated amount of a New NiSource SAILS, which is a unit consisting
of a zero coupon debt security and a forward equity contract having the
terms described under "Description of the SAILS" on page 106; and
- if the merger is not completed by February 27, 2001, an amount in cash
equal to interest at 7% per annum on $72.29 for the period beginning on
February 27, 2001 and ending on the day before the completion of the
merger, minus the amount of all cash dividends, if any, paid on Columbia
common shares with a record date after February 27, 2001.
Stock Consideration. The stock consideration will consist of:
- that number of New NiSource common shares equal to $74 divided by the
average closing price of NiSource common shares for the 30 trading days
ending two trading days before the completion of the merger, but never
more than 4.4848 shares; and
- if the merger is not completed by February 27, 2001, an amount in cash
equal to interest at 7% per annum on $72.29 for the period beginning on
February 27, 2001 and ending on the day before the completion of the
merger, minus the amount of all cash dividends, if any, paid on Columbia
common shares with a record date after February 27, 2001.
Proration. If Columbia shareholders make stock elections for more than an
aggregate of 30% of the outstanding Columbia common shares, only a portion of
the Columbia shares covered by stock elections will be converted into the stock
consideration. For each shareholder making a valid stock election, the number of
shares to be converted into the stock consideration will be:
- the number of Columbia common shares covered by that shareholder's stock
election, multiplied by
- a fraction, the numerator of which is 30% of the total number of
outstanding Columbia common shares and the denominator of which is the
total number of Columbia common shares covered by valid stock elections.
The remainder of shares covered by each stock election will be converted into
the cash and SAILS consideration as described above.
10% Minimum. If Columbia shareholders do not make stock elections for at
least 10% of the outstanding Columbia common shares, then no Columbia shares
will be converted into the stock consideration, and all Columbia shares will be
converted into the cash and SAILS consideration as described above. This
condition assures that the exchange of Columbia common shares for New NiSource
common shares will be tax-free as described under "United States Federal Income
Tax Consequences -- Material United States Federal Income Tax Consequences of
the Merger -- Tax Implications to Columbia Shareholders" on page 88.
No Fractional Shares. New NiSource will not issue fractional common shares
in the merger. Instead, New NiSource will pay cash for the fractional share
based on the average
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of the closing trading prices of NiSource common shares on the New York Stock
Exchange on the 30 trading days ending two days before completion of the merger.
ALTERNATIVE MERGER STRUCTURE
The structure that is used to complete the merger will depend on how the
NiSource shareholders vote on approval of the merger agreement. We will use the
alternative merger structure only if the NiSource shareholders do not approve
the merger agreement. In that case, the new holding company structure will not
be used. NiSource common shares will remain unchanged and will not be converted
into common shares of New NiSource. Each Columbia common share, other than
shares held by holders who exercise their appraisal rights, will be converted in
the merger into the right to receive:
- $70 in cash;
- $3.02 stated amount of a NiSource SAILS, which is a unit consisting of a
zero coupon debt security and a forward equity contract having the terms
described under "Description of the SAILS" on page 106; and
- if the merger is not completed by February 27, 2001, an amount in cash
equal to interest at 7% per annum on $72.29 for the period beginning on
February 27, 2001 and ending on the day before the completion of the
merger, minus the amount of all cash dividends, if any, paid on Columbia
common shares with a record date after February 27, 2001.
Columbia shareholders will have no right to elect to receive stock
consideration under the alternative merger structure.
BACKGROUND OF THE MERGER
In November 1998, during a NiSource-sponsored event to which
representatives from a number of companies were invited, Oliver G. Richard III,
Chairman, President and Chief Executive Officer of Columbia, and Gary L. Neale,
Chairman, President and Chief Executive Officer of NiSource, had discussions, as
each of them has had with other industry executives, about the active pace of
change in the utility industry, including general discussions concerning the
possibility of joint ventures, combinations or other transactions with respect
to their businesses.
NiSource had for some time been considering potential candidates for
acquisition and other transactions as part of its ongoing evaluation of
strategic alternatives. By January 1999, NiSource's ongoing exploration of
possible acquisition candidates had focused on a small number of companies,
including Columbia, and NiSource began a more formal analysis of Columbia.
On April 1, 1999, Mr. Neale delivered to Mr. Richard a letter, which
indicated that NiSource was interested in pursuing a transaction with Columbia
pursuant to which NiSource would purchase all of the outstanding shares of
Columbia for cash in the amount of $63 per share subject to certain conditions.
At Mr. Richard's request, Mr. Neale agreed to withdraw the letter. Mr. Richard
agreed to meet again with Mr. Neale on April 16, 1999. Because of Columbia's
internal consideration of a proposal to purchase Consolidated Natural Gas
Company, discussed below, Mr. Richard canceled the planned April 16 meeting with
Mr. Neale. On April 16, the Columbia board of directors met to discuss a
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33
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possible public offer to acquire all of the outstanding common stock of CNG,
which had entered into an agreement to merge with Dominion Resources Inc.
On April 16, 1999, NiSource delivered a letter to Mr. Richard in which
NiSource proposed a transaction pursuant to which NiSource would purchase all of
the outstanding shares of Columbia for cash in the amount of $63 per share. The
Columbia board of directors met on April 16 and 18, 1999 to consider NiSource's
April 16 letter. After receiving advice from its outside legal advisors and from
Salomon Smith Barney, its financial advisor, which discussed a range of
financial considerations, factors and analyses, the Columbia board of directors
unanimously (other than Messrs. Johnston, Jozoff and Olesen, who were not
present) determined at the April 18, 1999 meeting to reject the transaction
proposed in NiSource's April 16 letter.
On April 18, 1999, Columbia publicly announced that it had submitted a
formal proposal to CNG pursuant to which Columbia would acquire all of the
outstanding common stock of CNG for consideration consisting of cash and
Columbia common shares valued at $70 per CNG share. The proposal was to be kept
open until 5:00 p.m. on May 3, 1999. Mr. Neale subsequently called Mr. Richard
and offered to assist Columbia in connection with its proposal to CNG.
On May 3, 1999, Columbia announced that, in response to CNG's requests for
additional information concerning Columbia's April 18 proposal, Columbia was
providing the additional information and was extending the deadline of its
proposal until 5:00 p.m. on May 10, 1999. Columbia subsequently delivered to CNG
the requested information and a definitive merger agreement, which was to remain
binding upon Columbia until May 11, 1999. On May 11, 1999, following the
decision by the CNG board on that same date to enter into a revised and enhanced
agreement with Dominion, which substantially increased the value to be received
by CNG shareholders, Columbia announced that it had withdrawn its offer to
acquire CNG.
On May 28, 1999, representatives of NiSource and Columbia spoke by
telephone about a possible acquisition of Columbia by NiSource. Columbia's
representative confirmed that, consistent with Columbia's previous
correspondence with NiSource, Columbia was not interested in negotiating a
transaction with NiSource.
On June 7, 1999, NiSource publicly disclosed a letter from Mr. Neale
addressed to Mr. Richard offering to purchase all of Columbia's shares for $68
per share in cash. Mr. Richard advised Mr. Neale in writing that the Columbia
board of directors would consider NiSource's revised offer.
At a meeting of the Columbia board of directors held on June 10, 1999, the
Columbia board of directors carefully considered Columbia's business, financial
condition and prospects, the terms of the June 7 proposal and other matters. At
the June 10 board of directors meeting, after a lengthy discussion and following
presentations by Columbia's management and legal advisors and by Salomon Smith
Barney, its financial advisor, which discussed a range of financial
considerations, factors and analyses, the Columbia board of directors
unanimously voted against entering into the $68 per share merger contemplated in
the June 7 proposal.
On June 24, 1999, NiSource publicly announced its intention to commence a
tender offer, which was subsequently commenced on June 25, 1999. Also on June
24, 1999, Columbia issued a press release urging its shareholders to take no
action with respect to the tender offer until the Columbia board of directors
had issued its recommendation.
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At a Columbia board of directors meeting on July 1, 1999, following
discussion and presentations by Columbia's legal advisors and by Morgan Stanley
and Salomon Smith Barney, its financial advisors, each of which individually
discussed a range of financial considerations, factors and analyses, the
Columbia board of directors determined that the NiSource tender offer at $68 per
share in cash was inadequate and recommended that Columbia's shareholders reject
the offer and not tender their shares pursuant to the offer.
On October 17, 1999, NiSource publicly announced an increase in the price
per share to be paid pursuant to the continuing tender offer from $68 per share
to $74 per share. The revised offer was scheduled to expire at 12:00 midnight,
New York City time, on Friday, November 12, 1999.
At a meeting of the Columbia board of directors held on October 22, 1999,
the Columbia board of directors carefully considered Columbia's business,
financial condition and prospects, the terms and conditions of the revised
offer, possible strategic alternatives to the revised offer and other matters,
including presentations by its management and legal advisors and by Morgan
Stanley and Salomon Smith Barney, its financial advisors, each of which
individually discussed a range of financial considerations, factors and
analyses. At the October 22, 1999 meeting, the Columbia board of directors
unanimously (other than Mr. Jozoff, who was not present) concluded, among other
things, that the revised offer was not in the best interests of Columbia or its
shareholders and recommended that Columbia's shareholders reject the revised
offer and not tender their shares pursuant to the revised offer.
At the October 22, 1999 meeting, the Columbia board of directors also
instructed management, with the assistance of Columbia's financial and legal
advisors, to explore strategic alternatives to generate value in excess of that
which Columbia's business plan or the revised offer could create, including,
without limitation, an extraordinary transaction, such as a merger or
reorganization, involving Columbia or any of its subsidiaries or a sale or
transfer of a material amount of assets by Columbia or any of its subsidiaries.
As a result, shortly thereafter Columbia, through its financial advisors,
initiated discussions with third parties regarding the types of transactions
mentioned above.
On December 21, 1999, Columbia announced that numerous third parties had
provided preliminary indications of interest. Columbia announced that it was
inviting several third parties that had provided preliminary indications of
interest reflecting values higher than $74 per share, as well as NiSource, into
a second round of its process.
On February 14, 2000, NiSource publicly announced that it had allowed its
revised offer to expire as of midnight on Friday, February 11, 2000, but that it
would still pursue a transaction with Columbia pursuant to the rules of
Columbia's previously announced process.
On February 18, 2000, NiSource submitted a proposal to purchase all of the
Columbia common shares in a transaction pursuant to which (1) all of Columbia's
shareholders could elect to receive $70 per share in cash, and (2) up to a
maximum of 30% of Columbia's shareholders could elect to receive NiSource common
shares with a value of $72 per share, subject to a collar. Two other parties
also submitted proposals to Columbia for significant business segments of
Columbia. These offers, alone or taken together, would not have resulted in the
sale of Columbia in its entirety. Previous indications of interest provided to
Columbia reflecting a value in excess of $74 per share had been withdrawn prior
to February 18, 2000, largely, Columbia believes, as a result of the marked
industry-wide decrease in the share prices of publicly traded companies
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involved in the gas and electric utility industries during the period between
December 1999 and February 2000 and higher interest rates.
On February 21, 2000, Columbia's board of directors began discussion of the
various proposals and continued the discussions at its February 22, 2000
meeting. At the February 22, 2000 meeting, the board of directors instructed
Columbia's financial advisors to hold discussions with NiSource to attempt to
arrive at a value in excess of the value stated in NiSource's February 18
proposal.
Between February 22, 2000 and February 26, 2000, representatives of
Columbia and NiSource participated in numerous telephone conversations regarding
the terms of the February 18 proposal. On February 24, 2000, representatives of
Columbia and NiSource met to discuss various alternatives, including the
possibility of increasing the value of the stock portion of NiSource's proposal
to $74 per share subject to a collar and introducing a form of equity linked
security to be provided in addition to the $70 cash per share.
On February 25, 2000, NiSource improved the financial and other terms of
its offer, including adding an equity linked security having a face value of
$2.60 per share. On that basis, Columbia authorized its legal advisors to
continue discussions with NiSource.
On February 26, 2000 and February 27, 2000, Columbia's legal advisors and
NiSource's legal advisors met to negotiate the terms of the merger agreement.
On February 27, 2000, Columbia's board of directors met to discuss the
revised terms of the NiSource proposal. Columbia's financial advisors made a
financial presentation and delivered their respective opinions to the effect
that, based upon and subject to the considerations set forth in such opinions,
as of February 27, 2000, the consideration to be received by the holders of
Columbia shares pursuant to the merger agreement was fair from a financial point
of view to Columbia shareholders. The Columbia board of directors also received
presentations from its legal advisors regarding the terms of the merger
agreement. After further discussion and deliberation, Columbia's board of
directors (other than Mr. Beeby, who was not present) declared the merger
agreement and the transactions contemplated thereby to be advisable and in the
best interests of Columbia and its shareholders, authorized and approved the
merger agreement and the transactions contemplated thereby, subject to the
finalization of the merger agreement.
On February 27, 2000, NiSource's board of directors discussed via
telephonic conference the results of the discussions between Columbia's and
NiSource's financial and legal advisors. NiSource's financial advisor made a
financial presentation and rendered its oral opinion, which was subsequently
confirmed by delivery of a written opinion dated February 27, 2000, to the
effect that, as of that date and based upon and subject to the matters described
in the opinion, the merger consideration was fair, from a financial point of
view, to NiSource. The NiSource board of directors also received presentations
from its legal advisors regarding the terms of the merger agreement. After
further discussion and deliberation, NiSource's board of directors authorized
and approved the merger agreement and the transactions contemplated thereby,
subject to the finalization of the merger agreement.
On February 27, 2000, upon reaching agreement on the remaining non-material
issues, Columbia and NiSource executed the merger agreement. Columbia and
NiSource issued a joint press release immediately thereafter announcing the
execution of the merger agreement.
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On March 31, 2000, Columbia and NiSource executed a restated and amended
merger agreement which added New NiSource and the subsidiaries formed to
complete the mergers as parties to the merger agreement and made other related
and minor changes.
During the course of NiSource's tender offer for Columbia, Columbia
shareholders filed five class action lawsuits, which were later consolidated
into a single action in the Delaware Chancery Court, and an action in federal
court. NiSource also commenced two lawsuits in Chancery Court and one action in
federal court. Taken together, the Chancery Court actions alleged that Columbia
and its directors acted improperly by not negotiating with NiSource, by
implementing a share repurchase program, by adopting change in control
agreements with Columbia executive officers and by failing to elect the number
of directors prescribed in Columbia's certificate of incorporation. The federal
court actions alleged that Columbia and its directors had violated federal
securities laws in their statements in response to NiSource's tender offer. The
claim relating to the number of directors was dismissed. In October 1999, the
parties agreed to stay all litigation pending the outcome of certain meetings
between Columbia and NiSource. Following the execution of the merger agreement,
NiSource dismissed with prejudice all of its claims. The shareholder plaintiffs'
lawsuits are still pending, although they remain stayed.
NISOURCE'S REASONS FOR THE MERGER; RECOMMENDATION OF NISOURCE'S BOARD
NISOURCE'S REASONS FOR THE MERGER
We believe that the merger will enable NiSource and its shareholders to
participate in a significantly larger and more diverse company that will have
strategic and operational opportunities that would not be available to NiSource
as a separate company. In particular, we believe that the combined company will
have three elements that are key to success in the increasingly deregulated and
competitive energy marketplace: (1) increased size, scope and scale, (2) access
to strategic geographic markets and (3) a broad range of complementary assets.
Increased Size, Scope and Scale.
- The merger of NiSource and Columbia will create a super-regional energy
company serving more than 3.6 million gas and electric utility customers
located primarily in nine states. The combined company will be:
- the largest natural gas company east of the Rockies, based on number of
customers;
- the nation's second largest gas company, based on gas sales volume of
more than 900 million cubic feet per day; and
- the largest gas storage company in the country, with 700 billion cubic
feet of storage capacity in both gas supply areas and gas market areas.
- Increased volumes of gas throughput and gas sales, along with more
extensive local delivery systems, pipeline assets and a variety of gas
storage facilities, will increase our flexibility and efficiency in
delivering gas.
- The merger will result in a company with pro forma 1999 operating
revenues of $6.3 billion from a substantially larger and more diverse
customer base.
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- We also expect operating efficiencies from economies of scale.
- The broader geographic range of the market areas served by the NiSource
and Columbia utility companies distributing gas and electricity should
moderate the risk that unseasonably warm winters or cool summers in one
area will adversely affect the entire company at any particular time.
Access to Strategic Geographic Markets.
- The merger advances NiSource's previously announced strategy of expanding
its presence within a natural gas distribution corridor stretching from
Texas, through Chicago, to Maine. Our company has its roots in the
Chicago/northern Indiana market. We have extended east through the
acquisition of Bay State Gas and southwest through the acquisition of
TPC, Market Hub Partners and other gas storage assets in Texas. The
additional gas storage assets, pipeline assets and customers we will
acquire in the merger also fall along this corridor, linking our existing
assets and allowing us to better utilize the combined company's assets.
- Pipelines from Canada and the Gulf of Mexico to the Chicago market have
made natural gas plentiful and relatively inexpensive in Chicago and
northern Indiana. In contrast, in the Northeast, constrained pipeline
capacity has resulted in higher gas prices and low usage of natural gas.
With significant natural gas reserves and storage capacity, 19,000 miles
of gas pipeline from Texas to Maine and an extensive local distribution
network, we believe the combined company will be able to deliver lower
cost gas to a Northeast market that has the potential for growth as an
increasing number of customers, including power plant operators, switch
to clean natural gas as their fuel of choice.
- The broader geographic coverage of the combined company, including
Columbia's natural gas distribution territory and its pipeline systems,
will also provide more opportunities to expand NiSource's electric
cogeneration business for industrial customers.
Broad Range of Complementary Assets.
- The merger will enable the combined company to use strong local utility
brand names to offer customers a broader mix of products and services
than either company alone could offer. For example, we will be able to
offer more competitive management of customers' complete gas supply needs
to a broader group of customers by combining NiSource's supply area gas
storage with Columbia's market area gas storage and combining high
deliverability storage for peak needs with standard storage for baseload
needs.
- The merger will permit the combined company to offer a broader range of
energy products and services and will reduce the risk presented by
NiSource's dependence on sales of gas and electricity to large industrial
customers in northwest Indiana.
- The merger will allow us to take advantage of arbitrage opportunities
that may exist among natural gas, coal and electricity. Similar
opportunities may be available based on differences in weather, time of
day, geographic location of customers, and physical location of fuel
supplies and gas storage along the Texas-to-Maine corridor. As an
example, we will be able to choose how best to use natural gas supplies,
whether by selling the gas on the open market, swapping it, transporting
it for sale
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in another market, putting it into storage for future use or sale, or
using it to produce electricity in our power plants.
- Finally, the merger will add key members of Columbia's operating
management team, which has successfully managed its company during a
period of deregulation in multiple states, increased competition and
rapid change in the gas industry, to NiSource's management team, which
has skills and experience in efficiently managing assets and delivering
energy products and services.
RECOMMENDATION OF NISOURCE'S BOARD
NiSource's board of directors, by unanimous vote, has approved the merger
agreement, believes the merger is fair and in the best interests of NiSource and
its shareholders and is advisable, and recommends that NiSource's shareholders
vote FOR the adoption of the merger agreement.
In engaging in the process of screening and evaluating potential strategic
transactions and in reaching its determination to approve and recommend the
merger agreement, the NiSource board of directors was motivated by its desire to
position NiSource to meet the challenges of the changing energy industry
environment. In addition, the NiSource board believed the merger would help its
shareholders realize the benefits of the opportunities, and moderate the risks,
presented by this changing environment.
In its deliberations with respect to the merger and the merger agreement,
the NiSource board of directors consulted with NiSource's management and
NiSource's financial and legal advisors. The factors considered by the NiSource
board include those enumerated below. While the NiSource board considered all of
those factors, it did not make determinations with respect to each factor.
Rather, the board of directors made its judgment with respect to the merger and
the merger agreement based on the total mix of information available to it, and
the judgments of individual directors may have been influenced to a greater or
lesser degree by their individual views with respect to different factors.
In considering the recommendation of the NiSource board of directors with
respect to the merger agreement, NiSource shareholders should be aware that the
members of the NiSource board of directors have interests in the merger that are
different than, or in addition to, the interests of NiSource shareholders
generally. See "-- Interests of Officers and Directors in the Merger" on page
45.
The factors the NiSource board of directors considered in evaluating the
merger and the merger agreement included the following:
- the board's knowledge of the business, operations, assets, properties,
operating results and financial condition of NiSource;
- NiSource's strategic alternatives, including the prospects of positioning
NiSource for the future and enhancing long-term shareholder value by
remaining an independent company or by effecting a strategic business
combination with another party;
- discussions with NiSource's management and its financial and legal
advisors, before and during the course of NiSource's tender offer for
Columbia, concerning a proposed combination with Columbia, as well as
concerning combinations with other potential acquisition candidates;
THE MERGER
39
<PAGE> 46
- the recent trend in the utility industry toward consolidation and
strategic partnerships in an increasingly competitive environment;
- specifically, with respect to an acquisition of Columbia:
- the merger consideration, and the variations in the amount and mix of
consideration that could result from Columbia shareholder elections and
changes in the price of NiSource common shares or from the alternative
merger structure;
- information concerning the financial position, results of operations,
businesses, competitive position and prospects of Columbia;
- the strategic and operational opportunities that would be provided by a
combination with Columbia;
- the opportunities for cost savings and revenue enhancements as a result
of a merger with Columbia;
- the prospects for obtaining regulatory approvals for a merger with
Columbia;
- recent trading prices for NiSource and Columbia common shares;
- the terms of the merger agreement;
- the tax and accounting treatment for the merger; and
- the discussions with and oral opinion of Credit Suisse First Boston
delivered at the February 27, 2000 meeting of the NiSource board, which
was subsequently confirmed by delivery of a written opinion dated
February 27, 2000, to the effect that, as of that date and based upon
and subject to the matters described in the opinion, the merger
consideration was fair, from a financial point of view, to NiSource. The
full text of the Credit Suisse First Boston opinion, which states the
procedures followed, assumptions made, matters considered and
limitations on the review undertaken by Credit Suisse First Boston, is
attached as Annex III to this document and is incorporated in this
section by reference. You are urged to, and should, read the opinion
carefully in its entirety. See "Opinions of Financial
Advisors -- Opinion of NiSource's Financial Advisor" on page 52.
During its deliberations regarding the merger and the merger agreement, the
NiSource board of directors also analyzed certain risks associated with the
merger. The NiSource board of directors received advice regarding the risks of
obtaining regulatory approval for the merger, the potential for a negative
effect on NiSource's share price currently and on its credit ratings following
the merger and the other factors outlined under "Risk Factors -- Transaction
Risks" and "-- Business Risks" on pages 19 and 23. After reviewing these matters
thoroughly, the NiSource board determined that the benefits of the merger
outweighed any risks entailed in these matters.
RECOMMENDATION AND CONSIDERATIONS OF THE COLUMBIA BOARD OF DIRECTORS
At its meeting on February 27, 2000, the Columbia board of directors
unanimously as to those present determined that the merger agreement and the
transactions contemplated thereby, including the merger, are advisable and in
the best interests of Columbia and its shareholders. Accordingly, the Columbia
board of directors has declared advisable, authorized and approved the merger
agreement, and recommends that the Columbia shareholders vote FOR the adoption
of the merger agreement at the special meeting.
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40
<PAGE> 47
In the course of reaching its decision to approve the merger agreement, the
Columbia board of directors consulted with Columbia's management, as well as its
outside legal counsel and its financial advisors, and considered a number of
factors, including the following factors:
- UTILITY INDUSTRY. The board of directors' knowledge of the business,
financial condition, prospects and current business strategy of Columbia
played a significant role in its decision making process. In fact,
Columbia's information was particularly current as a result of its recent
evaluation of strategic alternatives. The Columbia board of directors
also considered its understanding of the present and anticipated
environment in the utility industry and Columbia's position in the
industry, and how possible consolidation and restructuring within the
utility industry could affect Columbia's competitive position.
- ACTIVE SOLICITATION. The board of directors also considered the history
of Columbia's discussions with other parties thought to be the most
likely candidates to have an interest in acquiring Columbia, including
without limitation, the ample opportunity provided to other parties,
pursuant to Columbia's solicitation process, to submit proposals to
Columbia. The board of directors considered the fact that the merger
agreement resulted from this active solicitation by Morgan Stanley and
Salomon Smith Barney Inc., on behalf of Columbia, of proposals from a
large number of prospective purchasers with respect to an acquisition of
Columbia.
- OTHER OPPORTUNITIES. The board of directors considered the risks and
rewards of the alternative of continuing as an independent entity. Such
risks include, among others, the risks associated with remaining
independent amidst industry-wide consolidation. The potential rewards
include, among others, the ability of existing Columbia shareholders to
partake in the potential future growth and profitability of Columbia.
- MANAGEMENT PRESENTATIONS. In addition, the board of directors considered
the presentations and views of management expressed at a number of
meetings of the Columbia board of directors held on or prior to February
27, 2000, regarding, among other things:
- management's view with respect to the financial condition, results of
operations, cash flows, business and prospects of Columbia, including
the prospects of Columbia if it were to remain independent and the
strategic alternatives believed to be available to Columbia; and
- the recommendation of the merger agreement by the management of
Columbia.
- FAIRNESS OPINION. The Columbia board of directors considered the analysis
and presentations prepared by each of Morgan Stanley and Salomon Smith
Barney Inc. at the February 27, 2000 board meeting, and their respective
oral opinions, which were each subsequently confirmed in writing, to the
effect that, as of the date of such opinions and based upon and subject
to the matters stated in such opinions, as of February 27, 2000, the
consideration to be paid by NiSource to Columbia shareholders is fair,
from a financial point of view, to such shareholders.
- ATTRACTIVE PREMIUM. The board of directors also considered the fact that
the value of the merger consideration -- having a stated value of
$72.60 -- represented a premium of 27% over the closing price of Columbia
common shares on February 25, 2000, the last trading day prior to the
announcement of the merger agreement.
THE MERGER
41
<PAGE> 48
- SHAREHOLDER APPROVAL. The board also considered that the merger agreement
provided for an alternative structure under which the approval of
NiSource shareholders was not required in order to effect the merger of
Columbia and NiSource. The board considered that this alternative
structure, to be utilized in the event NiSource's shareholders fail to
approve the transactions contemplated by the merger agreement's new
holding company structure, had a stated value of $73.02, representing a
28% premium over the closing price on February 25, 2000.
- TAX TREATMENT. The fact that, if NiSource shareholders approve the merger
agreement, Columbia shareholders will be able to receive New NiSource
common shares for up to 30% of the outstanding Columbia shares in a
tax-free exchange.
- TRADING HISTORY. The current and historical market prices and trading
volumes for the Columbia common shares, including the relationship of the
merger consideration and the alternative merger consideration to the
likely range of prices within which shares of Columbia common shares
would trade in the absence of a possible acquisition transaction.
The Columbia board of directors also considered: (1) the risk that the
merger would not be completed; (2) the effect of the public announcement of the
merger on Columbia's sales, customer, supplier and creditor relationships,
operating results and ability to retain employees and the trading price of
Columbia shares; (3) the substantial management time and effort that will be
required to complete the merger and integrate the operations of the two
companies; (4) the possibility that various provisions of the merger agreement
might have the effect of discouraging other persons potentially interested in a
combination with Columbia from pursuing such an opportunity; (5) the risk that
the value of Columbia shares will decline; and (6) other matters described under
"Risk Factors" on page 19.
The foregoing discussion of information and factors considered by the
Columbia board of directors is not intended to be exhaustive, but is believed to
include all material factors considered. In view of the variety of factors
considered in connection with its evaluation of the merger and the complexity of
such matters, the Columbia board of directors did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its decision. The Columbia board of directors
conducted a discussion of the factors described above, including asking
questions of Columbia's management and Columbia's legal and financial advisors,
and reached a general consensus that the merger was fair to and in the best
interest of Columbia's shareholders. In addition, in considering the factors
described above, individual members of the board may have given different
weights to different factors.
Columbia's board of directors also considered that members of Columbia's
management and its board of directors have interests in the merger that are
different from, or in addition to, the interests of Columbia's shareholders
generally. These interests are discussed in detail under "Interests of Officers
and Directors in the Merger" on page 45.
THE COLUMBIA BOARD OF DIRECTORS, AT A MEETING DULY CALLED AND HELD, HAS
DECLARED ADVISABLE, AUTHORIZED AND APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, ARE ADVISABLE AND IN THE BEST INTERESTS OF COLUMBIA AND
ITS SHAREHOLDERS. ACCORDINGLY, THE COLUMBIA BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT COLUMBIA SHAREHOLDERS VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT.
THE MERGER
42
<PAGE> 49
FINANCING THE TRANSACTION
NiSource estimates that the cash payments to Columbia shareholders in the
merger will range from approximately $4 billion, assuming 30% of the outstanding
Columbia shares are exchanged for the stock consideration, to approximately $6
billion, if all of the Columbia shares are exchanged for the cash and SAILS
consideration. We anticipate that NiSource will fund this cash consideration
plus any cash costs of the merger initially through borrowings under newly
established bank credit facilities. In addition, we expect approximately $2.4
billion of Columbia's existing debt to remain outstanding after the merger.
NiSource is also considering other sources of financing, including commercial
and investment banks, institutional lenders and the public securities markets.
NiSource also expects to generate funds from sales of assets that we do not
consider essential to the core businesses of the combined company.
NiSource has accepted a commitment letter from CSFB and Barclays Bank PLC
to provide up to $6 billion in loans and to lead the syndication of the initial
borrowings, but it has not entered into any definite agreements with respect to
the actual borrowings. The commitment letter contemplates a revolving credit
facility expiring February 17, 2001, with the right to convert loans outstanding
at that time into term loans maturing 364 days thereafter. The loan proceeds may
be used to finance the merger, to refinance existing indebtedness and to pay
related fees and expenses. The credit facility also may be used to support a
commercial paper program used for those purposes.
Loans will bear interest, at the borrower's option, at specified spreads
(which vary depending upon the credit rating of the combined company) above
LIBOR (adjusted for reserves) or CSFB's base rate or at a negotiated competitive
bid rate. Loans bearing interest based upon LIBOR will be for interest periods
of 1, 2, 3 or 6 months. In addition, the borrower will pay a utilization fee at
a specified annual rate on the outstanding principal amount of loans whenever
more than 25% of the commitment has been borrowed, and will pay an annual
facility fee on the entire amount of the facility whether or not used.
The commitments of CSFB and Barclays Bank PLC to underwrite the credit
facility may be terminated upon the occurrence of any material adverse change in
the business of NiSource and its subsidiaries or of Columbia and its
subsidiaries, the underwriters' discovery of additional information that is
inconsistent in a material and adverse manner with information previously
disclosed by NiSource, the occurrence of any material adverse change in banking
or capital market conditions generally and other customary events. The
conditions to NiSource's borrowing under the facility include:
- execution and delivery of satisfactory loan documentation,
- receipt of investment grade ratings for the borrower's senior unsecured
long-term debt from both Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services, and
- the satisfaction of the conditions to the merger, including receipt of
all necessary consents and approvals.
The definitive documentation relating to the facility also will contain
representations, warranties, covenants, events of default and conditions
customary for transactions of this type. The financial covenants will include a
minimum interest coverage ratio and a maximum leverage ratio.
THE MERGER
43
<PAGE> 50
NiSource will pay underwriting and other fees to the underwriters and
syndication fees to the lenders in connection with the facility. NiSource also
will pay certain expenses of, and provide customary indemnities to, the
underwriters and, under certain circumstances, the other lenders under the
facility.
New NiSource anticipates repaying or refinancing a substantial portion of
the initial debt with proceeds from issuances of equity securities, proceeds
from issuances of public debt, proceeds from non-core asset sales and cash flow
from operations. However, NiSource has not entered into any agreements regarding
the subsequent issuance of equity or debt securities or the potential sale of
any assets. With respect to any of these transactions, there can be no assurance
that any such borrowing, issuance or sale of assets can be concluded or that the
borrowing, issuance or sale will be on favorable terms.
NiSource's obtaining funds to pay the cash portion of the merger
consideration is not a condition to the completion of the merger.
ACCOUNTING TREATMENT
NiSource will account for the merger as a purchase of Columbia by NiSource.
This accounting treatment is based on various factors present in the merger,
including the majority ownership of the combined company by NiSource's
shareholders and the role of NiSource's management following the merger. As a
result, the consolidated financial statements of New NiSource after the merger
will reflect the assets and liabilities of NiSource at book value and the assets
and liabilities of Columbia at fair value. For presentation of certain
anticipated effects of the accounting treatment on the consolidated financial
position and results of operations of New NiSource, we have included unaudited
pro forma combined condensed financial statements in this document, beginning on
page 96.
The purchase contracts included in the New NiSource SAILS will be forward
transactions in New NiSource's common shares. Upon settlement of a purchase
contract four years after completing the merger, New NiSource will receive the
stated amount of $2.60 on the purchase contract and will issue the agreed number
of common shares. The amount received will be credited to shareholders' equity
and allocated between the common shares and paid-in capital accounts.
Prior to the issuance of New NiSource common shares upon settlement of the
purchase contracts, New NiSource expects that the SAILS will be reflected in its
diluted earnings per share calculations using the treasury stock method. Under
this method, the number of common shares used in calculating diluted earnings
per share is deemed to be increased by the excess, if any, of the number of
shares issuable upon settlement of the purchase contracts over the number of
shares that could be purchased by New NiSource in the market at the average
market price during the period using the proceeds receivable upon settlement. As
a result, New NiSource expects there will be no dilutive effect on its earnings
per share except during periods when the average market price of the common
shares is above $23.10.
If the merger is completed using the alternative merger structure, NiSource
will account for the merger, the purchase contracts and the NiSource common
shares to be issued upon settlement of the purchase contracts in the same
manner.
THE MERGER
44
<PAGE> 51
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of the NiSource and Columbia boards with
respect to the merger, you should be aware that officers and directors of
NiSource and Columbia have interests in the merger that are different from, or
in addition to, yours as shareholders. The NiSource and Columbia boards were
aware of these interests and considered them, among other matters, in approving
the merger.
INTERESTS OF NISOURCE DIRECTORS AND OFFICERS
The NiSource directors at the time of the merger will become the directors
of New NiSource. Gary L. Neale will serve as Chairman of the Board, President
and Chief Executive Officer of New NiSource, and the New NiSource board will
elect the remaining officers.
INTERESTS OF COLUMBIA DIRECTORS AND OFFICERS
Outside Directors. Columbia's non-employee directors are eligible to
participate in Columbia's Phantom Stock Plan for Outside Directors. Under the
phantom plan, eligible directors receive phantom shares of Columbia common
stock, which are not actually common shares but represent rights to receive cash
payments based upon the market value of Columbia common shares. Upon completion
of the merger, Columbia will cash out all phantom shares issued under the
phantom plan at a value equal to $72.29 per phantom share. Additionally, two
directors deferred portions of their annual director's compensation pursuant to
Columbia's Deferred Compensation Plan for Outside Directors and will receive a
lump sum payment of all deferred amounts upon a change in control. All amounts
due to the two directors under the deferred compensation plan will be paid upon
completion of the merger. The following table reflects the phantom shares held
as of December 31, 1999, by participants in the phantom plan and assumes a
payout of $72.29 per phantom share.
<TABLE>
<CAPTION>
VALUE OF
PHANTOM SHARES DEFERRED
NUMBER OF PHANTOM UPON COMPENSATION
NAME SHARES OUTSTANDING MERGER* BALANCE
- ---------------------------------- ------------------ -------------- ------------
<S> <C> <C> <C>
R.F. Albosta...................... 9,528.4 $688,806 --
R.H. Beeby........................ 5,694.3 $411,641 --
W.K. Cadman....................... 10,065.3 $727,623 $177,722
J.P. Heffernan.................... 4,730.8 $341,993 --
K.L. Hendricks.................... 4,648.3 $336,025 --
M.T. Hopkins...................... 6,380.4 $461,240 --
J.B. Johnston..................... 7,530.4 $544,373 --
M. Jozoff......................... 8,670.9 $626,826 $ 68,812
W.E. Lavery....................... 5,858.6 $423,515 --
G. Mayo**......................... 0 -- --
D.E. Olesen....................... 4,732.9 $342,139 --
</TABLE>
- -------------------------
* The values shown in the table do not reflect additional amounts that will be
payable, as in the case of the merger consideration, if the merger is not
completed by February 27, 2001.
** G. Mayo has an interest in Columbia's Retirement Plan for Outside Directors
that will be paid to him upon completion of the merger or upon his retirement
from the
THE MERGER
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<PAGE> 52
Columbia board of directors. As of February 27, 2000, the estimated cash
value of that interest at retirement was $272,540.
Stock Options. All of the executive officers and key employees of Columbia
and its subsidiaries and Columbia's non-employee directors are eligible to
participate in Columbia's 1996 Amended and Restated Long-Term Incentive Plan.
Under this plan, in the event of a change in control of Columbia, 100% of all
outstanding options to purchase Columbia common shares would be fully vested. In
the merger agreement, Columbia and NiSource agreed that the transactions
contemplated by the merger agreement will constitute a change in control for
purposes of this plan. The following table reflects the options held as of
February 29, 2000, by the chief executive officer of Columbia and the next four
most highly compensated Columbia officers and payout amounts based on a value of
$72.29 per Columbia common share, as agreed upon between Columbia and NiSource
in the merger agreement, reduced by the exercise price of the respective
options.
<TABLE>
<CAPTION>
NUMBER OF LTIP VALUE OF OPTIONS
NAME OPTIONS OUTSTANDING UPON CONVERSION* DIVIDEND CREDITS**
- ----------------------------- ------------------- ---------------- ------------------
<S> <C> <C> <C>
O.G. Richard III............. 430,000 $12,492,203 $784,350
C.G. Abbott.................. 100,000 $ 2,370,564 $143,075
P.A. Hammick................. 29,500 $ 591,774 $ 27,773
M.W. O'Donnell............... 112,300 $ 2,965,405 $143,075
P.M. Schwolsky............... 107,500 $ 2,757,489 $143,075
</TABLE>
- -------------------------
* The values shown in the table do not reflect additional amounts that will be
payable, as in the case of the merger consideration, if the merger is not
completed by February 27, 2001.
** Shows value of dividend equivalents attached to the options, which will be
paid in cash to optionholders upon a cash-out or exercise of options.
Employment and Change in Control Agreements. Columbia maintains change in
control agreements and employment agreements with 33 of its officers, including
executive officers. The purpose of the agreements is to assure the individuals'
continuing dedication to their duties to Columbia and its shareholders in the
event of a possible change in control of Columbia. In the merger agreement,
Columbia and NiSource agreed that the transactions contemplated by the merger
agreement would constitute a change in control for purposes of these agreements.
Under the agreements, each officer is entitled to receive severance
benefits upon termination of his or her employment within two or, for some
officers including executive officers, three years after the change in control
if the termination is without "cause", as defined in the agreements, or is by
the officer for "good reason." Good reason includes among other things,
relocation beyond a certain distance or requiring substantially more travel or a
reduction which is more than de minimis in compensation. For some officers,
including Columbia's executive officers, good reason includes a material
reduction in duties or reduction in position or title and, for Mr. Richard, Ms.
Abbott, and Mr. Schwolsky, notice that the employment agreement will not
automatically be extended by Columbia. The agreements with Mr. Richard, Ms.
Abbott and Mr. Schwolsky contain a provision allowing them to terminate their
employment with Columbia within specified time periods after a change in
control, and collect amounts owed to them under their respective agreements,
without the need for a termination without cause or for good reason.
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46
<PAGE> 53
Severance benefits provided under the agreements include the following:
- A payment equal to two or, for some officers including executive
officers, three times (1) the individual's annual base salary in effect
at the time of the change in control or, if greater, at the time
employment terminates and (2) the individual's target annual bonus for
the year in which employment terminates or, if greater, for the year in
which the change in control occurs;
- A prorated portion of the target annual bonus the individual could have
received in the year of termination;
- A cash amount calculated based on the amount that the individual would
have received under retirement plans had the individual remained employed
for two or, for some officers including executive officers, three years;
- Immediate vesting of stock options and a lapse of restrictions on
restricted stock; and
- Continuation of medical and other welfare and fringe benefits for two or,
for some officers including executive officers, up to three years
following termination.
The following table sets forth the estimated cash severance amounts payable
to each of the chief executive officer of Columbia and the next four most highly
compensated Columbia officers under each individual's agreement. The estimates
were prepared for Columbia as of February 8, 2000 and are based on salaries as
of December 31, 1999 and 1999 target bonus.
<TABLE>
<CAPTION>
ESTIMATED CASH SEVERANCE
NAME AMOUNT PAYABLE
---- ------------------------
<S> <C>
O.G. Richard III......................................... $6,863,303
C.G. Abbott.............................................. $2,348,406
P.A. Hammick............................................. $1,579,421
M.W. O'Donnell........................................... $2,409,453
P.M. Schwolsky........................................... $2,406,336
</TABLE>
The agreements also provide that those executive officers are entitled to
receive a tax reimbursement payment which would put them in the same financial
position after-tax that they would have been in if the excise tax payable on
excess severance and other change in control payments or benefits imposed by
Internal Revenue Code section 4999 did not apply to payments to them under the
agreements. Based upon the assumptions set forth above, the estimated amount of
this tax reimbursement payment would be approximately: O.G. Richard
III -- $3,316,062; C.G. Abbott -- $1,197,647; P.A. Hammick -- $818,313; M.W.
O'Donnell -- $1,235,465; and P.M. Schwolsky -- $1,180,582.
Indemnification and Insurance. The merger agreement requires the combined
company to indemnify Columbia's directors and officers and to maintain liability
insurance for six years after the merger. See "The Merger Agreement -- Material
Covenants -- Director and Officer Indemnification" on page 76.
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47
<PAGE> 54
COLUMBIA SHAREHOLDERS' APPRAISAL RIGHTS
The following discussion is directed to the Columbia shareholders. The
NiSource shareholders do not have any statutory right to demand appraisal of
their shares in connection with the merger.
Under the Delaware General Corporation Law, any Columbia shareholder who
does not wish to accept the merger consideration in exchange for his or her
Columbia common shares may seek an appraisal of, and be paid the fair cash value
of, those shares. If you want to exercise your appraisal rights, you must fully
comply with the provisions of Section 262 of the Delaware General Corporation
Law. We have attached a copy of Section 262 as Annex II to this document.
Perfecting your appraisal rights can be complicated. You must follow the
specific procedural rules precisely. Failure to comply with the procedure may
result in your losing your appraisal rights. The following is a summary of the
statutory procedures you must follow to perfect your appraisal rights, but it is
not a complete statement of the law, and it is qualified in its entirety by the
full text of Section 262. We urge you to review Section 262 for the complete
procedure.
If you wish to exercise appraisal rights you must:
- not vote in favor of the merger agreement;
- deliver to Columbia, before the vote at Columbia's special shareholder
meeting, a written demand for appraisal of your Columbia common shares;
and
- continuously hold your Columbia shares from the date you make the demand
for appraisal through the completion of the merger.
If you sign and return a proxy card without marking it to vote against or
abstain from voting on adoption of the merger agreement, your shares will be
voted for adoption of the merger agreement, and you will effectively waive your
appraisal rights. Accordingly, if you desire to exercise and perfect appraisal
rights with respect to any of your Columbia common shares, you must either:
- refrain from executing and returning the enclosed proxy card or from
voting by telephone; or
- check either the box entitled "Against" or "Abstain" next to the proposal
to adopt the merger agreement on your proxy card; or
- vote by telephone against, or abstain with respect to, the proposal to
adopt the merger agreement; or
- vote in person against the proposal at the Columbia special shareholder
meeting; or
- register in person your abstention with respect to the proposal at the
special shareholder meeting.
Your written demand for appraisal can be any writing that reasonably
informs Columbia of your identity and your intention to demand appraisal of your
Columbia common shares. This written demand for appraisal must be separate from
any proxy or
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48
<PAGE> 55
vote on adoption of the merger agreement. A vote or proxy against the merger
agreement will not, by itself, constitute a demand for appraisal.
If you wish to exercise appraisal rights, you must not only be the record
holder of the Columbia shares on the date you make your written demand for
appraisal, but you must also continue to hold your shares of Columbia until the
merger is completed. If you transfer your shares prior to the closing of the
merger, you will lose any right to appraisal with respect to those shares.
A demand for appraisal must be signed by or on behalf of the holder of
record of the shares to which the demand relates, fully and correctly, as the
holder's name appears on the stock certificates and must state that the holder
intends to demand appraisal of the shares. If you are the beneficial owner of
Columbia shares, but not the shareholder of record, you must have the
shareholder of record sign a demand for appraisal.
If you own the Columbia shares in a fiduciary capacity, such as trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity. If you own the shares with another
person, as in a joint tenancy or a tenancy in common, all the owners must sign
the demand for appraisal or have the demand signed for them. An authorized
agent, which could include one or more of the joint owners, may sign the demand
on behalf of a holder of record; however, the agent must expressly disclose the
identity of the record holder and expressly disclose the fact that, in executing
the demand, he or she is acting as agent for the record holder.
If you are a record holder, such as a broker, who holds Columbia shares as
nominee for others, you may exercise appraisal rights for the shares held on
behalf of some beneficial owners but not other beneficial owners. Under these
circumstances, you should specify in the written demand the number of shares as
to which you wish to demand appraisal. If you do not expressly specify the
number of shares, we will assume that your written demand covers all the
Columbia shares held in your name as the record holder. If you hold your shares
in brokerage accounts or other nominee form and wish to exercise appraisal
rights, you should consult with your broker to determine the appropriate
procedures for making a demand for appraisal by your nominee.
IF YOU WISH TO EXERCISE YOUR APPRAISAL RIGHTS, YOU SHOULD MAIL OR DELIVER
YOUR WRITTEN DEMAND TO:
COLUMBIA ENERGY GROUP
13880 DULLES CORNER LANE
HERNDON, VA 20171
ATTN: SECRETARY
OR PRESENT YOUR DEMAND TO COLUMBIA'S SECRETARY AT THE SHAREHOLDER MEETING PRIOR
TO THE VOTE.
Within 10 days after completion of the merger, Columbia must give written
notice to each holder of Columbia common shares who properly asserted appraisal
rights under Section 262 that the merger has been completed.
Within 120 days after completion of the merger, any Columbia shareholder
who has complied with the provisions of Section 262 may file a petition in the
Delaware Court of Chancery requesting the Chancery Court to determine the value
of the Columbia common shares held by all of the shareholders who properly
asserted appraisal rights. Columbia also
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49
<PAGE> 56
has the right to file a petition in the Chancery Court, but it has no obligation
or intention to do so. If you intend to exercise your rights of appraisal, you
should file a petition in the Chancery Court. If no shareholder files a petition
within 120 days after the completion of the merger, you will lose your rights to
appraisal.
If you have complied with the provisions of Section 262, you are entitled
to receive from Columbia a statement setting forth the aggregate number of
Columbia shares not voted in favor of adoption of the merger agreement, and for
which demands for appraisal were received, and the number of persons holding
those shares. In order to receive this statement, you must send a written
request to Columbia within 120 days after completion of the merger. Columbia
must mail this statement within 10 days after it receives your written request.
You may withdraw your demand for appraisal and accept the cash and SAILS
consideration by delivering to Columbia a written withdrawal of your demand,
except that:
- any attempt to withdraw made more than 60 days after the completion of
the merger will require the written approval of Columbia, and
- an appraisal proceeding in the Chancery Court cannot be dismissed unless
the Chancery Court approves.
If you properly file a petition for appraisal in the Chancery Court and
deliver a copy to Columbia, Columbia will then have 20 days to provide the
Chancery Court with a list of the names and addresses of shareholders who have
demanded appraisal rights and have not reached an agreement with Columbia as to
the value of their shares. The Chancery Court will then send notice to all of
the shareholders who have demanded appraisal rights. If the Chancery Court
thinks it is appropriate, it has the power to conduct a hearing to determine
whether the shareholders have fully complied with Section 262 and whether they
are entitled to appraisal rights under that section. The Chancery Court may also
require you to submit your stock certificates to the Registry in Chancery so
that it can note on the certificates that an appraisal proceeding is pending. If
you do not follow the Chancery Court's directions, the court may dismiss you
from the proceeding.
After the Chancery Court determines which shareholders are entitled to
appraisal rights, the Chancery Court will appraise the shares. To determine the
fair value of the shares, the Chancery Court will consider all relevant factors
except for any appreciation or depreciation due to the anticipation or
accomplishment of the merger. After the Chancery Court determines the fair value
of the shares, it will direct Columbia to pay that value to the shareholders who
are entitled to appraisal rights. The Chancery Court can also direct Columbia to
pay interest, simple or compound, on that value if the Chancery Court determines
that interest is appropriate. In order to receive payment for your shares, you
must surrender your stock certificates to Columbia at the time of payment.
The Chancery Court could determine that the fair value of your shares is
more than, the same as, or less than the merger consideration. In other words,
if you demand appraisal rights, you could receive less consideration than you
would under the merger agreement. An opinion of an investment banking firm that
the merger is fair is not an opinion that the merger consideration is the same
as the fair value under Section 262.
THE MERGER
50
<PAGE> 57
If you demand appraisal rights, after completion of the merger, you will
have no right:
- to vote the shares for which you have demanded appraisal rights for any
purpose;
- to receive payment of dividends or any other distribution with respect to
those shares, except for dividends or distributions, if any, that are
payable to holders of record as of a record date prior to the merger; or
- to receive the payment of the consideration provided in the merger
agreement (unless you properly withdraw your demand for appraisal).
The Chancery Court may assess costs of the appraisal proceeding against
Columbia and the shareholders participating in the appraisal proceeding, as the
court deems equitable under the circumstances. You may request that the Chancery
Court determine the amount of interest, if any, Columbia should pay on the value
of stock owned by shareholders entitled to the payment of interest. You may also
request that the Chancery Court allocate the expenses of the appraisal
proceeding incurred by any shareholder, including reasonable attorneys' fees and
the fees and expenses of experts participating in the appraisal proceeding, pro
rata against the value of all of the shares entitled to appraisal. If the
Chancery Court does not make a determination or assessment, each party will bear
its own expenses.
THE MERGER
51
<PAGE> 58
OPINIONS OF FINANCIAL ADVISORS
OPINION OF NISOURCE'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated June 4, 1999, NiSource engaged
Credit Suisse First Boston to act as NiSource's financial advisor in connection
with the merger. NiSource selected Credit Suisse First Boston based on Credit
Suisse First Boston's experience, expertise and reputation, and familiarity with
the U.S. electric and natural gas industries. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, NiSource
requested that Credit Suisse First Boston evaluate the fairness to NiSource,
from a financial point of view, of the merger consideration set forth in the
merger agreement. On February 27, 2000, at a meeting of the NiSource board of
directors held to evaluate the merger, Credit Suisse First Boston rendered to
the NiSource board of directors an oral opinion, which was subsequently
confirmed by delivery of a written opinion dated February 27, 2000, to the
effect that, as of that date and based upon and subject to the matters described
in the opinion, the merger consideration was fair, from a financial point of
view, to NiSource.
THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION DATED
FEBRUARY 27, 2000 TO THE NISOURCE BOARD OF DIRECTORS, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX III AND IS INCORPORATED INTO THIS
DOCUMENT BY REFERENCE. HOLDERS OF NISOURCE COMMON SHARES ARE URGED TO, AND
SHOULD, READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY. CREDIT SUISSE FIRST
BOSTON'S OPINION IS ADDRESSED TO THE NISOURCE BOARD OF DIRECTORS AND RELATES
ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW,
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO ANY MATTER
RELATING TO THE MERGER. THE SUMMARY OF CREDIT SUISSE FIRST BOSTON'S OPINION IN
THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION.
In connection with its opinion, Credit Suisse First Boston, among other
things:
- reviewed publicly available business and financial information relating
to NiSource and Columbia, as well as the merger agreement;
- reviewed other information relating to NiSource and Columbia, including
financial forecasts, which NiSource and Columbia provided to or discussed
with Credit Suisse First Boston;
- met with the managements of NiSource and Columbia to discuss the
businesses and prospects of NiSource and Columbia;
- considered, to the extent publicly available, the financial terms of
other business combinations and other transactions which have recently
been effected;
OPINIONS OF FINANCIAL ADVISORS
52
<PAGE> 59
- considered financial and stock market data of NiSource and Columbia and
compared those data with similar data for other publicly held companies
in businesses it deemed similar to NiSource and Columbia; and
- considered other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information that
was provided to or otherwise reviewed by it and relied on that information being
complete and accurate in all material respects. With respect to financial
forecasts, Credit Suisse First Boston was advised, and assumed, that the
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of NiSource and Columbia as
to the future financial performance of NiSource and Columbia and the potential
synergies and strategic benefits anticipated to result from the merger,
including the amount, timing and achievability of those synergies and benefits
as well as the ability to retain those synergies and benefits. Credit Suisse
First Boston further assumed, with NiSource's knowledge, that in the course of
obtaining the necessary regulatory and third party consents for the merger and
the transactions contemplated by the merger agreement, no delay or restriction
will be imposed that will have a material adverse effect on the contemplated
benefits of the merger or the transactions contemplated by the merger agreement.
Credit Suisse First Boston was not requested to make, and did not make, an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of NiSource or Columbia, and was not furnished with any evaluations
or appraisals. Credit Suisse First Boston's opinion was necessarily based on
information available to, and financial, economic, market and other conditions
as they existed and could be evaluated by, Credit Suisse First Boston on the
date of its opinion. Credit Suisse First Boston did not express any opinion as
to the actual value of the New NiSource common shares, the New NiSource SAILS or
the NiSource SAILS when issued in the merger or the prices at which the New
NiSource common shares, the New NiSource SAILS or the NiSource SAILS will trade
or be transferable after the merger. Although Credit Suisse First Boston
evaluated the merger consideration from a financial point of view, Credit Suisse
First Boston was not requested to, and did not, recommend the specific
consideration payable in the merger, which consideration was determined in
negotiations between NiSource and Columbia. No other limitations were imposed on
Credit Suisse First Boston with respect to the investigations made or procedures
followed in rendering its opinion.
In preparing its opinion to the NiSource board of directors, Credit Suisse
First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete description of the analyses
underlying Credit Suisse First Boston's opinion. The preparation of a fairness
opinion is a complex analytical process involving various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Credit Suisse First Boston made
qualitative judgments as to the significance and relevance of each analysis and
factor that it considered. Accordingly, Credit Suisse First Boston believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in tabular format,
without
OPINIONS OF FINANCIAL ADVISORS
53
<PAGE> 60
considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of NiSource
and Columbia. No company, transaction or business used in Credit Suisse First
Boston's analyses as a comparison is identical to NiSource or Columbia or the
merger, and an evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
Credit Suisse First Boston's analyses and the ranges of valuations resulting
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by the analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, Credit Suisse First Boston's analyses and estimates are inherently
subject to substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only one
of many factors considered by the NiSource board of directors in its evaluation
of the merger and should not be viewed as determinative of the views of the
NiSource board of directors or management with respect to the merger or the
merger consideration.
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with the preparation of its opinion and
reviewed with the board of directors at a meeting of the NiSource board of
directors held on February 27, 2000.
DISCOUNTED CASH FLOW ANALYSIS. Credit Suisse First Boston estimated the
present value of the stand-alone, unlevered, after-tax free cash flows that
Columbia could produce on a stand-alone basis over the period January 1, 2000 to
December 31, 2009. Estimated financial data used in this analysis were based on
internal estimates of Columbia's management as amended and modified by
NiSource's management. Credit Suisse First Boston also estimated a range of
estimated terminal values calculated based on terminal multiples of estimated
calendar year 2009 earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA, of 8.5x to 9.0x in the case of
regulated natural gas businesses and 5.5x to 7.0x in the case of unregulated
businesses. The free cash flows, as well as the estimated terminal values, were
then discounted to present value using a discount rate range of 7% to 8% in the
case of regulated natural gas businesses and 9% to 10.5% in the case of
unregulated businesses. This analysis indicated an overall implied equity
reference range for Columbia of approximately $62 to $74 per share.
In addition, NiSource management identified synergies of approximately $98
million in the first year after the merger increasing to $185 million in the
fifth year after the merger. Credit Suisse First Boston estimated that the
present value of these anticipated synergies was approximately $14 to $16 per
share.
OPINIONS OF FINANCIAL ADVISORS
54
<PAGE> 61
SELECTED MERGER AND ACQUISITION ANALYSIS. Using publicly available
information, Credit Suisse First Boston analyzed the purchase prices and the
implied transaction multiples proposed to be paid, at the time of announcement,
of a selected group of merger and acquisition transactions in the natural gas
transmission and distribution industry, including:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
- KeySpan Corp. - Eastern Enterprises
- DTE Energy Company - MCN Energy Group Inc.
- Energy East Corporation - CTG Resources, Inc.
- Wisconsin Energy Corporation - WICOR, Inc.
- Northeast Utilities - Yankee Energy System, Inc.
- Dominion Resources, Inc. - Consolidated Natural Gas Company
- Energy East Corporation - Connecticut Energy Corporation
- El Paso Energy Corporation - Sonat Inc.
- Carolina Power & Light Company - North Carolina Natural Gas
Corporation
</TABLE>
Credit Suisse First Boston compared enterprise values in the selected
transactions as multiples of latest twelve months EBITDA and earnings before
interest and taxes, commonly referred to as EBIT, and also equity values as
multiples of the latest twelve months net income and book value. All multiples
were based on financial information available at the time the relevant
transaction was announced. Credit Suisse First Boston applied a range of
selected multiples for the selected transactions to corresponding financial data
of Columbia. This analysis indicated an implied equity reference range for
Columbia of approximately $68 to $78 per share.
No company or transaction used in the above analysis is identical to
Columbia or the merger. Accordingly, an analysis of the results of the Selected
Merger and Acquisition Analysis involves complex considerations of the companies
involved and the transactions and other factors that could affect the
acquisition value of the companies and Columbia.
SELECTED COMPANIES ANALYSIS. Credit Suisse First Boston compared financial
and stock market data of Columbia to corresponding data of a comparable group of
companies with a similar business mix of regulated natural gas transmission and
distribution. The comparable group included the following companies:
<TABLE>
<S> <C>
- - Dominion Resources, Inc. - National Fuel Gas Company
- - El Paso Energy Corporation - Questar Corporation
- - KeySpan Corp. - Reliant Energy
</TABLE>
Credit Suisse First Boston reviewed equity value as a multiple of net
income for estimated fiscal years 2000 and 2001, and as a multiple of book
value; and enterprise value as a multiple of estimated fiscal year 2000 EBITDA
and EBIT. All multiples were based on closing stock prices on February 25, 2000.
Estimated financial data for the selected companies was based on publicly
available securities research analysts' estimates, and estimated financial data
for Columbia was provided by NiSource and Columbia management. Credit Suisse
First Boston applied a range of selected multiples for the selected companies to
corresponding financial data of Columbia without taking into account a control
premium or any potential synergies to result from the merger. The Selected
Companies Analysis indicated an implied equity reference range for Columbia of
approximately $48 to $62 per share.
OPINIONS OF FINANCIAL ADVISORS
55
<PAGE> 62
None of the selected companies is identical to Columbia. Accordingly, an
analysis of the results of the Selected Companies Analysis involves complex
considerations of the selected companies and other factors that could affect the
public trading value of Columbia and the selected companies.
OTHER FACTORS. In the course of preparing its opinion, Credit Suisse First
Boston also reviewed and considered other information and data, including:
- NiSource's and Columbia's historical financial information;
- historical market prices and trading volumes for NiSource common shares
and Columbia common shares; and
- the impact of the transaction on NiSource's estimated earnings per share
in future years.
MISCELLANEOUS. Pursuant to the terms of Credit Suisse First Boston's
engagement, NiSource has agreed to pay Credit Suisse First Boston for its
financial advisory services a customary fee based on the aggregate consideration
paid in the merger. Substantially all of the fee is contingent on completion of
the merger. NiSource also has agreed to indemnify Credit Suisse First Boston and
related parties against liabilities, including liabilities under the federal
securities laws, arising out of its engagement. Credit Suisse First Boston and
its affiliates have in the past and currently are providing financial services
to NiSource unrelated to the merger, are participating in the financing of the
merger, and may in the future provide services to NiSource, for which services
Credit Suisse First Boston and its affiliates have received and will receive
customary compensation. See "The Merger -- Financing the Transaction" on page
43. In the ordinary course of business, Credit Suisse First Boston and its
affiliates may actively trade the securities of both NiSource and Columbia for
their own accounts and for the accounts of customers and, accordingly, may at
any time hold long or short positions in these securities.
OPINIONS OF COLUMBIA'S FINANCIAL ADVISORS
Columbia engaged the services of both Salomon Smith Barney and Morgan
Stanley to serve as financial advisors in evaluating NiSource's bids for
Columbia. Columbia felt that employing two independent investment banks would be
instrumental in determining the fair value of the company and allow the Columbia
board to act in the best interests of its shareholders.
OPINION OF MORGAN STANLEY
Pursuant to a letter agreement dated as of June 25, 1999, Columbia engaged
Morgan Stanley to provide financial advisory services and a financial fairness
opinion in connection with the merger. Morgan Stanley was selected by Columbia
to act as Columbia's financial advisor based on Morgan Stanley's qualifications,
expertise and reputation and its knowledge of the business and affairs of
Columbia and the industry, in general. At the February 27, 2000 meeting of the
Columbia board of directors, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, that, as of such date and based upon and
subject to the various considerations set forth in its opinion, the merger
consideration is fair from a financial point of view to Columbia shareholders.
OPINIONS OF FINANCIAL ADVISORS
56
<PAGE> 63
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED FEBRUARY 27, 2000,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND THE LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX IV TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. COLUMBIA
SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO THE COLUMBIA BOARD OF
DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE
MERGER CONSIDERATION TO THE COLUMBIA SHAREHOLDERS PURSUANT TO THE MERGER
AGREEMENT, AS OF THE DATE OF THE OPINION. MORGAN STANLEY'S OPINION DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER, NOR DOES IT CONSTITUTE A RECOMMENDATION
TO ANY COLUMBIA SHAREHOLDERS AS TO HOW TO VOTE AT THE COLUMBIA SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In rendering its opinion, Morgan Stanley, among other things:
- reviewed certain publicly available financial statements and other
information of Columbia and NiSource, respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Columbia and NiSource prepared by the
management of Columbia and NiSource, respectively;
- reviewed and analyzed certain financial projections prepared by the
management of Columbia and NiSource, respectively;
- discussed the past and current operations and financial condition and the
prospects of Columbia and NiSource, including the strategic rationale for
the merger and information relating to certain strategic, financial and
operational benefits anticipated from the merger, with senior executives
of Columbia and NiSource, respectively;
- reviewed the pro forma impact of the merger on NiSource's earnings per
share and considered the impact of the merger on NiSource's consolidated
capitalization and financial ratios;
- reviewed the reported prices and trading activity for the Columbia common
shares and the NiSource common shares;
- compared the financial performance of Columbia and NiSource and the
prices and trading activity of Columbia common shares and NiSource common
shares with that of certain other publicly-traded companies and their
securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
Columbia and NiSource and their financial and legal advisors;
- reviewed the merger agreement and certain related documents; and
- performed such other analyses and considered such other factors as Morgan
Stanley has deemed appropriate.
OPINIONS OF FINANCIAL ADVISORS
57
<PAGE> 64
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the financial
projections, including the information relating to certain strategic, financial
and operational benefits anticipated from the merger, Morgan Stanley has assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Columbia and NiSource. In addition, Morgan Stanley has assumed that the merger
will be consummated in accordance with the terms set forth in the merger
agreement. Morgan Stanley has not made any independent valuation or appraisal of
the assets or liabilities of Columbia, nor has it been furnished with any such
appraisals. Morgan Stanley's opinion was necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to it as of, the date of such opinion. In addition, Morgan Stanley's
opinion does not in any manner address the prices at which the New NiSource
common shares, the New NiSource SAILS or the NiSource SAILS will trade following
completion of the merger.
The following is a brief summary of certain analyses performed by Morgan
Stanley in connection with its oral opinion and the preparation of its opinion
letter dated February 27, 2000. Certain of these summaries of financial analyses
include information presented in tabular format. In order to fully understand
the financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis of Columbia and NiSource based on certain financial projections
provided by the managements of Columbia and NiSource for the period 2000 to
2004. Morgan Stanley calculated unlevered free cash flow as the after-tax
operating earnings excluding any interest income and interest expense plus
depreciation and amortization, plus deferred taxes, plus or minus net changes in
non-cash working capital, minus capital expenditures. Morgan Stanley calculated
terminal year values by applying a range of perpetual growth rates of 1.75% to
2.25% to the unlevered free cash flows in 2004 for Columbia and a range of
perpetual growth rates of 1.00% to 2.00% to the unlevered free cash flow in 2004
for NiSource. The cash flow streams and terminal values were then discounted to
present values using a range of discount rates of 7.00% to 8.00% for both
Columbia and NiSource. This analysis implied a range of values for Columbia
common shares of $67.50 to $75.75 and $20.50 to $26.75 for NiSource common
shares.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Using publicly available
information, Morgan Stanley reviewed the terms of certain announced, pending or
completed industry transactions which were deemed comparable to the merger.
Morgan Stanley compared publicly available financial and market statistics of
the precedent transactions to the merger. The table below presents as of
December 31, 1999, the representative range for each of the ratios of price paid
to earnings for the last twelve months ("LTM"), price paid to operating cash
flow for the LTM, price paid to book value, aggregate value to EBITDA (earnings
before interest, taxes, depreciation, and amortization) for the LTM, aggregate
OPINIONS OF FINANCIAL ADVISORS
58
<PAGE> 65
value to estimated EBITDA for 2000 and aggregate value to EBIT (earnings before
interest and taxes) for the LTM.
<TABLE>
<CAPTION>
AGGREGATE
PRICE TO AGGREGATE VALUE TO
PRICE TO LTM PRICE TO VALUE TO ESTIMATED AGGREGATE
LTM OPERATING BOOK LTM 2000 VALUE TO
EARNINGS CASH FLOW VALUE EBITDA EBITDA LTM EBIT
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Precedent
Transactions.......... 22.0-24.0 8.0-9.0 2.5-3.0 9.0-10.0 8.0-9.0 14.0-16.0
</TABLE>
Based on an analysis of the corresponding LTM earnings, LTM operating cash
flow, book value, LTM EBITDA, estimated 2000 EBITDA and LTM EBIT for Columbia,
Morgan Stanley calculated per share transaction values for Columbia ranging from
$67.50 to $77.50.
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger, and accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of Columbia
and other factors that would affect the acquisition value of the companies to
which it is being compared. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions regarding industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Columbia such as the impact of competition on
Columbia and the industry generally, industry growth and the absence of any
material adverse change in the financial condition and prospects of Columbia or
the industry or in the financial markets in general. Mathematical analysis (such
as determining the average or median) is not in itself a meaningful method of
using comparable transaction data.
COMPARABLE COMPANY ANALYSIS. As part of its analysis, Morgan Stanley
compared financial information of Columbia with that of a group of publicly
traded companies which included the gas transmission companies CMS Energy
Corporation, Coastal Corporation, Duke Energy Corporation, El Paso Energy
Corporation, Equitable Resources, Inc., National Fuel Gas Company, ONEOK, Inc.,
Questar Corporation and Reliant Energy, Inc. and the gas local distribution
companies AGL Resources, Inc., Atmos Energy Corporation, New Jersey Resources
Corporation, Nicor Inc., Peoples Energy Corporation, Piedmont Natural Gas
Company, Inc. and Washington Gas Light Company. The table below presents as of
February 25, 2000, the representative range for each of the ratios of price to
estimated earnings for 2000 and 2001, price to LTM operating cash flow, price to
book value, aggregate value to LTM EBITDA, aggregate value to estimated 2000
EBITDA and aggregate value to LTM EBIT.
<TABLE>
<CAPTION>
PRICE TO AGGREGATE
PRICE TO PRICE TO LTM AGGREGATE VALUE TO
ESTIMATED ESTIMATED OPERATING PRICE TO VALUE TO ESTIMATED AGGREGATE
2000 2001 CASH BOOK LTM 2000 VALUE TO
EARNINGS EARNINGS FLOW VALUE EBITDA EBITDA LTM EBIT
--------- --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable
Companies.......... 12.0-14.0 11.0-13.0 6.5-7.5 1.7-2.1 7.5-8.5 6.0-7.0 11.0-12.0
</TABLE>
Based on an analysis of the corresponding estimated 2000 and 2001 earnings,
LTM operating cash flow, book value, LTM EBITDA, estimated 2000 EBITDA and LTM
EBIT for Columbia, Morgan Stanley calculated per share values for Columbia
ranging
OPINIONS OF FINANCIAL ADVISORS
59
<PAGE> 66
from $47.25 to $55.00. This range was multiplied by a 35% premium including the
value of acquiring control of Columbia to determine a transaction value range of
$64.00 to $74.00 per Columbia common share.
Morgan Stanley also performed a similar analysis for NiSource. As part of
its analysis, Morgan Stanley compared financial information of NiSource with
that of a group of publicly traded companies, which included Allegheny Energy,
Inc., Cinergy Corp, Conectiv, IPALCO Enterprises, Inc. and LG&E Energy Corp. The
table below presents, as of February 25, 2000, the representative range for each
of the ratios of price to estimated 2000 and 2001 earnings, price to LTM
operating cash flow, price to book value, aggregate value to LTM EBITDA and
aggregate value to LTM EBIT.
<TABLE>
<CAPTION>
PRICE TO
PRICE TO PRICE TO LTM AGGREGATE
ESTIMATED ESTIMATED OPERATING PRICE TO VALUE TO AGGREGATE
2000 2001 CASH BOOK LTM VALUE TO
EARNINGS EARNINGS FLOW VALUE EBITDA LTM EBIT
--------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Comparable Companies..... 9.0-10.0 8.5-9.5 5.0-6.0 1.5-1.7 6.0-7.0 8.5-9.5
</TABLE>
Based on an analysis of the corresponding estimated 2000 and 2001 earnings,
LTM operating cash flow, book value, LTM EBITDA and LTM EBIT, Morgan Stanley
calculated a trading range per NiSource common share of $16.75 to $19.25.
No company utilized in the comparable company analysis is identical to
Columbia or NiSource. In evaluating the comparable companies, Morgan Stanley
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Columbia or NiSource, such as the impact of
competition on the business of Columbia or NiSource and the industry generally,
industry growth and the absence of any material adverse change in the financial
condition and prospects of Columbia or NiSource or the industry or in the
financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using comparable
company data.
SUM OF THE PARTS ANALYSIS. Morgan Stanley performed a variety of analyses
to estimate the value of the individual business segments of Columbia which
include transmission and storage, distribution, exploration and production,
energy services, propane and LNG, power generation and Transcom. Morgan Stanley
conducted the valuation analysis in a manner consistent with Morgan Stanley's
valuation of Columbia as a whole, based upon a discounted cash flow analysis, a
comparison of publicly available financial and market statistics for precedent
transactions and a comparison of financial information for comparable companies.
Morgan Stanley calculated per share trading values for Columbia common shares
ranging from $67.50 to $77.00, $73.25 to $86.75 and $55.00 to $67.00 based on
discounted cash flow, precedent transaction and comparable company valuation
analysis, respectively. Morgan Stanley also applied a 35% premium, including the
value of acquiring control of Columbia, to the $55.00 to $67.00 sum of the parts
comparable company trading range to imply a trading range per share of Columbia
common shares of $74.25 to $90.25.
HISTORICAL COMMON STOCK PERFORMANCE. Morgan Stanley's analysis of
NiSource's common share performance consisted of a historical analysis of
closing prices over the period from February 25, 1997 to February 25, 2000.
During that period based on closing prices on the New York Stock Exchange,
NiSource's common shares three-year average,
OPINIONS OF FINANCIAL ADVISORS
60
<PAGE> 67
two-year average, six-month average and three-month average was $24.50, $25.91,
$19.98 and $18.03; respectively.
COMPARATIVE STOCK PERFORMANCE. Morgan Stanley reviewed the stock price
performance of NiSource during the period from February 25, 1999 to February 25,
2000 and compared such performance with that of the following indices: Standard
& Poor's Electric Utility Index and Standard & Poor's 500 Index.
The following table presents the changes in value for these indices, as
compared to the change in the stock price of NiSource over the period from
February 25, 1999 to February 25, 2000:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------
<S> <C>
NiSource.............................................. (40.4)%
Standard & Poor's Electric Utility Index.............. (7.1)%
Standard & Poor's 500 Index........................... 22.2%
</TABLE>
PRO FORMA ANALYSIS OF THE MERGER. Morgan Stanley analyzed the pro forma
impact of the merger on NiSource's earnings per share for the fiscal years ended
2001 through 2003. The analysis was performed assuming completion of the merger
at the beginning of this period, utilizing stand alone earnings estimated for
the years ended 2001 through 2003 for Columbia and NiSource based on certain
financial projections, including the value of any synergies, estimated by the
managements of each company, different NiSource common share prices at closing
and different combinations of cash and mandatorily convertible preferred stock
and common stock. The table below sets forth the results of the analysis on
NiSource's EPS.
<TABLE>
<CAPTION>
100% CASH PLUS 85% CASH PLUS 70% CASH PLUS
STRUCTURE MCP/0% STOCK MCP/15% STOCK MCP/30% STOCK
--------- -------------------------- -------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NiSource price at
closing............ $15.00 $16.50 $18.00 $15.00 $16.50 $18.00 $ 15.00 $ 16.50 $ 18.00
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
EARNINGS IMPACT
---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EPS accretion
(dilution)
2001E................ 25.1% 25.1% 25.1% (2.3)% (2.9)% (0.3)% (16.8)% (17.8)% (14.4)%
2002E................ 62.7% 62.7% 62.7% 22.6% 22.0% 25.3% 1.3% 0.4% 4.6%
2003E................ 67.7% 67.6% 67.7% 23.9% 23.3% 26.8% 0.7% (0.1)% 4.2%
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, Morgan Stanley
believes that selecting any portion of its analyses without considering all
analyses would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors, and Morgan Stanley may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Morgan Stanley's view of the actual value of Columbia
or NiSource.
OPINIONS OF FINANCIAL ADVISORS
61
<PAGE> 68
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Columbia or NiSource. Any
estimates contained in Morgan Stanley's analyses are not necessarily indicative
of actual values, which may be significantly more or less favorable than those
suggested by such estimates. Such analyses were prepared solely as a part of
Morgan Stanley's analysis of the fairness from a financial point of view of the
merger consideration to be received by the holders of Columbia common shares
pursuant to the merger agreement and were conducted in connection with the
delivery of the Morgan Stanley opinion to the Columbia board of directors. The
analyses do not purport to be appraisals of value or to reflect the prices at
which Columbia or NiSource might actually be sold or the price at which their
securities might actually trade. In addition, as described above, the Morgan
Stanley opinion was one of the many factors taken into consideration by the
Columbia board of directors in making its determination to approve the merger.
The merger consideration and other terms of the merger agreement were determined
through arm's-length negotiations between Columbia and NiSource and were
approved by the Columbia board of directors; however, Morgan Stanley did not
recommend any specific consideration to Columbia or that any specific
consideration constituted the only appropriate consideration for the merger.
Consequently, the Morgan Stanley analyses as described above should not be
viewed as determinative of the opinion of the Columbia board of directors with
respect to the value of Columbia or of whether the Columbia board of directors
would have been willing to agree to different consideration.
Columbia retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking and financial advisory business, is continuously involved in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Morgan Stanley may continue to
provide investment banking services to the combined entity in the future. In the
ordinary course of its trading, brokerage and financing activities, Morgan
Stanley or its affiliates may, at any time, hold long or short positions in, and
buy and sell the debt or equity securities or senior loans of Columbia or
NiSource for its account or the account of its customers. Morgan Stanley and its
affiliates have, in the past, provided financial advisory and financing services
to Columbia and NiSource and their affiliates and have received fees for the
rendering of such services.
Pursuant to an engagement letter dated June 25, 1999, Morgan Stanley
provided financial advisory services and a financial fairness opinion in
connection with the merger, and Columbia agreed to pay Morgan Stanley:
(1) An initial advisory fee of $4,000,000, which was payable upon the
execution of the engagement letter;
(2) An additional fee of $8,000,000, in the event that the board of
directors of Columbia concludes that the Proposal (as defined in the
engagement letter) is not in the best interest of Columbia's
shareholders and the Proposal is withdrawn or does not result in,
within 12 months from the date of the engagement letter, (a) the
acquisition of 50% or more of the voting stock of Columbia by NiSource
or any other party pursuant to the engagement letter, (b) the signing
of a
OPINIONS OF FINANCIAL ADVISORS
62
<PAGE> 69
definitive agreement by NiSource or any other such party to acquire the
common shares of Columbia or (c) a change in at least four members of
the board of directors of Columbia as a result of the Proposal (and in
the event that at least four members of the board of directors of
Columbia are changed within 12 months from the date of the engagement
letter, but the majority of the board of directors is not changed
within 24 months, the fee would be payable as provided above);
(3) An additional fee equal to 0.225% of the Aggregate Value (as defined in
the engagement letter) in connection with any Business Combination (as
defined in the engagement letter), such additional fee to be contingent
upon the consummation of a Business Combination; and
(4) Additional fees, customary under the circumstances, with respect to any
actual or proposed alternative transactions.
The initial advisory fee described in clause (1) above will be credited
towards the transaction fee described in clause (3) above. Columbia also agreed
to reimburse, subject to certain limitations, Morgan Stanley for reasonable
expenses incurred by Morgan Stanley in performing its services. Any amounts paid
or payable to Morgan Stanley as advisory fees will be credited against the
transaction fee. In addition, Columbia has also agreed to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including liabilities under
the federal securities laws, related to or arising out of Morgan Stanley's
engagement and any related transactions.
Morgan Stanley has consented to the inclusion of its opinion and to the
inclusion of this summary of its opinion and its related analyses in this
document. In giving this consent, Morgan Stanley did not concede that it comes
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission, nor did it concede that it is an expert with respect to any part of
the registration statement of which this document is a part within the meaning
of the term "expert" as used in the Securities Act or the rules and regulations
of the Securities and Exchange Commission.
OPINION OF SALOMON SMITH BARNEY
Columbia engaged Salomon Smith Barney to act as its financial advisor in
connection with the merger. Pursuant to Salomon Smith Barney's engagement
letter, Salomon Smith Barney rendered an opinion to the Columbia board of
directors on February 27, 2000, to the effect that, based upon and subject to
the considerations set forth in that opinion, Salomon Smith Barney's experience
as investment bankers, its work described below and other factors it deemed
relevant, as of such date, the merger consideration was fair, from a financial
point of view, to the Columbia shareholders.
THE FULL TEXT OF SALOMON SMITH BARNEY'S OPINION IS ATTACHED AS ANNEX V TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND EXPLAINS THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY SALOMON SMITH BARNEY. YOU ARE URGED TO READ THE SALOMON SMITH BARNEY OPINION
CAREFULLY AND IN ITS ENTIRETY. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO THE
COLUMBIA BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE MERGER CONSIDERATION
OPINIONS OF FINANCIAL ADVISORS
63
<PAGE> 70
TO THE COLUMBIA SHAREHOLDERS PURSUANT TO THE MERGER AGREEMENT, AS OF THE DATE OF
THE OPINION. SALOMON SMITH BARNEY'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY COLUMBIA SHAREHOLDERS
AS TO HOW TO VOTE AT THE COLUMBIA SPECIAL MEETING. THE SUMMARY OF SALOMON SMITH
BARNEY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION.
In connection with rendering its opinion, Salomon Smith Barney reviewed and
analyzed, among other things, the following:
- publicly available information concerning Columbia;
- internal information, primarily financial in nature, including
projections, concerning the business and operations of Columbia,
furnished to Salomon Smith Barney by Columbia for purposes of its
analysis;
- publicly available information concerning the trading of, and the trading
market for, Columbia common shares;
- publicly available information concerning NiSource;
- internal information, primarily financial in nature, including
projections, concerning the business and operations of NiSource,
furnished to Salomon Smith Barney by NiSource for purposes of its
analysis;
- publicly available information concerning the trading of, and the trading
market for, NiSource common shares;
- publicly available information with respect to other companies that
Salomon Smith Barney believed to be comparable to Columbia or NiSource
and the trading markets for such other companies' securities; and
- publicly available information concerning the nature and terms of other
transactions that Salomon Smith Barney considered relevant to its
inquiry.
Salomon Smith Barney has also considered other information, financial
studies, analyses, investigations and financial, economic and market criteria
that it deemed relevant. Salomon Smith Barney has also met with officers and
employees of Columbia to discuss the foregoing as well as other matters that it
believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it or publicly available. Salomon
Smith Barney has not attempted independently to verify and has not assumed any
responsibility for verifying any of that information. Further, Salomon Smith
Barney has relied upon the assurances of the management of Columbia and NiSource
that they are not aware of any facts that would make any of that information
inaccurate or misleading. Salomon Smith Barney has not conducted a physical
inspection of any of the properties or facilities of Columbia or NiSource. In
addition, it has not made or obtained or assumed any responsibility for making
or obtaining any independent evaluation or appraisal of any properties or
facilities, nor has it been furnished with any such evaluations or appraisals of
those properties or facilities.
With respect to financial projections, Salomon Smith Barney has been
advised by the managements of Columbia and NiSource and has assumed that the
financial projections
OPINIONS OF FINANCIAL ADVISORS
64
<PAGE> 71
were reasonably prepared and reflect the best currently available estimates and
judgments of the managements of Columbia and NiSource as to the future financial
performance of Columbia and NiSource. Salomon Smith Barney expresses no view
with respect to such projections or the assumptions on which they were based.
In conducting its analysis and arriving at its opinion as expressed in this
joint proxy statement/prospectus, Salomon Smith Barney has considered such
financial and other factors as it deemed appropriate under the circumstances
including, among others, the following:
- the historical and current financial position and results of operations
of Columbia and NiSource;
- the business prospects of Columbia and NiSource;
- the historical and current market for Columbia common shares, NiSource
common shares and for the equity securities of certain other companies
that it believes to be comparable to Columbia and NiSource; and
- the nature and terms of certain other merger transactions that it
believes to be relevant.
Salomon Smith Barney has also taken into account its assessment of general
economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally. Salomon
Smith Barney's opinion does not in any manner address the price at which the New
NiSource common shares, the New NiSource SAILS or the NiSource SAILS, as the
case may be, will trade following the merger. Salomon Smith Barney's opinion
necessarily is based upon conditions as they existed and could be evaluated on
the date of the opinion, and Salomon Smith Barney assumes no responsibility to
update or revise its opinion based upon circumstances or events occurring after
the date of the opinion. Salomon Smith Barney's opinion is, in any event,
limited to the fairness, from a financial point of view, of the merger
consideration to the holders of the Columbia common shares and does not
constitute a recommendation as to how holders of Columbia common shares should
vote with respect to the merger agreement or the transactions contemplated
thereby.
In connection with its opinion, Salomon Smith Barney performed various
financial analyses, which it presented to and discussed with the Columbia board
of directors on February 27, 2000. The material portions of the analyses
performed by Salomon Smith Barney in connection with the rendering of its
opinion are summarized below.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed a discounted
cash flow analysis of Columbia on a consolidated basis to estimate a range of
values for the Columbia common shares. The discounted cash flow analysis for
Columbia was based upon certain financial forecasts for the years ended December
31, 2000 through December 31, 2004 prepared by the management of Columbia. In
order to value the cash flows generated beyond 2004, Salomon Smith Barney
calculated a terminal year value for Columbia by applying a range of EBITDA
(earnings before interest, taxes, depreciation, and amortization) multiples of
7.5x to 8.5x to terminal year EBITDA. The unleveraged free cash flow amounts for
the years ended December 31, 2000 to December 31, 2004, plus the terminal
values, were then discounted to the present using a range of discount rates of
8.00% to 9.00%, based upon an analysis of the weighted average cost of capital
OPINIONS OF FINANCIAL ADVISORS
65
<PAGE> 72
("WACC") of Columbia. Analysis of the forecasts for Columbia, without
considering any benefits derived from the merger, indicated an implied equity
value range per Columbia common share of approximately $68.50 to $85.25.
Salomon Smith Barney performed a similar analysis of NiSource to estimate a
range of values for the NiSource common shares. The discounted cash flow
analysis for NiSource was based upon certain financial forecasts for NiSource
for the years ended December 31, 2000 to December 31, 2004 provided by the
management of NiSource. In order to value the cash flows generated beyond 2004,
Salomon Smith Barney calculated a terminal year value for NiSource by applying a
range of EBITDA multiples of 6.0x to 7.0x to terminal year EBITDA. The
unleveraged free cash flow amounts for the years ended December 31, 2000 to
December 31, 2004, plus the terminal values, were then discounted to the present
using a range of discount rates of 7.00% to 8.00%, based upon an analysis of the
WACC of NiSource. Analysis of the forecasts for NiSource, without considering
any benefits derived from the merger, indicated an implied equity value range
per NiSource common share of approximately $19.00 to $27.00.
PUBLIC MARKET VALUATION ANALYSIS. Using publicly available information,
Salomon Smith Barney performed a public market valuation analysis for Columbia
and NiSource, based on a selected range of multiples derived from a group of
companies that Salomon Smith Barney determined to be comparable to Columbia and
NiSource.
- AGL Resources Inc.
- Atmos Energy Corporation
- New Jersey Resources Corporation
- Nicor Inc.
- ONEOK, Inc.
- Peoples Energy Corporation
- Piedmont Natural Gas Company, Inc.
- Washington Gas Light Company
- Duke Energy Corporation
- El Paso Electric Company
- Enron Corp.
- Reliant Energy Resources Corp.
- Equitable Resources, Inc.
- National Fuel Gas Company
- Questar Corporation
Estimated 1999 and 2000 earnings figures for Columbia were based on
forecasts provided by Columbia's management.
Salomon Smith Barney's analysis of Columbia's comparable companies resulted
in the following selected reference ranges of multiples:
- a range of multiples of common share price to earnings for the last
twelve months, or LTM, of 14.0x to 17.0x;
- a range of multiples of common share price to estimated 2000 earnings of
13.0x to 15.0x;
- a range of multiples of common share price to estimated 2001 earnings of
11.0x to 13.0x;
- a range of multiples of common share price to 1999 cash flow of 6.0x to
8.0x;
- a range of multiples of firm value to 1999 EBITDA of 7.0x to 8.5x;
OPINIONS OF FINANCIAL ADVISORS
66
<PAGE> 73
- a range of multiples of firm value to 1999 EBIT (earnings before interest
and taxes) of 11.0x to 13.0x, and
- a range of multiples of common share price to book value of 2.0x to 2.5x.
Salomon Smith Barney applied these selected ranges of multiples to
Columbia's LTM earnings, 2000 and 2001 earnings, 1999 cash flow, 1999 EBITDA,
1999 EBIT and book value.
Based on these analyses, Salomon Smith Barney derived an implied equity
value range per Columbia common share of $50.00 to $58.00. Salomon Smith Barney
also applied a 35% premium to the $50.00 to $58.00 range derived in the public
market valuation analysis to derive an implied private market valuation of
$67.50 to $78.25.
Estimated 1999 and 2000 earnings figures for NiSource were based on
forecasts provided by NiSource's management and I/B/E/S International.
Salomon Smith Barney's analysis of NiSource's comparable companies resulted
in the following selected reference ranges of multiples:
- a range of multiples of common share price to 1999 earnings per share of
8.5x to 10.5x;
- a range of multiples of common share price to estimated 2000 earnings per
share (estimated by I/B/E/S) of 8.5x to 10.5x;
- a range of multiples of common share price to estimated 2001 earnings per
share (estimated by I/B/E/S) of 7.5x to 9.5x;
- a range of multiples of common share price to estimated 2000 earnings per
share (estimated by management) of 8.5x to 10.5x;
- a range of multiples of common share price to estimated 2001 earnings per
share (estimated by management) of 7.5x to 9.5x;
- a range of multiples of common share price to 1999 cash flow of 4.5x to
5.5x;
- a range of multiples of firm value to 1999 EBITDA of 6.0x to 7.0x;
- a range of multiples of firm value to 1999 EBIT of 9.0x to 11.0x; and
- a range of common share price to book value of 1.1x to 1.5x.
Salomon Smith Barney applied these selected ranges of multiples to NiSource's
1999 earnings per share, or EPS, 2000 and 2001 EPS provided by I/B/E/S, 2000 and
2001 EPS provided by management, 1999 cash flow, 1999 EBITDA, 1999 EBIT and book
value.
Based on these analyses, Salomon Smith Barney derived an implied equity value
range per NiSource common share of $15.00 to $19.00.
OPINIONS OF FINANCIAL ADVISORS
67
<PAGE> 74
PRECEDENT TRANSACTIONS VALUATION ANALYSIS. Using publicly available
information, Salomon Smith Barney performed an analysis of selected
transactions:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Southern Union Company....................... Valley Resources, Inc.
Southern Union Company....................... Providence Energy Corporation
Energy East Corporation...................... Berkshire Energy Resources
KeySpan Corporation.......................... Eastern Enterprises
DTE Energy Company........................... MCN Energy
Eastern Enterprises.......................... Energy North
Energy East Corporation...................... CTG Resources, Inc.
Wisconsin Energy Corporation................. WICOR, Inc.
Northeast Utilities.......................... Yankee Energy System, Inc.
SIGCORP, Inc. ............................... Indiana Energy, Inc.
Southern Union Company....................... Pennsylvania Enterprises, Inc.
Dominion Resources, Inc. .................... Consolidated Natural Gas Company
Energy East Corporation...................... Connecticut Energy Corporation
SCANA Corporation............................ Public Service Co. of North Carolina
Incorporated
Carolina Power & Light Company............... North Carolina Natural Gas Corporation
Eastern Enterprises.......................... Colonial Gas Company
Eastern Enterprises.......................... Essex County Gas Company
NIPSCO Industries, Inc. ..................... Bay State Gas Company
El Paso Electric Company..................... The Coastal Corporation
Kinder Morgan, Inc. ......................... K N Energy, Inc.
El Paso Electric Company..................... Sonat Inc.
CMS Energy Corporation....................... Midwest Pipelines
Plains Resources Inc. ....................... All American Pipeline
K N Energy, Inc. ............................ MidCon
Duke Power Company........................... PanEnergy Corp.
El Paso Natural Gas Company.................. Tenneco Inc.
Williams Companies, Inc. .................... Kern River Pipeline
Williams Companies, Inc. .................... Transco Energy Company
</TABLE>
Salomon Smith Barney's analysis of precedent transactions resulted in the
following selected reference ranges of multiples:
- a range of multiples of common share price to earnings for the latest
twelve months of 18.0x to 24.0x;
OPINIONS OF FINANCIAL ADVISORS
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- a range of multiples of common share price to estimated 2000 earnings of
17.0x to 22.0x;
- a range of multiples of common share price to estimated 2001 earnings of
16.0x to 20.0x;
- a range of multiples of common share price to book value of 2.5x to 3.5x;
- a range of multiples of firm value to 1999 EBITDA of 9.5x to 11.5x; and
- a range of multiples of firm value to 1999 EBIT of 14.0x to 16.5x.
Salomon Smith Barney applied these selected reference ranges of multiples to
Columbia's LTM earnings, 2000 and 2001 earnings, book value, 1999 EBITDA and
1999 EBIT.
Based on the analyses described above, Salomon Smith Barney derived an
implied equity value range per share of Columbia common shares of $65.00 to
$84.00.
SUM-OF-THE-PARTS VALUATION ANALYSIS. Salomon Smith Barney performed a sum
of the parts valuation analysis of Columbia's individual lines of business which
are comprised of LDC, Pipeline, E&P, Marketing, Propane, LNG, Power Generation
and Transcom. Salomon Smith Barney conducted the valuation analysis in a manner
consistent with its valuation of Columbia as a whole. Based on these analyses,
Salomon Smith Barney derived an implied equity value range per Columbia common
share based on a public market valuation, discounted cash flow and precedent
transaction valuation analysis of $52.50 to $67.00, $64.75 to $80.75 and $71.00
to $91.75, respectively. Salomon Smith Barney also applied a 35% premium to the
$52.50 to $67.00 range derived in the sum of the parts public market valuation
analysis to derive an implied private market equity value range per Columbia
common share of $71.00 to $90.50.
HISTORICAL TRADING ANALYSIS. Salomon Smith Barney reviewed information
regarding historical stock price performance for Columbia common shares. Salomon
Smith Barney noted that for the 52-week period ending on February 25, 2000 the
range for Columbia common shares was from a daily closing price low of $45.50 to
a daily closing price high of $65.94. Salomon Smith Barney also noted that as of
June 4, 1999 (the trading day immediately prior to NiSource's bid) the daily
closing price high for Columbia common shares was $55.75.
SYNERGIES. Salomon Smith Barney considered certain hypothetical synergy
estimates to represent the potential incremental benefits which may result from
the merger compared to Columbia on a stand-alone basis. Salomon Smith Barney
then estimated the present value as of December 31, 1999 of the future streams
of after-tax cash flows generated by those synergies, by applying discount rates
reflecting a WACC ranging from 8.0% to 9.0% to such cash flows through 2006 and
by adding a terminal value determined by projecting a range of nominal perpetual
synergy growth rates ranging from 2.0% to 3.0%. The results of this analysis,
when applied to the discounted cash flow valuation analysis and the public
market valuation analysis both on a consolidated and sum of the parts basis,
result in implied equity value range per share of Columbia common shares of
$68.50 to $91.50, $50.00 to $64.25, $64.75 to $87.00 and $52.50 to $73.25,
respectively.
The summary set forth above is not and does not purport to be a complete
description of the analyses underlying Salomon Smith Barney's opinion or its
presentation to the Columbia board of directors. The preparation of a fairness
opinion is a complex process
OPINIONS OF FINANCIAL ADVISORS
69
<PAGE> 76
involving subjective judgments and is not susceptible to partial analysis or
summary descriptions. Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion described
above. Accordingly, Salomon Smith Barney believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all of the analyses and factors, could create a misleading or incomplete view of
the processes underlying the analyses set forth in its opinion. In addition, no
company used in the public market valuation analysis summarized above is
identical to Columbia or NiSource or any of their business segments and no
transaction used in the precedent transactions valuation analysis summarized
above is identical to the merger. In addition, Salomon Smith Barney may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting for any particular analysis described above
should not be taken to be Salomon Smith Barney's view of the actual value of
Columbia or NiSource. Accordingly, an analysis of the data described above is
not purely mathematical, but necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the transaction or
public trading value of the comparable companies and transactions to which
Columbia and NiSource are being compared.
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
Columbia and NiSource. The analyses which Salomon Smith Barney performed are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon Smith Barney's analysis of the
fairness, from a financial point of view, of the merger consideration to holders
of Columbia common shares. The analyses do not purport to be appraisals or to
reflect the prices at which a company or any of its businesses might actually be
sold or the prices at which any securities may trade at the present time or at
any time in the future. In addition, the opinion of Salomon Smith Barney was
only one of the many factors taken into consideration by the Columbia board of
directors in making its determination to approve the merger.
Pursuant to Salomon Smith Barney's engagement letter, Columbia has agreed
to pay to Salomon Smith Barney:
(1) An initial advisory fee of $4,000,000, which was payable upon the
execution of the engagement letter;
(2) An additional fee of $8,000,000, in the event that the board of
directors of Columbia concludes that the Proposal (as defined in the
engagement letter) is not in the best interest of Columbia's
shareholders and the Proposal is withdrawn or does not result in,
within 12 months from the date of the engagement letter, (a) the
acquisition of 50% or more of the voting stock of Columbia by NiSource
or any other party pursuant to the engagement letter, (b) the signing
of a definitive agreement by NiSource or any other such party to
acquire the common shares of Columbia or (c) a change in at least four
members of the board of directors of Columbia as a result of the
Proposal (and in the event that at least four members of the board of
directors of Columbia are changed within
OPINIONS OF FINANCIAL ADVISORS
70
<PAGE> 77
12 months from the date of the engagement letter, but the majority of
the board of directors is not changed within 24 months, the fee would
be payable as provided above);
(3) An additional fee equal to 0.225% of the Aggregate Value (as defined in
the engagement letter) in connection with any Business Combination (as
defined in the engagement letter), such additional fee to be contingent
upon the consummation of a Business Combination; and
(4) Additional fees, customary under the circumstances, with respect to any
actual or proposed alternative transactions.
The fee described in clause (3) above is payable less any fees previously paid
under clause (1). Columbia also agreed, subject to certain limitations, to
reimburse Salomon Smith Barney for all reasonable fees and disbursements of
Salomon Smith Barney's counsel and all of Salomon Smith Barney's reasonable
travel and other out-of-pocket expenses incurred in connection with its
engagement, and agreed to indemnify Salomon Smith Barney and certain related
persons against various liabilities, relating to or arising out of its
engagement, including liabilities under the federal securities laws.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bidding,
secondary distributions of listed and unlisted securities, private placements
and other purposes. In the ordinary course of its business, Salomon Smith Barney
may actively trade the securities of Columbia and NiSource for its own account
and the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
In addition, Salomon Smith Barney and its affiliates have rendered certain
investment banking and financial advisory services to Columbia and NiSource for
which Salomon Smith Barney received customary compensation. Salomon Smith Barney
and its affiliates (including Citigroup Inc.) may have other business
relationships with Columbia, NiSource and their affiliates. Columbia retained
Salomon Smith Barney based on Salomon Smith Barney's expertise in the valuation
of companies as well as its substantial experience in transactions such as the
merger.
Salomon Smith Barney has consented to the inclusion of its opinion and to
the inclusion of this summary of its opinion and its related analyses in this
document. In giving this consent, Salomon Smith Barney did not concede that it
comes within the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Securities and
Exchange Commission, nor did it concede that it is an expert with respect to any
part of the registration statement of which this document is a part within the
meaning of the term "expert" as used in the Securities Act or the rules and
regulations of the Securities and Exchange Commission.
OPINIONS OF FINANCIAL ADVISORS
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THE MERGER AGREEMENT
The following summarizes the material terms of the merger agreement. A copy
of the merger agreement is attached as Annex I to this joint proxy
statement/prospectus and is incorporated into this document by reference. This
description may not include all the information that interests you. We urge you
to read the merger agreement in its entirety for a more complete description of
the terms and conditions of the merger.
THE MERGER
If the shareholders of NiSource and Columbia approve the merger agreement,
a wholly-owned subsidiary of New NiSource will merge into NiSource, and another
wholly-owned subsidiary of New NiSource will merge into Columbia under the
preferred structure. NiSource and Columbia will be the surviving corporations in
those mergers and will be wholly owned by New NiSource. Immediately after the
merger, NiSource will merge into New NiSource. New NiSource will then change its
name to "NiSource Inc." and serve as a holding company for Columbia and its
subsidiaries and the subsidiaries of NiSource.
If the NiSource shareholders do not approve the merger agreement, the
merger between NiSource and New NiSource will not occur. Instead, a wholly-owned
subsidiary of NiSource will merge into Columbia, and Columbia will become a
wholly-owned subsidiary of NiSource itself, rather than of a new holding
company. The consideration received by Columbia shareholders under this
alternative structure will be different than under the holding company
structure. See "The Merger -- Alternative Merger Structure" on page 33.
EFFECTIVE TIME
Promptly after the satisfaction or waiver of the conditions discussed under
"-- Conditions to the Merger" on page 77, the companies will file articles of
merger with the Secretary of State of Indiana with respect to the NiSource
merger and a certificate of merger with the Secretary of State of Delaware with
respect to the Columbia merger. The merger will become effective upon the later
of those two filings. Because of the need for regulatory approvals, we do not
expect the merger to become effective for at least several months after the
shareholder meetings.
ELECTION OF CONSIDERATION BY COLUMBIA SHAREHOLDERS
If you are a Columbia shareholder, approximately 45 days before we expect
to complete the merger, an exchange agent will send you an election form, by
which you may elect to receive New NiSource shares as consideration in the
merger. In order to make a valid stock election, you will need to send your
completed and signed election form, together with your Columbia stock
certificates, to the exchange agent so that they are received no later than two
business days before the closing. NiSource and Columbia will announce this date
once it is established. Until that deadline, you may change or revoke your
election. The election form will include more detailed instructions about how to
make a valid stock election, including describing procedures for delivery of
certificates by brokers or other nominees. If you do not submit an election
form, or if your submission is incomplete, you will receive the cash and SAILS
consideration for all of your Columbia
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shares in the merger. YOU WILL NOT RECEIVE AN ELECTION FORM IF WE USE THE
ALTERNATIVE MERGER STRUCTURE.
EXCHANGE OF COLUMBIA SHARE CERTIFICATES
NO STOCK ELECTION
Within five days after completion of the merger, an exchange agent will
mail to each Columbia shareholder, other than shareholders who have made valid
stock elections for all of their shares, a letter of transmittal and
instructions for exchanging Columbia share certificates for the cash and SAILS
consideration. Upon surrender to the exchange agent of Columbia certificates,
together with a properly completed letter of transmittal and any other requested
documents, a Columbia shareholder will receive:
- a certified or bank cashier's check in an amount equal to the cash the
Columbia shareholder is entitled to receive in the merger, and
- written advice from the exchange agent as to the number of SAILS the
Columbia shareholder is entitled to receive in the merger.
Because the SAILS will be issued only in book-entry form, New NiSource's
transfer agent will hold the SAILS on behalf of Columbia shareholders who will
not own their SAILS through a bank, broker or other participant in the
securities depositary. See "Description of the SAILS -- Book Entry Issuance" on
page 109.
STOCK ELECTION
Those Columbia shareholders who have made valid stock elections will
already have surrendered their stock certificates with their election forms. As
soon after completion of the merger as the exchange agent has calculated the
number of shares to be issued to each Columbia shareholder, a Columbia
shareholder making a valid stock election will receive:
- a certificate representing the number of whole New NiSource shares the
shareholder is entitled to receive in the merger, and
- a certified or bank cashier's check in an amount equal to the cash, if
any, the Columbia shareholder is entitled to receive, either in lieu of
fractional shares or to reflect any additional amount payable if the
merger is not completed by February 27, 2001.
To the extent elections are subject to proration, or if elections are not
made with respect to at least 10% of the Columbia shares, the Columbia
shareholder will also receive, for those shares converted into the cash and
SAILS consideration, a check and written advice regarding SAILS as described
under "No Stock Election" above.
NO FRACTIONAL SHARES
New NiSource will not issue fractional common shares in the merger. Instead
of issuing fractional shares, New NiSource will pay cash for the fractional
share based on the average of the closing trading prices of NiSource common
shares on the New York Stock Exchange on the 30 trading days ending two days
before completion of the merger.
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NO FURTHER RIGHTS IN COLUMBIA SHARES
All New NiSource shares, cash, New NiSource SAILS and NiSource SAILS paid
in exchange for certificates representing Columbia shares will be considered to
be in full payment for those shares. After the effective time of the merger,
Columbia's transfer agent will not register transfers of shares that were
outstanding before the effective time. If Columbia shares are presented to
NiSource, Columbia or New NiSource for any reason, the certificates will be
canceled and exchanged according to the merger agreement.
FAILURE TO EXCHANGE
If you do not exchange your Columbia share certificates within six months
after completion of the merger, you will have to contact the surviving
corporation in the merger to obtain the cash, New NiSource SAILS or NiSource
SAILS to which you are entitled.
LOST, STOLEN OR DESTROYED CERTIFICATES
If you cannot submit your Columbia share certificates because they are
lost, stolen or destroyed, you must submit an affidavit of that fact and, if we
require, post a bond as indemnity against any potential claim regarding the lost
certificates. In exchange for lost, stolen or destroyed stock certificates,
after you have made the affidavit and posted any required bond, the exchange
agent will issue to you the shares, cash and SAILS to which you are entitled in
the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
our companies relating to various aspects of our businesses, financial
statements and other matters, including:
- corporate organization, standing and qualification
- capital structure
- corporate authority and approval
- receipt of fairness opinions
- regulatory filings and approvals
- accuracy of documents filed with the Securities and Exchange Commission
and other regulatory entities
- absence of material adverse changes
- absence of material litigation
- compensation and benefit plans and other employment matters
- compliance with applicable laws
- non-applicability of certain state takeover statutes
- intellectual property matters
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- engagement of and payment of fees to brokers, investment bankers, finders
and financial advisors in connection with the merger agreement
- regulation of our subsidiaries as utilities
- the accuracy of information supplied by each of us in connection with
this joint proxy statement/prospectus
- trading position risk management
- NiSource's financing for the merger.
The representations and warranties will expire upon completion of the
merger or upon termination of the merger agreement.
MATERIAL COVENANTS
INTERIM OPERATIONS OF COLUMBIA
Until we complete the merger, Columbia has agreed that, without NiSource's
consent:
- Columbia will conduct business only in the ordinary and usual course, and
- Columbia will not take any of the following actions:
- amend its charter or bylaws, except for non-material amendments to
subsidiaries' charters or bylaws;
- split, combine or reclassify outstanding shares of its capital stock;
- declare, set aside or pay dividends on any of its stock, except for
dividends consistent with past practice, or intercompany dividends from
subsidiaries;
- repurchase, redeem or otherwise acquire any shares of its stock or other
securities, except for the purpose of funding or providing benefits
under the existing terms of its compensation and benefit plans, with
some exceptions;
- issue, sell, pledge, dispose of or encumber its stock or securities
convertible into shares of stock, except in connection with a specified
number of stock options;
- dispose of or encumber any property or assets, or incur, modify or
guarantee any indebtedness outside the ordinary course of business or in
transactions in excess of $125 million in the aggregate in any calendar
year;
- make any capital expenditures, to the extent it has previously committed
to make those expenditures, with some exceptions; or
- modify any existing, or enter into any new, compensation and benefit
plans, subject to some exceptions.
NO SOLICITATION
Columbia has agreed that it will not initiate, solicit, encourage or
otherwise facilitate any proposal for a merger or similar transaction with any
other company. This includes engaging in negotiations with or giving any
nonpublic information to any person that has made or may be considering making
an acquisition proposal.
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However, prior to the adoption of the merger agreement by the Columbia
shareholders, Columbia may furnish information to, and enter into negotiations
with, any party that makes an unsolicited proposal for a merger or similar
transaction, if the board of directors of Columbia determines in good faith,
based on the advice of its legal and financial advisors, that:
- the failure to take such action would result in a breach of the
directors' fiduciary duties; and
- the proposal is reasonably likely to lead to a transaction on terms more
favorable to the Columbia shareholders from a financial point of view
than the merger.
In addition, before the Columbia board may recommend the proposal to its
shareholders or adopt an agreement relating to the proposal, it must determine
that the proposal is reasonably capable of being completed.
Promptly after receiving a proposal or a written inquiry reasonably likely
to lead to a proposal, and prior to furnishing any information or entering into
any discussions or negotiations, Columbia will notify NiSource of the proposal,
including the identity of the person making the proposal and its material terms
and conditions.
OTHER COVENANTS PENDING THE MERGER
NiSource and Columbia have agreed:
- not to acquire or agree to acquire any other business entity if doing so
would be reasonably expected to materially delay or impede the merger, or
significantly increase the risk of not obtaining any necessary consent,
order or approval of a governmental entity;
- not to take or fail to take any action that is:
- reasonably likely to result in the failure of any condition to the
merger;
- reasonably likely to make any representation or warranty of NiSource or
Columbia inaccurate in a material respect;
- reasonably likely to have a material adverse effect on NiSource or
Columbia; or
- to cooperate and use their best efforts to complete the merger as soon
as practicable, including filing all documentation necessary to obtain
all necessary and advisable consents and approvals from all third
parties and governmental entities.
DIRECTOR AND OFFICER INDEMNIFICATION
After the merger, the combined company will indemnify, to the fullest
extent permitted by law, the current and former directors and officers of
Columbia and its subsidiaries against any expenses (including attorneys' fees)
and liabilities in connection with any claim or investigation arising out of or
relating to matters existing at or prior to the merger. The combined company
will also advance expenses as incurred by the directors and officers to the
fullest extent permitted by law.
For six years after the merger, the combined company will maintain
Columbia's existing directors' and officers' liability insurance policies or
policies providing comparable
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coverage. However, if the premium for that coverage is more than twice
Columbia's current premium, then the combined company need only provide the
coverage it can obtain for twice Columbia's current premium.
EMPLOYEE MATTERS; BENEFIT PLANS
At the effective time of the merger, each stock option outstanding under
Columbia's long-term incentive plans will be canceled and converted into the
right to receive an amount of cash equal to (1) the excess of $72.29 plus any
additional amount payable per Columbia common share if the merger is not
completed by February 27, 2001, over the per share exercise price under the
option and (2) the balance in the holder's dividend credit account with respect
to the option. Columbia will, to the extent required, use its reasonable best
efforts to obtain the consent of each option holder to this treatment of his or
her options.
Upon the completion of the merger, each phantom share outstanding under
Columbia's Phantom Stock Plan for Outside Directors will be canceled and
converted into the right to receive an amount of cash equal to $72.29 plus any
additional amount payable per Columbia common share if the merger is not
completed by February 27, 2001. Columbia will, to the extent required, use its
reasonable best efforts to obtain the consent of each holder of phantom shares
to this treatment of his or her phantom shares. See "The Merger -- Interests of
Officers and Directors in the Merger" on page 45.
New NiSource and NiSource have agreed that, for three years after the
merger, the combined company will continue to provide benefits to employees of
Columbia and its subsidiaries under employee benefit plans that are no less
favorable than the greater of those currently provided by Columbia and those
provided by NiSource during that three year period.
On completion of the merger, each outstanding option to purchase NiSource
common shares will become an option to purchase New NiSource common shares on
the same terms and conditions, including the number of shares and exercise
price, as the option to acquire NiSource common shares. At that time, New
NiSource will assume all of NiSource's rights and obligations under its stock
option and related plans. See "Description of New NiSource Capital Stock
Following the Merger -- Stock Incentive Plans" on page 126.
CONDITIONS TO THE MERGER
The obligations of NiSource and Columbia to effect the merger are subject
to the satisfaction or waiver of the following conditions:
- adoption of the merger agreement by the Columbia shareholders;
- absence of any stop order suspending the effectiveness of the
registration statement of which this joint proxy statement/prospectus
forms a part;
- assuming the NiSource shareholders approve the merger agreement, the
approval of the New NiSource common shares for listing on the New York
Stock Exchange;
- expiration or earlier termination of the waiting period under the
premerger notification rules under the antitrust laws;
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- receipt of final orders relating to the governmental approvals for the
consummation of the merger and the absence of any terms or conditions
imposed by those final orders that would materially adversely affect the
combined company or materially impair the ability of the parties to
complete the merger; and
- absence of any law, judgment or other order prohibiting the merger or any
pending proceeding by a governmental entity seeking to prohibit the
merger.
In addition, the obligation of NiSource to complete the merger is subject
to the satisfaction or waiver of the following conditions:
- accuracy of the representations and warranties of Columbia in the merger
agreement;
- performance of Columbia's material obligations under the merger
agreement;
- receipt of consents or approvals required under Columbia's material
contracts, where the failure to obtain the consent or approval would be
reasonably likely to have a material adverse effect on the combined
company; and
- absence of any material adverse change in the business of Columbia,
excluding the effects of changes in economic conditions generally or
affecting the electric or gas utility industries.
Similarly, the obligation of Columbia to complete the merger is subject to
the satisfaction or waiver of the following additional conditions:
- accuracy of NiSource's representations and warranties in the merger
agreement;
- performance of NiSource's material obligations under the merger
agreement; and
- receipt of an opinion of counsel as to the tax consequences of the
merger.
TERMINATION
The merger agreement may be terminated at any time before completion of the
merger, whether before or after approval by the shareholders of Columbia:
- By mutual written consent of NiSource and Columbia
- By either NiSource or Columbia if:
- the merger has not occurred by June 30, 2001; however, this date will be
automatically extended to March 31, 2002 if, on June 30, 2001, we are
still awaiting regulatory approvals but the other conditions to the
merger have been satisfied or remain capable of being satisfied;
- the Columbia shareholders fail to adopt the merger agreement; or
- any final and nonappealable order permanently restrains, enjoins or
otherwise prohibits the merger after the parties have used their best
efforts to have the order removed.
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- By Columbia after three days' prior written notice to NiSource
- at any time before the Columbia shareholders adopt the merger agreement,
if the Columbia board of directors approves a superior proposal,
provided that:
- Columbia has not solicited the proposal in violation of the merger
agreement;
- Columbia's board concludes in good faith, after giving effect to any
concessions which are offered by NiSource during the three day period,
on the basis of the advice of its independent financial advisor of
national reputation, that the proposal is a superior proposal; and
- Columbia pays NiSource a $200 million termination fee.
- at any time before completion of the merger, if:
- NiSource is in material breach of the merger agreement and does not
cure the breach in all material respects within 20 business days after
written notice; or
- any governmental consents have not been obtained and become final
orders by March 31, 2002.
- By NiSource at any time before completion of the merger if:
- the Columbia board of directors withdraws or adversely modifies its
approval of the merger agreement or its recommendation that the Columbia
shareholders adopt the merger agreement;
- the Columbia board of directors approves or recommends a superior
proposal; or
- Columbia is in material breach of the merger agreement and does not cure
the breach in all material respects within 20 business days after
written notice.
For purposes of these provisions, a superior proposal is a proposal made by
a third party relating to a merger or similar transaction on terms that the
Columbia board determines in good faith, with the advice of its legal and
financial advisors, it cannot reject based on its fiduciary duties and that is
reasonably likely to lead to a transaction on terms more favorable from a
financial point of view to the Columbia shareholders than the merger
contemplated by the merger agreement.
TERMINATION FEES
TERMINATION FOR A SUPERIOR PROPOSAL
If Columbia terminates the merger agreement to accept a superior proposal,
or if NiSource terminates the merger agreement because Columbia's board
adversely modifies its support for the merger or approves a superior proposal,
Columbia will pay NiSource a termination fee of $200 million.
FAILURE TO OBTAIN COLUMBIA SHAREHOLDER APPROVAL
If (1) a person other than NiSource or one of its affiliates makes or
publicly announces an intention to make a proposal to acquire Columbia, (2) the
merger
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agreement is terminated for failure to obtain Columbia shareholder approval and
(3) within 12 months of the termination of the merger agreement:
- the person making the proposal acquires a majority of the voting power or
all or substantially all of the assets of Columbia;
- Columbia or one of its subsidiaries combines with the person making the
proposal; or
- Columbia or one of its subsidiaries and the person making the proposal
enter into a binding agreement for a merger, consolidation or other
business combination,
Columbia will pay NiSource a termination fee of $200 million.
TERMINATION FOR REGULATORY REASONS
If NiSource or Columbia terminates the merger agreement (1) because of a
final and non-appealable order permanently prohibiting the merger or (2) because
any required governmental consents have not been obtained or waived by March 31,
2002, NiSource will pay Columbia a termination fee of $50 million.
AMENDMENT AND WAIVER
NiSource and Columbia may modify or amend the merger agreement by written
agreement at any time before the merger is completed, except if prohibited by
law.
At any time prior to the merger, NiSource or Columbia may waive any of the
conditions to its obligation to consummate the merger, to the extent permitted
by law.
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REGULATORY MATTERS
The following discussion summarizes the regulatory requirements that we
believe relate to the merger, although we may determine that additional consents
from or notifications to governmental agencies are necessary or appropriate.
We have agreed to cooperate with each other and to use our reasonable best
efforts to obtain, as soon as practicable, all regulatory consents and approvals
necessary or advisable to complete the merger. We are obligated to contest and
resist any action seeking to impose an order that would materially delay or
prohibit completion of the merger. In the event that a temporary or preliminary
order is imposed, NiSource will use its best efforts to have the order vacated,
modified or suspended promptly to permit completion of the merger. If necessary
to prevent an order prohibiting completion of the merger, NiSource has agreed
that it will divest assets of NiSource or Columbia.
The merger is conditioned upon our receiving final orders from the various
federal and state commissions described below that do not impose terms or
conditions that would have, or would reasonably be expected to have, a material
adverse effect on the combined company or that materially impair our ability to
complete the merger. While we believe that we will receive the regulatory
approvals and clearances that we need to complete the merger, we cannot predict
when we will receive them or on what terms and conditions they may be granted.
Moreover, there is no assurance that we will receive all the necessary approvals
or that, if we do receive them, they will be on terms and conditions that
satisfy the conditions to the merger.
ANTITRUST CONSIDERATIONS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, we cannot
complete the merger until we have submitted certain information to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and
satisfied the statutory waiting period requirements. In connection with
NiSource's 1999 tender offer for Columbia, we made the necessary submissions
under the Hart-Scott-Rodino Act, and the applicable waiting period expired on
August 4, 1999 without our receiving any request to provide additional
information. However, NiSource's clearance to complete an acquisition of
Columbia will remain valid only for one year from the expiration of the waiting
period. Because we do not expect to complete the merger until after that date,
we will need to submit new information to the Department of Justice and the
Federal Trade Commission, and a new Hart-Scott-Rodino Act waiting period will
begin. The expiration or earlier termination of the waiting period will not
prevent the Department of Justice or the Federal Trade Commission from later
challenging the merger on antitrust grounds.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NiSource is a public utility holding company, but it is currently exempt
from registration with the Securities and Exchange Commission pursuant to an
order under Section 3(a)(1) of the Holding Company Act dated February 10, 1999.
This order exempts NiSource from most of the provisions of the Holding Company
Act. Columbia is a registered holding company and is subject to all regulatory
requirements applicable to such companies under the Holding Company Act.
Following completion of the merger and the planned merger of NiSource into New
NiSource, New NiSource will be required to
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register as a holding company under the Holding Company Act, with Columbia as a
subsidiary. If the merger proceeds under the alternative merger structure,
Columbia's public utility companies would become indirect subsidiaries of
NiSource, and NiSource would be required to register as a holding company.
The Holding Company Act imposes a number of restrictions on the operations
of registered holding companies and their systems. Among these restrictions are
requirements to obtain Securities and Exchange Commission approval of certain
securities issuances, acquisitions and dispositions of assets or securities of
utility companies or acquisitions of interests in other businesses. The Holding
Company Act also limits the ability of registered holding companies to engage in
activities unrelated to their utility operations and regulates holding company
system service companies and the rendering of services by holding company
affiliates to other companies in their system. We believe we will be able to
satisfy the requirements of the Holding Company Act for a registered holding
company system.
In connection with the merger, New NiSource is required to obtain
Securities and Exchange Commission approval under the Holding Company Act to
acquire the public utilities owned by Columbia. New NiSource and Columbia filed
an application with the Securities and Exchange Commission on April 14, 2000
seeking the necessary approval under the Holding Company Act. Although we
believe we will obtain Securities and Exchange Commission approval of the merger
under the Holding Company Act on acceptable terms, it is not possible to predict
with certainty the timing of the approval and whether the terms of approval will
be acceptable.
Under the standards applicable to transactions subject to approval under
the Holding Company Act, the Securities and Exchange Commission is directed to
approve the merger unless it finds that:
(1) the merger would tend towards detrimental interlocking relations or a
detrimental concentration of control,
(2) the consideration to be paid in connection with the merger is not
reasonable,
(3) the merger would unduly complicate the capital structure of the holding
company system or would be detrimental to the proper functioning of the
applicant's holding company system, or
(4) the merger would violate applicable state law.
To approve the merger, the Securities and Exchange Commission must also
find that the merger would tend towards the development of an integrated public
utility system and would otherwise conform to the Holding Company Act's
integration and corporate simplification standards.
The Securities and Exchange Commission may require as a condition to its
approval of the merger under the Holding Company Act that NiSource divest
certain businesses that are unrelated to the electric or gas utility or other
energy operations of the combined company. NiSource currently anticipates that
it may be required by the Securities and Exchange Commission to dispose of its
water utility subsidiaries within a specified period of time following the
merger. (See "Description of NiSource -- Water" on page 140.) NiSource does not
anticipate that the Securities and Exchange Commission will require it to
dispose of any of its other subsidiaries. In several cases, the Securities and
Exchange Commission has allowed a registered holding company to retain
non-utility related
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activities or deferred the question of divestiture for a substantial period of
time. In those cases in which divestiture has been required, the Securities and
Exchange Commission has usually allowed enough time to complete the divestiture
to allow the holding company to avoid an untimely or premature sale of the
divested assets.
In conjunction with the registration of New NiSource or NiSource as a
holding company under the Holding Company Act, the Securities and Exchange
Commission may address the issue of whether the holding company system may
retain both gas and electric utility operations. Based on recent Securities and
Exchange Commission orders under the Holding Company Act, we believe the
combined company will be permitted to retain all of its energy utility
operations.
FEDERAL POWER ACT
Under the Federal Power Act, we need to obtain the approval of the Federal
Energy Regulatory Commission for the merger. The Federal Power Act provides that
the FERC must grant its approval if it finds the merger to be "consistent with
the public interest."
The FERC has stated that, in analyzing a merger under the Federal Power
Act, it will evaluate the following criteria:
- the effect of the merger on competition in wholesale electric power
markets;
- the effect of the merger on the applicants' FERC jurisdictional
ratepayers; and
- the effect of the merger on state and federal regulation of the
applicants.
In addition, Northern Indiana, a Bay State subsidiary and NiSource's and
Columbia's power marketing affiliates have FERC authorization to sell electric
power at wholesale in interstate commerce at market-based rates. These
authorizations were based in part on the FERC's finding that these entities lack
market power over the generation and transmission of electric energy and,
therefore, could not sell electric power at prices above competitive levels. As
a condition of these authorizations to sell electric power at wholesale in
interstate commerce at market-based rates, our power marketing affiliates must
report to the FERC any change in status that would reflect a departure from the
characteristics the FERC relied upon in approving market-based pricing. Under
this requirement, these subsidiaries will file notifications of a "change in
status" with the FERC. These notifications will inform the FERC of the merger.
Pending FERC approval of the merger, we do not expect the authorizations under
which these subsidiaries engage in market-based sales of electric power to be
revoked. Columbia's power marketing affiliate has filed with the FERC its change
of status notification as well as a proposed code of conduct under which
Northern Indiana will be treated as an affiliate.
The FERC has approved the application of Columbia's power marketing
affiliate to transfer by sale all of its wholesale power contracts. Columbia's
power marketing affiliate has filed a Notice of Cancellation with the FERC
notifying the FERC that effective on the date of transfer of all of its
wholesale sales contracts its power marketing rate schedule is to be canceled.
The FERC has accepted Columbia's power marketing affiliate's Notice of
Cancellation. Columbia's power marketing affiliate has not yet completed the
transfer of its wholesale power contracts. In addition, Columbia's power
marketing affiliate will be engaged in short-term wholesale electric power sales
transactions at least through the end of June 2000.
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PUBLIC UTILITY REGULATORY POLICIES ACT OF 1978
Subsidiaries of Columbia hold interests in four electric generating
facilities which are "qualifying cogeneration facilities" under the Public
Utility Regulatory Policies Act and the federal regulations implementing the
statute. A QF project company is exempt from regulation under the Holding
Company Act, compliance with most provisions of the Federal Power Act and
utility-type regulation under state law. In addition, the company owning a QF is
entitled to require electric utilities to purchase the net electric output of
its project under a long-term contract. In order to qualify for these benefits,
a project must satisfy certain operational standards and be owned by a person
not primarily engaged in the generation or sale of electric power, other than
electric power produced solely by qualifying facilities. The QF ownership test
is satisfied when no more than 50% of the equity interests in a project are
owned, directly or indirectly, by a company that is an electric utility or a
holding company with one or more domestic electric utility company subsidiaries,
or any combination of such companies.
Electric utility holding companies now own up to 50% of the equity
interests in each of the QFs in which Columbia holds an interest. Columbia
currently is not an electric utility holding company, but its interests in QFs
will be indirectly held by an electric utility holding company as a result of
the merger. Consequently, the 50% limitation on total interests held by electric
utility holding company affiliates would be exceeded. Loss of QF status deprives
the project and its owners of exemptions from regulation and could affect the
continuing effectiveness of existing long-term contracts to sell power to
electric utilities. To avoid jeopardizing the QF status of the projects and to
comply with Columbia's obligations to other participants in the projects,
Columbia plans to relinquish its ownership interests in the four QFs before
completion of the merger and is currently evaluating the transfer of its
interests in those facilities.
NATURAL GAS ACT
NiSource subsidiaries operate storage facilities and have authority from
the FERC to charge market-based rates for their storage services. The
authorizations, which were obtained under the Natural Gas Act, were based in
part on the FERC's finding that these entities lack market power in the
geographic areas in which they are located. As a condition of these approvals,
the FERC reserved the right to review its approval of the market-based rates if
the market conditions change. Under these orders, these subsidiaries must notify
the FERC of changes that have the potential to alter the subsidiaries' market
power status. These filings will be made in accordance with the conditions
imposed by the FERC in its orders authorizing the market-based rates.
Pending FERC approval of the merger, we expect the authorizations under
which these subsidiaries are charging market-based rates to remain effective.
STATE REGULATORY APPROVALS
We require formal approvals from utility regulatory authorities in
Kentucky, Maine, Pennsylvania and Virginia in order to complete the merger. In
addition, we are also filing a formal petition with the public utilities
commission in New Hampshire. Although we have determined that the merger does
not need formal approval in any of the other states in which we operate, we
expect that, in connection with our application for approval under the Holding
Company Act, the Securities and Exchange Commission will ask for
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confirmation from these states that they are able to regulate the gas and
electric distribution company operations in the state. Therefore, we intend to
seek appropriate letters from the utility regulatory authorities in Indiana,
Maryland, Massachusetts and Ohio.
KENTUCKY COMMISSION. Columbia's wholly-owned subsidiary Columbia Gas of
Kentucky, Inc. is subject to the jurisdiction of the Kentucky Public Service
Commission. The acquisition of control of any utility furnishing utility service
in Kentucky requires the approval of the Kentucky Commission. To obtain
approval, the applicants must demonstrate that the acquiring party has the
financial, technical and managerial abilities to provide reasonable service.
Additionally, the Kentucky Commission must find that the acquisition is made in
accordance with law, is made for a proper purpose and is consistent with the
public interest. We currently expect to file our petition with the Kentucky
Commission on May 1, 2000, seeking approval of the merger consistent with these
requirements.
MAINE COMMISSION. NiSource's indirect wholly-owned subsidiary Northern
Utilities, Inc. is subject to the jurisdiction of the Maine Public Utilities
Commission. The reorganization of any person who directly or indirectly owns 10%
or more of the voting securities of a Maine public utility requires the approval
of the Maine Commission. The applicant must establish that the reorganization is
consistent with the interests of the utility's ratepayers and investors.
NiSource filed a petition with the Maine Commission on April 10, 2000, seeking
approval of the merger consistent with these requirements.
NEW HAMPSHIRE COMMISSION. NiSource's indirect wholly-owned subsidiary
Northern Utilities, Inc. is subject to the jurisdiction of the New Hampshire
Public Utilities Commission. We do not believe the New Hampshire statutes
require the New Hampshire Commission to approve the merger. NiSource filed a
petition with the New Hampshire Commission on April 12, 2000, seeking a
determination that New Hampshire Commission approval is not required, or in the
alternative, a waiver of that requirement or that the approval be granted.
PENNSYLVANIA COMMISSION. Columbia's wholly-owned subsidiary Columbia Gas of
Pennsylvania, Inc. is subject to the jurisdiction of the Pennsylvania Public
Utility Commission. Pennsylvania law requires the issuance of a certificate of
public convenience. To obtain a certificate of public convenience, the
applicants must show that the transaction is necessary or proper for the
service, accommodation, convenience or safety of the public. The Pennsylvania
Supreme Court has applied this standard to require that the applicant
demonstrate that the transaction will affirmatively benefit the public. Columbia
filed an application with the Pennsylvania Commission on March 30, 2000 seeking
approval of the merger consistent with these requirements.
VIRGINIA COMMISSION. Columbia's wholly-owned subsidiary Columbia Gas of
Virginia, Inc. is subject to the jurisdiction of the Virginia State Corporation
Commission. The acquisition of any public utility in Virginia requires the
approval of the Virginia Commission. To obtain approval, the applicants must
show that the provision of adequate service at just and reasonable rates will
not be threatened or impaired as a result of the merger. We filed our joint
petition with the Virginia Commission on April 3, 2000, seeking approval of the
merger consistent with these requirements.
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AFFILIATE CONTRACTS AND ARRANGEMENTS
Following the registration of New NiSource or NiSource as a holding company
under the Holding Company Act, Columbia and the current subsidiaries of NiSource
may need to enter into or amend agreements under which affiliates of the
combined company provide services to one another, including management,
supervisory, construction, engineering, accounting, legal and financial
services. The approval or non-opposition of certain federal and state regulatory
commissions is required with respect to the creation or amendment of certain
inter-affiliate agreements. We will seek any required regulatory approvals with
the appropriate federal and state regulatory commissions.
OTHER REGULATORY MATTERS
We have obtained from various regulatory authorities a number of
franchises, permits and licenses, which may need to be renewed, replaced or
transferred in connection with the merger. We may need to obtain approvals or
consents, or to make notifications, in connection with those renewals,
replacements or transfers.
Regulatory commissions in the states where our utility subsidiaries operate
may intervene in the federal regulatory proceedings. In addition, state
regulatory commissions regulate the rates charged to utility customers within
their jurisdictions. In approving rates, each state may take into account
effects of the merger, including possible savings.
In addition, it may be necessary to submit filings, notices, registrations
or seek approval with, among others, the Secretaries of State of those states in
which Columbia's subsidiaries are incorporated, The Bermuda Registrar of
Companies, the Vermont Commissioner of Banking, Insurance, Securities and Health
Care Administration, certain state insurance departments, the U.S. Department of
Transportation, State Attorneys General, the Federal Communications Commission,
the U.S. Department of Energy, federal and state occupational safety and health
administrations, state environmental authorities, state commissioners of labor
and industry, and federal, state and local taxing authorities.
Columbia's subsidiary, Columbia Energy Services Corporation and certain of
its subsidiaries may be required or may elect to submit filings, notices,
registrations or seek approval with the following state commissions in
connection with retail marketing licenses: Pennsylvania Public Utility
Commission, New Jersey Board of Public Utilities, New York Public Service
Department, Georgia Public Service Commission, Indiana Utility Regulatory
Commission, Public Utilities Commission of Ohio, Michigan Public Service
Commission, Maryland Public Service Commission and Virginia State Corporation
Commission.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This section describes the material United States federal income tax
consequences of the merger. It represents the opinions of Schiff Hardin & Waite,
counsel to NiSource, and Sullivan & Cromwell, counsel to Columbia, as indicated.
GENERAL
ASSUMPTIONS AND LIMITATIONS. Columbia will receive a tax opinion from its
counsel Sullivan & Cromwell, and NiSource will receive a tax opinion from its
counsel Schiff Hardin & Waite. The discussion below and the tax opinions of
Sullivan & Cromwell and Schiff Hardin & Waite assume that you hold your NiSource
or Columbia shares as capital assets and do not address all aspects of United
States federal income taxation that may be important to you in light of your
particular circumstances. The tax opinions assume the absence of changes in
existing facts and rely on customary assumptions, representations and covenants,
including those contained in certificates of officers of NiSource and of
Columbia. These opinions do not prevent the Internal Revenue Service from
adopting a position contrary to those expressed by counsel in the opinions. We
have not sought, and do not intend to seek, a ruling from the Internal Revenue
Service with respect to the merger or the SAILS. This discussion and the tax
opinions are based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations under the
Code, published rulings and court decisions, all as in effect on the date of
this document. These laws are subject to change, possibly with retroactive
effect, and to differing interpretations.
Further, the discussion and the tax opinions do not address all aspects of
United States federal income taxation, nor do they apply to you if you are a
member of a special class of holders of NiSource, Columbia or New NiSource
common shares or SAILS such as:
- a bank, thrift institution or real estate investment trust;
- a tax-exempt organization;
- a life insurance company;
- a dealer or broker in securities or currencies;
- a person whose functional currency for tax purposes is not the United
States dollar;
- a person who owns NiSource, Columbia or New NiSource common shares or
SAILS as part of a hedge, appreciated financial position, straddle or
conversion transaction; or
- a person who acquired its NiSource or Columbia common shares upon the
exercise of employee stock options or otherwise as compensation.
This discussion does not purport to be a complete analysis or description
of all potential United States federal income tax consequences of the merger and
of owning SAILS. Moreover, this discussion and the tax opinions address only
United States federal income tax consequences, and not any foreign, state or
local tax consequences. This discussion and the tax opinions address only the
tax consequences of the merger and of owning SAILS. We strongly urge you to
consult with your tax advisor to determine the
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particular United States federal, state and local, as well as foreign income or
other tax consequences of these transactions to you.
TAX IMPLICATIONS TO SHAREHOLDERS. This discussion and the tax opinions
apply to you only if you are a United States holder. You are a United States
holder if you are a beneficial owner of shares or SAILS and you are:
- a citizen or resident of the United States;
- a domestic corporation;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
TAX IMPLICATIONS TO COLUMBIA SHAREHOLDERS. Sullivan & Cromwell has provided
an opinion to Columbia that the Columbia merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and/or, combined
with the NiSource merger, as a transfer of property to New NiSource by holders
of Columbia common shares immediately after which the former shareholders of
Columbia that contribute their Columbia shares to New NiSource and the former
shareholders of NiSource are in control of New NiSource in a transaction
governed by Section 351 of the Code. The opinion is limited, as explained above
under "Assumption and Limitations," and assumes that the merger is completed in
the manner contemplated in this document and in accordance with the merger
agreement.
In addition, the following items will apply to you, if you are a Columbia
shareholder:
- If you exchange your Columbia common shares solely for New NiSource
common shares in the merger, you will not recognize gain or loss for
United States federal income tax purposes with respect to the exchange.
You may, however, recognize gain or loss with respect to any cash
received in lieu of fractional shares or representing the additional
amount payable if the merger is not completed by February 27, 2001, as
described below. Your aggregate tax basis of the New NiSource common
shares you receive as a result of the merger will be the same as your
aggregate tax basis in the Columbia common shares you surrender in the
exchange, increased by any gain recognized on the exchange and reduced by
the amount of any cash received.
- If you receive cash in lieu of fractional shares, you will be treated as
first receiving additional New NiSource common shares and then exchanging
those additional shares for cash in a redemption by New NiSource. You
should therefore generally recognize gain or loss for United States
federal income tax purposes on the deemed redemption in an amount equal
to the difference between the amount of cash received and the portion of
the tax basis of the Columbia common shares allocable to the New NiSource
common shares deemed redeemed. This gain or loss generally will be
capital gain or loss and will be long-term capital gain or loss if you
have
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held the Columbia common shares deemed exchanged for New NiSource shares for
more than one year at the time the merger is completed.
- If you receive cash solely because the merger is not completed by
February 27, 2001, you will recognize gain, but not loss, equal to the
lesser of (a) the amount of cash received and (b) the difference between
(1) the sum of the fair market value of the New NiSource common shares
and cash received and (2) your tax basis in your Columbia common shares.
This gain generally will be capital gain and will be long-term capital
gain if you have held your Columbia common shares exchanged for more than
one year at the time the merger is completed.
- If you exchange all or a portion of your Columbia common shares for cash
and SAILS, the amount of gain or loss you will realize will be the
difference between (a) the fair market value of the shares of New
NiSource common shares, if any, you receive plus the amount of cash and
the fair market value of the SAILS you receive and (b) your tax basis in
your Columbia common shares. If you exchange only a portion of your
Columbia shares for cash and SAILS, you will recognize gain, but not
loss, on the exchange, and the gain you recognize will not exceed the
amount of cash plus the fair market value of the SAILS you receive. Only
if you receive solely cash and SAILS in exchange for your Columbia common
shares will you be able to recognize loss. The gain or loss recognized
generally will be capital gain or loss and will be long-term capital gain
or loss if you have held your Columbia common shares exchanged for more
than one year at the time the merger is completed.
- If you receive any New NiSource common shares in the merger,
- your holding period for those New NiSource common shares will include
the period during which you held the Columbia common shares you
exchanged, and
- your aggregate tax basis in those New NiSource common shares will be
equal to your tax basis in the Columbia shares exchanged, decreased by
the amount of cash and the fair market value of the SAILS you receive,
and increased by the amount of gain, if any, you recognize on the
exchange.
- If you receive any SAILS in the merger,
- your holding period for those SAILS will commence on the date they are
issued to you, which will be deemed to be the first date on which the
SAILS are traded on a securities exchange, and
- your tax basis in the SAILS will be the fair market value of the SAILS
on the issue date.
TAX IMPLICATIONS TO NISOURCE SHAREHOLDERS. Schiff Hardin & Waite has
provided an opinion to NiSource that the NiSource merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and/or, combined with the Columbia merger, as a transfer of
property to New NiSource by holders of NiSource common shares immediately after
which the former shareholders of NiSource that contribute their NiSource shares
to New NiSource and the former shareholders of Columbia that contribute their
Columbia shares to New NiSource are in control of New NiSource in a transaction
governed by Section 351 of the Code. The
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opinion is limited, as explained above under "Assumptions and Limitations," and
assumes that the merger is completed in the manner contemplated in this document
and in accordance with the merger agreement.
In addition, the following items will apply to you, if you are a NiSource
shareholder:
- You will not recognize gain or loss for United States federal income tax
purposes in connection with the merger.
- Your aggregate tax basis of the New NiSource common shares you receive as
a result of the NiSource merger will be the same as your aggregate tax
basis in the NiSource common shares exchanged.
- Your holding period of the New NiSource common shares you receive as a
result of the NiSource merger will include the period during which you
held the NiSource common shares exchanged.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. If you receive New NiSource
common shares or SAILS as a result of the merger, you will be required to retain
records and file with your United States federal income tax return a statement
containing facts relating to the merger.
In general, if you are a noncorporate Columbia shareholder, any payments
made to you with respect to your Columbia shares, as well as any gain recognized
in connection with the merger, will be subject to backup withholding at a rate
of 31% if you:
- fail to provide an accurate taxpayer identification number;
- are notified by the Internal Revenue Service that you have failed to
report all interest or dividends required to be shown on your United
States federal income tax return; or
- in certain circumstances, fail to comply with applicable certification
requirements.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against your United States federal income tax liability
provided that any required information is furnished to the Internal Revenue
Service.
The combined company will report to its shareholders and to the Internal
Revenue Service the amount of "reportable payments" and any amount withheld with
respect to your common shares and SAILS during each calendar year.
TAX IMPLICATIONS TO NISOURCE AND COLUMBIA. Neither NiSource nor Columbia
will recognize any gain or loss for United States federal income tax purposes on
the merger. Furthermore, neither New NiSource, NiSource nor Columbia will
recognize any gain or loss for United States federal income tax purposes on the
subsequent merger of NiSource into New NiSource. However, if either company
disposes of assets or businesses, whether in connection with obtaining
regulatory approval for the merger or otherwise, those dispositions may be
taxable transactions.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ALTERNATIVE MERGER
STRUCTURE
TAX IMPLICATIONS TO COLUMBIA SHAREHOLDERS
In the case of the alternative merger structure, you will recognize capital
gain or loss in an amount equal to the difference between (a) the sum of the
cash (including the cash received if the merger is not completed by February 27,
2001) you receive and the fair market value of your NiSource SAILS on the issue
date and (b) your tax basis in your Columbia common shares. The gain or loss
generally will be capital gain or loss and will be long-term capital gain or
loss, if you held your Columbia common shares exchanged for more than one year
at the time the merger is completed. Capital gains recognized by an individual
in respect of capital assets held for more than one year will be subject to a
reduced maximum tax rate of 20%. The deductibility of capital losses is subject
to limitations. Your holding period for the SAILS will commence on the day the
SAILS are issued to you, which will be deemed to be the first date the SAILS are
traded on a securities exchange. See "-- Material United States Federal Income
Tax Consequences of Owning SAILS" below.
TAX IMPLICATIONS TO NISOURCE SHAREHOLDERS
In the case of the alternative merger structure, your NiSource common
shares will remain unchanged and will not be converted into common shares of New
NiSource. As a result, you will not recognize any gain or loss for United States
federal income tax purposes in connection with the merger, and your tax basis of
your NiSource common shares and your holding period will be unaffected.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING SAILS
The following discussion describes the material United States federal
income tax consequences of your acquisition, ownership and disposition of the
SAILS, the debentures and the New NiSource common shares acquired under a
purchase contract. See "Description of the SAILS" at page 106. To the extent
this discussion relates to matters of law, it is based on an opinion of Schiff
Hardin & Waite, subject to the qualifications set forth below. This summary
applies to you only if you are a "United States holder" (as defined above on
page 88), you receive SAILS upon original issuance in exchange for Columbia
common shares and you hold the SAILS, the debentures and the New NiSource common
shares acquired under the purchase contracts as capital assets.
No statutory, administrative or judicial authority directly addresses the
treatment of the SAILS or instruments similar to the SAILS for United States
federal income tax purposes. You should be aware that there are alternative
characterizations of the SAILS that could result in different federal income tax
consequences. While Schiff Hardin & Waite does not believe these alternative
characterizations should apply for federal income tax purposes, there can be no
assurance in this regard, and you should consult your tax advisor concerning the
risks associated with alternative characterizations. We strongly urge you to
consult your own tax advisor with respect to the tax consequences of the
purchase, ownership and disposition of the SAILS in light of your own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws, the possible effects of changes in United States federal or
other tax laws and, if you are not a United States holder of the SAILS, the
potential application and effect of United States
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withholding taxes. The following discussion assumes that no such alternative
characterization will apply.
Given the original issue discount consequences described below, if you are
a taxable United States holder, you should assess or consult your own tax or
financial advisor whether, in light of your particular circumstances, continuing
to hold SAILS or Treasury SAILS is more or less desirable to you than disposing
of your SAILS or Treasury SAILS and subsequently acquiring New NiSource common
shares.
ALLOCATION OF DEEMED PURCHASE PRICE OF THE SAILS
Your acquisition of a SAILS will be treated as an acquisition of a unit
consisting of the debenture and the purchase contract that comprise the SAILS.
The deemed purchase price of each SAILS will be allocated between the purchase
contract and the debenture in proportion to their respective fair market values
at the time of purchase. We will have to wait until the issue date of the SAILS
to determine the issue price of the SAILS and, in turn, the fair market value of
a SAILS. The allocation will be determined by an investment banking firm
mutually acceptable to NiSource and Columbia. The deemed purchase price of each
SAILS will be the fair market value of a SAILS as determined by the issue price
of a SAILS as of the first date a substantial amount of SAILS are publicly
traded. The difference between the amount that the investment banking firm we
select determines to be allocable to the debenture and the principal amount of
$2.60 (or, in the case of a NiSource SAILS, $3.02) payable at maturity will
constitute original issue discount or "OID" and, as discussed below, will be
ratably included in your gross income during the period that the SAILS are
outstanding. This allocation will not be binding on the Internal Revenue Service
but generally will be binding on you as a beneficial owner of a SAILS, unless
you explicitly disclose a contrary position on a statement attached to your
timely filed United States federal income tax return for the taxable year in
which you acquire your SAILS. Thus, absent such disclosure, you should allocate
the deemed purchase price for your SAILS in accordance with our allocation. We
will inform you of the allocation and the necessary information to compute the
OID as the OID accrues during each year. The remainder of this discussion
assumes that our allocation of the deemed purchase price for a SAILS will be
respected for United States federal income tax purposes.
DEBENTURES
Original Issue Discount. As a result of the allocation of the deemed
purchase price of a SAILS between the purchase contract and the debenture, OID
will be created with respect to the debenture portion of the SAILS. You
generally will be required to include in gross income OID as it accrues on a
constant yield basis with respect to the debenture, regardless of your method of
tax accounting, even though you will not actually receive current cash payments.
Any amount of OID included in your gross income will increase your tax basis in
your debentures. We will provide you with the necessary information to determine
the OID as it accrues during each year.
OID is the excess of the stated redemption price at maturity of the
debenture over its issue price. The stated redemption price at maturity is the
principal amount that is deemed payable on the fourth anniversary of the
completion of the merger. The issue price of a debenture will be determined by
allocating the fair market value of a SAILS between the purchase contract and
the related debenture in proportion to their fair market values at the time of
issuance of the SAILS. The fair market value of a SAILS will be equal to the
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issue price of a SAILS determined as of the first date a substantial amount of
SAILS are publicly traded. The issue price of the debenture is then determined
by the investment banking firm we select as a portion of the issue price of the
SAILS. Since the issue price of a debenture as determined above will be
substantially less than the principal amount of the debenture, the debenture
will be treated as having been issued with OID.
Sales, Exchanges or Other Dispositions. You will recognize capital gain or
loss on a sale, exchange or other disposition of a debenture, including through
a remarketing, in an amount equal to the difference between the amount you
realize on the disposition of the debenture and your adjusted tax basis in the
debenture. Selling expenses you may incur will reduce the amount of gain or
increase the amount of loss you recognize upon the disposition. Capital gains
recognized by an individual in respect of capital assets held for more than one
year will be subject to a reduced maximum tax rate of 20%. You may not be able
fully to deduct capital losses.
PURCHASE CONTRACTS
Acquisition of Common Shares under a Purchase Contract. Generally, you will
not recognize gain or loss on the purchase of common shares under a purchase
contract, except that if you receive any cash in lieu of a fractional common
share, you will recognize gain (or loss) to the extent the cash received exceeds
(or is less than) your basis allocated to the corresponding purchase contracts.
Subject to the following discussion, your aggregate initial tax basis in the
common shares acquired under a purchase contract generally should equal the
purchase price paid for the common shares plus your tax basis in the purchase
contract, if any, less the portion of the purchase price and tax basis allocable
to the fractional share. Your holding period for common shares acquired under a
purchase contract will commence on the day you acquire those common shares.
Ownership of Common Shares Acquired under a Purchase Contract. You will
have to include any dividend on common shares paid by New NiSource or NiSource
out of its current or accumulated earnings and profits (as determined for United
States federal income tax purposes) when received. If you are an otherwise
qualifying corporate United States holder that meets the holding period and
other requirements for a dividends received deduction, any such dividend will be
eligible for the dividends received deduction.
Upon a sale or exchange of common shares, you generally will recognize
capital gain or loss equal to the difference between the amount realized and
your adjusted tax basis in the common shares. Under certain conditions, your tax
basis in the common shares purchased under the purchase contract will exceed
their fair market value immediately after the settlement date, in which case you
would generally recognize a short-term capital loss if you disposed of those
common shares immediately after the settlement date. The deductibility of
capital losses is subject to limitations. Capital gains of individuals derived
in respect of capital assets are subject to a reduced maximum tax rate of 20%,
but only if you hold the common shares for more than one year from the
settlement date.
Termination of Purchase Contract. If a purchase contract terminates (as
described in "Description of the SAILS -- Termination" on page 116), you will
recognize capital loss equal to your adjusted tax basis (if any) in the purchase
contract at the time of the termination. The deductibility of capital losses is
subject to limitations. You will not recognize gain or loss on the receipt of
your proportionate share of debentures, or Treasury securities, upon termination
of the purchase contract and will have the same tax basis in such debentures or
Treasury securities as before the distribution.
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Adjustment to Settlement Rate. If you hold SAILS, you may be treated as
receiving a constructive distribution from New NiSource or NiSource if (1) the
settlement rate is adjusted and as a result of such adjustment your
proportionate interest in the assets or earnings and profits of New NiSource is
increased and (2) the adjustment is not made pursuant to a bona fide, reasonable
anti-dilution formula. An adjustment in the settlement rate would not be
considered made pursuant to a bona fide formula if the adjustment were made to
compensate you for certain taxable distributions with respect to the common
shares. Thus, under certain circumstances, an increase in the settlement rate
might give rise to a taxable dividend to you even though you would not receive
any cash.
Cash Settlement. If you settle your purchase contract with separate cash,
as described under "Description of the SAILS -- Description of the Purchase
Contracts -- Notice to Settle with Cash" on page 113, your debentures or
Treasury securities will be distributed to you. In this case, you will not
recognize gain or loss upon the delivery of cash or the release of the
debentures or Treasury securities and will continue to include in gross income
OID in respect of the debentures or Treasury securities until the settlement
date and interest income on the debentures after that date. Your tax basis in
the debentures or Treasury securities and the purchase contract will not be
affected by the delivery of cash and the release of your pledged securities.
TREASURY SAILS
Substitution of Treasury Securities to Create Treasury SAILS. Generally, if
you create Treasury SAILS by substituting Treasury securities for debentures,
you will not recognize gain or loss upon the delivery of the Treasury securities
or the release of the debentures. You will continue to include in your gross
income OID in respect of the debentures, and your tax basis in the debentures
and the purchase contract will not be affected by the delivery and release.
Ownership of Treasury Securities. Generally, your initial tax basis in the
Treasury securities that are part of the Treasury SAILS will be equal to the
amount paid for the Treasury securities. You generally will include in income
any OID or acquisition discount includible with respect to the Treasury
securities that accrues on the Treasury security in each year.
Substitution of Debentures to Recreate SAILS. If you hold Treasury SAILS
and deliver debentures to recreate SAILS, you generally will not recognize gain
or loss upon the delivery of such debentures or the release of the Treasury
securities. You will continue to include in gross income any interest, OID or
acquisition discount with respect to such Treasury securities and the
debentures, and your tax basis in the Treasury securities, the debentures and
the purchase contract will not be affected by the delivery and release.
SALE OR DISPOSITION OF SAILS
If you sell or dispose of your SAILS, other than in connection with the
settlement of your purchase contract, you will be treated as having sold,
exchanged or disposed of the purchase contracts and the debentures, or, in the
case of Treasury SAILS, the Treasury securities, that comprise such SAILS and
generally will have capital gain or loss equal to the difference between the
portion of your proceeds that are allocable to the purchase contracts and the
debentures, or Treasury securities, as the case may be, and your respective
adjusted tax bases in the purchase contract and the debentures or Treasury
securities. For purposes of determining gain or loss if you own Treasury SAILS,
your
TAX CONSEQUENCES
94
<PAGE> 101
proceeds will not include any amount equal to accrued and unpaid interest on the
Treasury security not previously included in income, which amount will be
treated as ordinary interest income. Capital gains of individuals derived in
respect of capital assets held for more than one year are taxed at a maximum
rate of 20%. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments under the SAILS, the debentures or the common shares acquired
under a purchase contract, the proceeds received with respect to a fractional
common share upon settlement of a purchase contract, and the sale of the SAILS,
the debentures or the common shares acquired under a purchase contract may be
subject to information reporting and United States federal backup withholding
tax at the rate of 31% if you are a noncorporate holder of the SAILS, debentures
or common shares and you:
- fail to provide an accurate taxpayer identification number;
- are notified by the Internal Revenue Service that you have failed to
report all interest or dividends required to be shown on your federal
income tax return; or
- in certain circumstances, fail to comply with applicable certification
requirements.
Any amounts so withheld will be allowed as a credit against your United States
federal income tax liability.
TAX CONSEQUENCES
95
<PAGE> 102
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information reflects the historical
combined condensed consolidated financial data of NiSource and Columbia after
accounting for the merger as a purchase business combination. Accordingly, you
should read the following information together with the historical consolidated
financial statements of NiSource and Columbia and all related notes, which are
incorporated into this document by reference. The unaudited pro forma combined
condensed consolidated balance sheet assumes the merger was completed as of
December 31, 1999. The unaudited pro forma combined condensed consolidated
statement of income from continuing operations assumes the merger was completed
January 1, 1999.
The information presented below is not necessarily indicative of the
results of operations that would have occurred had the merger actually been
completed on January 1, 1999, or the actual financial position that would have
resulted had the merger actually been completed on December 31, 1999. The
information is also not necessarily indicative of the future results of
operations or financial position of New NiSource. In addition, NiSource
management has identified synergies, on a pre-tax basis, of approximately $98
million in the first year after the merger, increasing to $185 million in the
fifth year after the merger. These synergies are not reflected in the pro forma
combined condensed consolidated financial data.
The information presented below assumes that we complete the merger using
the preferred holding company structure, which involves the creation of a new
holding company, currently named New NiSource, and two separate but concurrent
mergers. In one merger, a wholly-owned subsidiary of New NiSource will merge
into NiSource. In the other merger, a second wholly-owned subsidiary of New
NiSource will merge into Columbia. NiSource and Columbia will be the surviving
corporations in those mergers and will be wholly owned by New NiSource.
Immediately after these mergers, NiSource will merge into New NiSource. New
NiSource will then change its name to "NiSource Inc." and will serve as a
holding company for Columbia and its subsidiaries and the subsidiaries of
NiSource.
The pro forma combined condensed consolidated financial data assume that
23% of Columbia's shares are exchanged for $74 in New NiSource shares, and 77%
of Columbia's shares are exchanged for $70 in cash plus $2.60 stated amount of a
SAILS. The total aggregate purchase price for the transaction using this
assumption is approximately $6.0 billion.
The merger is being accounted for by the purchase method. The purchase
price has been allocated to the assets acquired and liabilities assumed based
upon their estimated fair values. The accompanying allocation anticipates that
the fair market value of Columbia's regulated operations reasonably approximates
the underlying book values of these operations. As a result, the purchase price
paid in excess of the estimated fair value of non-regulated operations and the
book value, which is a proxy for fair value, of regulated operations has been
allocated to goodwill. Allocations included in the pro forma combined condensed
consolidated financial statements are based on analyses that are not yet
completed. Accordingly, the final value of the purchase price and its allocation
may differ, perhaps significantly, from the amounts included in the accompanying
pro forma statements.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
96
<PAGE> 103
NEW NISOURCE INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT
OF INCOME FROM CONTINUING OPERATIONS
FOR TWELVE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COLUMBIA
ENERGY PRO FORMA
NISOURCE INC. GROUP ADJUSTMENTS COMBINED
------------- -------- ----------- ---------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Revenues.............. $3,144,576 $3,189,200 0 $6,333,776
Cost of Sales................... 1,651,051 1,194,400 0 2,845,451
---------- ---------- ---------- ----------
Operating Margin................ 1,493,525 1,994,800 0 3,488,325
Operating Expenses:
Operation and
Maintenance.............. 617,016 905,800 0 1,522,816
Depreciation, Depletion and
Amortization............. 311,404 229,000 106,456F 646,860
Taxes (except income)...... 103,569 211,600 0 315,169
---------- ---------- ---------- ----------
Total Operating
Expenses............ 1,031,989 1,346,400 106,456 2,484,845
Operating Income................ 461,536 648,400 (106,456) 1,003,480
Other Income (Deductions)....... (18,030) 29,200 0 11,170
---------- ---------- ---------- ----------
Income Before Interest and Other
Charges....................... 443,506 677,600 (106,456) 1,014,650
Interest and Other Charges:
Interest expense........... 166,617 164,400 380,160B 711,177
Minority interest.......... 17,693 0 0 17,693
Dividend requirements on
preferred stock of
subsidiaries............. 8,334 0 0 8,334
---------- ---------- ---------- ----------
Total................. 192,644 164,400 380,160 737,204
---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes.................... 250,862 513,200 (486,616) 277,446
Income taxes............... 90,448 158,200 (147,537)C,F 101,111
---------- ---------- ---------- ----------
Income from continuing
operations............... $ 160,414 $ 355,000 ($ 339,079) $ 176,335
========== ========== ========== ==========
Average common shares
outstanding -- basic.......... 124,343 82,210 0 206,553
Common shares retired...... 0 0 (82,210)D (82,210)
Common shares issued....... 0 0 83,682E 83,682
Average number of common
shares........................ 208,025
Diluted shares............. 996 499 (499)D 996
---------- ---------- ---------- ----------
Diluted shares.................. 125,339 82,709 209,021
Basic earnings per average
common share from continuing
operations.................... $ 1.29 $ 4.31 $ 0.84
Diluted earnings per average
common share from continuing
operations.................... $ 1.27 $ 4.29 $ 0.84
Dividends declared per common
share......................... $ 1.035 $ 0.875 $ 1.035
Common shares outstanding at end
of period (000)............... 124,139 207,821
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
97
<PAGE> 104
NEW NISOURCE INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
COLUMBIA
ENERGY PRO FORMA
NISOURCE INC. GROUP ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Property, Plant and
Equipment:
Net Utility Plant........... $4,796,802 $4,441,800 $ 0 $ 9,238,602
Net Other Plant............. 433,616 584,500 211,440G 1,229,556
---------- ---------- ---------- -----------
Total Property, Plant and
Equipment.............. 5,230,418 5,026,300 211,440 10,468,158
Investments:
Investment in unconsolidated
affiliates............... 174,110 67,600 (11,379)L 230,331
Other....................... 32,839 51,900 0 84,739
---------- ---------- ---------- -----------
Total Investments........ 206,949 119,500 (11,379) 315,070
Current Assets:
Cash and cash equivalents... 43,533 62,600 0 106,133
Accounts receivable, less
reserve.................. 390,990 552,400 0 943,390
Exchange gas................ 0 275,400 0 275,400
Energy adjustment clause.... 96,699 40,500 0 137,199
Other inventories........... 96,498 71,100 0 167,598
Natural gas in storage...... 63,750 144,900 0 208,650
Prepayments and other....... 80,133 246,300 0 326,433
---------- ---------- ---------- -----------
Total current assets..... 771,603 1,393,200 0 2,164,803
Other Assets:
Regulatory assets........... 208,634 358,100 0 566,734
Intangible assets, less
accumulated provision for
amortization............. 128,564 135,200 3,835,479A 4,099,243
Deferred tax asset.......... 0 0 53,576J 53,576
Prepayments and other....... 289,061 63,600 0 352,661
---------- ---------- ---------- -----------
Total other assets....... 626,259 556,900 3,889,055 5,072,214
---------- ---------- ---------- -----------
$6,835,229 $7,095,900 $4,089,116 $18,020,245
========== ========== ========== ===========
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
98
<PAGE> 105
<TABLE>
<CAPTION>
COLUMBIA
ENERGY PRO FORMA
NISOURCE INC. GROUP ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
CAPITALIZATION AND
LIABILITIES
Capitalization:
Common stock, without
par value........... $ 870,930 $ 0 $ (870,930)D $ 0
Common stock, $.01 par
value............... 0 800 (800)D 0
Common stock, $.01 par
value............... 0 0 2,078E 2,078
Additional paid-in
capital............. 180,702 1,611,300 143,229D,E,K,L 1,935,231
Treasury shares........ (472,553) (135,000) 607,553D,K 0
Retained earnings...... 774,425 586,900 (586,900)D 774,425
---------- ---------- ----------- -----------
Common Shareholders
Equity............ 1,353,504 2,064,000 (705,770) 2,711,734
Cumulative Preferred
Stock
Without mandatory
redemption........ 85,611 0 0 85,611
With mandatory
redemption........ 54,030 0 0 54,030
Company-obligated
preferred securities
of subsidiary
trust............... 345,000 0 0 345,000
Long-term debt, less
current portion..... 1,975,184 1,639,700 4,657,195I,M 8,272,079
---------- ---------- ----------- -----------
Total Capitalization... 3,813,329 3,703,700 3,951,425 11,468,454
Current Liabilities:
Current portion of
long-term debt...... 173,721 311,300 0 485,021
Short-term
borrowings.......... 679,321 465,500 4,538,695H 1,144,821
(4,538,695)I
Accounts payable....... 277,358 267,500 0 544,858
Dividends declared on
common and preferred
stocks.............. 34,535 6,400 0 40,935
Transportation and
exchange gas........ 0 297,500 0 297,500
Taxes accrued.......... 42,853 199,000 0 241,853
Interest accrued....... 34,157 32,500 0 66,657
Other accruals......... 231,771 462,800 0 694,571
---------- ---------- ----------- -----------
Total current
liabilities....... 1,473,716 2,042,500 0 3,516,216
Other:
Deferred income
taxes............... 996,193 674,100 79,840G 1,750,133
Deferred investment tax
credits, being
amortized over life
of related
property............ 94,946 32,600 0 127,546
Deferred credits....... 94,058 0 0 94,058
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
99
<PAGE> 106
<TABLE>
<CAPTION>
COLUMBIA
ENERGY PRO FORMA
NISOURCE INC. GROUP ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Accrued liability for
post retirement
benefits.............. 157,517 96,400 0 253,917
Deferred revenue......... 0 300,800 0 300,800
Other.................... 64,908 225,000 57,851J 347,759
Customers advances and
contributions in aid
to construction....... 140,562 20,800 0 161,362
---------- ---------- ----------- -----------
Total Other........... 1,548,184 1,349,700 137,691 3,035,575
---------- ---------- ----------- -----------
$6,835,229 $7,095,900 $ 4,089,116 $18,020,245
========== ========== =========== ===========
</TABLE>
- -------------------------
A. To reflect the purchase price allocation to goodwill. The adjustments
include the step-up applied to Columbia common shares, estimated merger
costs NiSource will incur and costs relating to certain compensation
obligations, net of tax benefits.
<TABLE>
<S> <C>
Weighted average consideration per share to be paid for
Columbia common shares.................................... $ 72.12
Columbia common shares (in thousands):
Outstanding at January 31, 2000 excluding shares held by
NiSource.................................................. 81,125
-----------
Fair value of consideration................................. $ 5,850,832
Less: Columbia's net equity at December 31, 1999............ (2,064,000)
NiSource ownership of Columbia shares....................... 9,962
-----------
Consideration in excess of Columbia book value.............. 3,796,794
Reserves for contractual obligations........................ 57,851
Value of nonqualified stock options cashed out.............. 116,010
Estimated merger costs...................................... 50,000
Estimated tax benefits associated with non-qualified stock
options and contractual obligations....................... (53,576)
-----------
Allocable purchase price.................................... 3,967,079
Less: step-up allocated to non-utility properties, net of
deferred taxes............................................ (131,600)
-----------
Amount allocated to goodwill................................ $ 3,835,479
===========
</TABLE>
The weighted average consideration of $72.12 per share assumes that holders
of 23% of Columbia's shares will elect to receive $74 per share in New
NiSource common shares and that the holders of 77% of the shares will
receive $70 in cash and $2.60 stated amount of SAILS. The accompanying
allocation anticipates that the fair market value of Columbia's regulated
operations reasonably approximates the underlying book value of these
operations. This allocation is based on analyses that are not yet
completed. Accordingly, the final value of the purchase price and its
allocation may differ, perhaps significantly, from the amounts included in
the accompanying pro forma statements.
B. To adjust historical interest expense to reflect the cost of the increased
indebtedness from completion of the merger. The pro forma statements assume
an 8.2% per annum interest rate on the indebtedness incurred to complete the
merger. A one-eighth percent variance from the assumed rate increases or
decreases pre-tax interest expense by approximately $5.8 million.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
100
<PAGE> 107
C. To recognize the estimated pro forma income tax effect of additional
interest expense reflected in adjustment (B).
D. To eliminate Columbia and NiSource common shareholders' equity and related
common shares.
E. To reflect the issuance of 83.7 million New NiSource common shares at $16.50
per share and the exchange of 124.1 million NiSource common shares for New
NiSource common shares.
F. To adjust historical depreciation, depletion and amortization expense for
the preliminary purchase price allocation reflected in these pro forma
financial statements. The amount allocated to goodwill reflects amortization
on a straight-line basis over a 40-year period. The amount allocated to net
other plant reflects amortization on a straight-line basis over a 20-year
period. This adjustment also reflects the deferred income tax impact of
amortizing the amount allocated to net other plant.
G. To reflect the allocation of purchase price to non-utility businesses
including $211.4 million to net other plant and related deferred income
taxes of $79.8 million.
H. To reflect the issuance of $4.5 billion of short-term acquisition debt.
I. To reflect the reclassification of acquisition debt from short-term to
long-term consistent with NiSource's intent and ability to refinance such
amounts.
J. To reflect a liability of $57.9 million related to estimated contractual
obligations associated with employment agreements and other estimated
employee benefit arrangements of Columbia including related tax benefits.
The adjustment also reflects the estimated tax benefits associated with the
cash out of Columbia stock options.
K. To reflect the cancellation of NiSource treasury shares.
L. To eliminate NiSource investments in Columbia common shares at December 31,
1999 and allocate to purchase price.
M. To reflect the fair value purchase price consideration of SAILS, units
consisting of zero coupon debt securities and forward equity contracts.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
101
<PAGE> 108
DIRECTORS AND MANAGEMENT OF NEW NISOURCE
FOLLOWING THE MERGER
DIRECTORS
After the merger, the board of directors of New NiSource will consist of
the persons who serve as directors of NiSource immediately before the merger.
The directors will be divided into three classes, each consisting of one-third,
or as close to one-third as possible, of the total number of directors. The
initial directors of New NiSource will serve until the first, second or third
annual meeting of shareholders after the merger, depending on their respective
classes as directors of NiSource. Directors elected after completion of the
merger will be elected for three-year terms. Information about the current
directors of NiSource is set forth under "Additional Matters for the NiSource
Annual Meeting -- Election of NiSource Directors" on page 149.
EXECUTIVE OFFICERS
After the merger, Gary L. Neale will serve as Chairman of the Board,
President and Chief Executive Officer of New NiSource. The New NiSource board
will elect the remaining officers of New NiSource after the merger.
SECURITY OWNERSHIP OF NISOURCE,
COLUMBIA AND NEW NISOURCE
The following tables contain information about the beneficial ownership of
NiSource and Columbia common shares, as of January 31, 2000 on an actual basis
and a pro forma basis as if the merger had been completed at that date, of:
- Each person known to us to own beneficially more than 5% of the
outstanding NiSource or Columbia common shares;
- Each director of NiSource and of Columbia;
- The chief executive officer and four other most highly compensated
executive officers of NiSource and of Columbia; and
- All directors and executive officers of NiSource as a group and all
directors and executive officers of Columbia as a group.
With respect to each person listed in the NiSource table, the pro forma
beneficial ownership of New NiSource common shares includes only shares issuable
in exchange for the NiSource common shares held by that person. With respect to
each person listed in the Columbia table, the pro forma beneficial ownership of
New NiSource common shares includes only shares issuable in exchange for the
Columbia common shares held by that person and assumes that he or she elects to
receive, and receives, the stock consideration for each Columbia share and that
stock options held by that person are settled for cash as provided in the merger
agreement. Unless otherwise indicated, to our knowledge, each person listed
below has sole voting and investment power with respect to all shares shown as
beneficially owned by him or her.
SECURITY OWNERSHIP OF NEW NISOURCE
102
<PAGE> 109
The following tables assume that (1) the holders of 30% of the Columbia
common shares elect to receive the stock consideration in the merger and (2) the
stock consideration will consist of 4.4848 New NiSource common shares for each
Columbia common share, which is the maximum number of New NiSource common shares
that will be issued per Columbia share in the merger. Under these assumptions,
there would be approximately 233.3 million New NiSource common shares
outstanding after the merger is completed. The actual number of New NiSource
common shares that will be outstanding after the merger will depend on the
shareholders' elections, the actual exchange ratio and the structure of the
merger.
NISOURCE
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP (1)(2)
---------------------------
NISOURCE
AND
NAME OF BENEFICIAL OWNER NEW NISOURCE
------------------------ ---------------------------
<S> <C>
Steven C. Beering...................................... 8,992
Arthur J. Decio........................................ 8,500
Dennis E. Foster....................................... 3,000
James T. Morris........................................ 45,435
Gary L. Neale.......................................... 677,069
Ian M. Rolland......................................... 19,384
John W. Thompson....................................... 7,202
Robert J. Welsh........................................ 12,000
Carolyn Y. Woo......................................... 2,000
Roger A. Young......................................... 156,567
Stephen P. Adik........................................ 343,945
Patrick J. Mulchay..................................... 269,666
Jeffrey W. Yundt....................................... 282,189
Joseph L. Turner....................................... 151,417
All directors and executive officers (23 persons) as a
group(3)............................................. 2,674,004
</TABLE>
- -------------------------
(1) The number of shares owned includes shares held in NiSource's automatic
dividend reinvestment and share purchase plan, shares held in NiSource's tax
deferred savings plan and restricted shares awarded under NiSource's
long-term incentive plans and nonemployee director stock incentive plan,
where applicable.
(2) The totals include shares for which the following executive officers have a
right to acquire beneficial ownership, within 60 days after January 31,
2000, by exercising stock options granted under the long-term incentive
plans: Gary L. Neale -- 310,000 shares; Stephen P. Adik -- 160,000 shares;
Patrick J. Mulchay -- 150,000 shares; Jeffrey W. Yundt -- 160,000 shares;
Joseph L. Turner -- 71,000 shares; and all executive officers as a
group -- 1,334,826 shares.
SECURITY OWNERSHIP OF NEW NISOURCE
103
<PAGE> 110
(3) The percentage of NiSource common shares owned by all directors and officers
as a group is approximately 2.28% of the common shares outstanding as of
January 31, 2000, which would represent approximately 1.15% of the New
NiSource common shares expected to be outstanding upon completion of the
merger, based on the assumptions described above. To NiSource's knowledge
none of its directors and executive officers is the beneficial owner of as
much as 1% of the outstanding NiSource common shares at that date.
COLUMBIA
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP**
--------------------------
NAME OF BENEFICIAL OWNER COLUMBIA* NEW NISOURCE*
------------------------ --------- -------------
<S> <C> <C>
J.P. Morgan & Co. Incorporated***
60 Wall Street, New York, NY 10260.................. 9,071,599 40,684,307
R. F. Albosta......................................... 20,000 6,727
R. H. Beeby........................................... 20,000(1) 6,727
W. K. Cadman.......................................... 20,000 6,727
J. P. Heffernan....................................... 26,000 33,636
K. L. Hendricks....................................... 11,000 49,323
M. T. Hopkins......................................... 26,806 37,250
J. B. Johnston........................................ 10,534 47,243
M. Jozoff............................................. 21,000 11,212
W. E. Lavery.......................................... 20,150 7,400
G. E. Mayo............................................ 20,000 15,670
D. E. Olesen.......................................... 20,055 6,974
O. G. Richard III..................................... 378,795(2) 263,684
C. G. Abbott.......................................... 65,104(3) 19,150
P. A. Hammick......................................... 11,123(7) 552
M. W. O'Donnell....................................... 82,097(4) 40,197
P. M. Schwolsky....................................... 72,422(5) 18,334
All executive officers and directors
(16 persons) as a group............................. 827,086(6) 485,632
</TABLE>
- -------------------------
* To Columbia's knowledge, none of its directors and executive officers,
individually or as a group, is the beneficial owner of as much as 1% of the
outstanding Columbia common shares at January 31, 2000, or would become the
beneficial owner of 1% of New NiSource common shares.
** Includes an allocation of shares held by the Trustee of the Employees'
Thrift Plan of Columbia Energy Group for the executive officers as of
December 31, 1999. Also includes currently exercisable options and those
exercisable within 60 days. All holdings of the directors, except Messrs.
Johnston and Richard and Ms. Hendricks, include beneficial ownership of
18,500 shares, which may be acquired pursuant to
SECURITY OWNERSHIP OF NEW NISOURCE
104
<PAGE> 111
stock options awarded under Columbia's Long-Term Incentive Plan (LTIP). The
holdings of Mr. Johnston and Ms. Hendricks include beneficial ownership of
9,500 shares, which may be acquired pursuant to stock options awarded under
the LTIP.
*** Information for this beneficial owner was obtained solely from the owner's
Schedule 13G dated December 31, 1999 and filed with the Securities Exchange
Commission. As to the nature of the beneficial ownership, the Schedule 13G
reported: shared voting power: 88,425 shares; sole voting power: 6,749,355
shares; shared investment power: 111,025 shares; and sole investment power:
8,959,774 shares. The 9,071,599 shares shown as beneficially owned represent
11.2% of the Columbia common shares outstanding at January 31, 2000 and, on
the assumptions described above, would represent 17.4% of the New NiSource
common shares.
(1) Includes beneficial ownership of 1,500 shares with shared investment power.
(2) Includes beneficial ownership of 320,000 shares which may be acquired
pursuant to stock options awarded under the LTIP.
(3) Includes beneficial ownership of 1,000 shares with shared voting and
investment power, includes beneficial ownership of 60,834 shares which may
be acquired pursuant to stock options awarded under the LTIP.
(4) Includes beneficial ownership of 73,134 shares which may be acquired
pursuant to stock options awarded under the LTIP.
(5) Includes beneficial ownership of 68,334 shares which may be acquired
pursuant to stock options awarded under the LTIP.
(6) Includes beneficial ownership of 718,802 shares which may be acquired
pursuant to stock options awarded under the LTIP.
(7) Includes beneficial ownership of 11,000 shares which may be acquired
pursuant to stock options awarded under the LTIP.
SECURITY OWNERSHIP OF NEW NISOURCE
105
<PAGE> 112
DESCRIPTION OF THE SAILS
The terms of the SAILS will include those stated in the purchase contract
agreement between New NiSource and the purchase contract agent. The following
description of the SAILS and the descriptions under the subcaptions "Description
of the Purchase Contracts" and "Certain Provisions of the Purchase Contracts,
the Purchase Contract Agreement and the Pledge Agreement" summarize the material
terms of the SAILS, the purchase contract agreement, the purchase contracts and
the pledge agreement but do not purport to be complete. For additional
information, you should refer to the forms of the purchase contract agreement,
the SAILS and the pledge agreement, including definitions of certain terms used
in them, that are filed as exhibits to the registration statement that includes
this joint proxy statement/prospectus.
The description of the SAILS focuses on the New NiSource SAILS that will be
issued under the holding company structure, since we believe that we will use
that structure to complete the merger. If we complete the merger using the
alternative structure, the SAILS and the related debentures will be issued by
NiSource rather than New NiSource. In that case, each SAILS will include a share
purchase contract under which the number of common shares to be received would
be based on $3.02 rather than $2.60. The stated amount of each debenture also
would be $3.02. In all other ways, NiSource SAILS would work the same as New
NiSource SAILS.
The following discussion refers to a number of agents and other parties
involved in the issuance and administration of the SAILS. These are the purchase
contract agent, the collateral agent, the securities intermediary, the indenture
trustee and the remarketing agent, whose roles are described in the following
discussion.
SAILS
Each SAILS is a unit initially consisting of:
- a purchase contract requiring you to purchase on the purchase contract
settlement date, for $2.60, a number of newly issued common shares equal
to the settlement rate described under "-- Description of the Purchase
Contracts -- Settlement Rate" on page 110; and
- a debenture with a stated amount of $2.60.
The purchase contract settlement date will be the fourth anniversary of
completion of the merger, or earlier if there is a change in control of New
NiSource before that date. You may not settle the purchase contracts prior to
the purchase contract settlement date. Your debenture will be pledged under the
pledge agreement to secure your obligation to purchase common shares under the
purchase contract.
DESCRIPTION OF THE SAILS
106
<PAGE> 113
CREATING TREASURY SAILS
You may create Treasury SAILS by substituting for the debentures that are a
part of the SAILS particular U.S. Treasury securities having an aggregate
principal amount at maturity equal to the aggregate principal amount of those
debentures.
Each Treasury SAILS is a unit that consists of:
- a purchase contract which is identical to the purchase contract included
in a SAILS; and
- an undivided beneficial ownership interest in related Treasury securities
having a principal amount at maturity equal to $2.60 maturing on the
business day preceding the purchase contract settlement date.
The Treasury securities will be pledged under the pledge agreement to secure
your obligation to purchase common shares under the purchase contract.
You may create Treasury SAILS at any time on or prior to the seventh
business day preceding the purchase contract settlement date. You may create
Treasury SAILS only in integral multiples of 5,000.
To create 5,000 Treasury SAILS, you must:
- deposit with the securities intermediary Treasury securities having a
principal amount at maturity of $13,000 (equal to 5,000 times $2.60); and
- transfer to the purchase contract agent 5,000 SAILS, accompanied by a
notice stating that you have deposited Treasury securities with the
securities intermediary and requesting that the collateral agent release
the related $13,000 principal amount of debentures.
Upon receiving instructions from the purchase contract agent and confirmation of
receipt of the Treasury securities by the securities intermediary, the
collateral agent will cause the securities intermediary to release the related
$13,000 principal amount of debentures from the pledge of the pledge agreement
and deliver them to the purchase contract agent, on your behalf, free and clear
of any security interest relating to the SAILS. The purchase contract agent then
will:
- cancel the 5,000 SAILS;
- transfer the related $13,000 principal amount of debentures to your
account; and
- deliver 5,000 Treasury SAILS to your account.
The Treasury securities will be substituted for the debentures and will be
pledged to the collateral agent to secure your obligation to purchase common
shares under the related purchase contracts. Your debentures thereafter will
trade separately from the Treasury SAILS.
If we complete the merger using the alternative merger structure, you may
create Treasury SAILS only in integral multiples of 50,000, by depositing
Treasury securities having a principal amount at maturity of $151,000 (equal to
50,000 times $3.02).
DESCRIPTION OF THE SAILS
107
<PAGE> 114
If you create Treasury SAILS or recreate SAILS, as discussed below, you
will be responsible for any fees or expenses payable to the collateral agent in
connection with substitutions of collateral. See "-- Certain Provisions of the
Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement -- Miscellaneous" on page 119.
RECREATING SAILS
If you create Treasury SAILS, you may recreate SAILS by:
- depositing with the securities intermediary $13,000 principal amount of
debentures; and
- transferring to the purchase contract agent 5,000 Treasury SAILS,
accompanied by a notice stating that you have deposited $13,000 principal
amount of debentures with the securities intermediary and requesting the
collateral agent to release the related Treasury securities.
Upon receiving instructions from the purchase contract agent and confirmation of
receipt of the debentures by the securities intermediary, the collateral agent
will cause the securities intermediary to release the related Treasury
securities from the pledge and deliver them to the purchase contract agent, on
your behalf, free and clear of any security interest relating to the SAILS. The
purchase contract agent then will:
- cancel the 5,000 Treasury SAILS;
- transfer the related Treasury securities to your account; and
- deliver 5,000 SAILS to your account.
If you hold Treasury SAILS, you may recreate SAILS at any time until the
seventh business day before the purchase contract settlement date.
NO CURRENT PAYMENTS
You will not receive interest or other payments with respect to your SAILS
or Treasury SAILS, or the share purchase contracts, debentures or Treasury
securities comprising them, before the settlement date. However, original issue
discount will accrue on the related debentures or Treasury securities. This
amount represents taxable income to you, even though you receive no cash. See
"United States Federal Income Tax Consequences -- Material United States Federal
Income Tax Consequences of Owning SAILS" on page 91.
LISTING OF THE SAILS
We have applied to list the SAILS on the New York Stock Exchange and are
obligated to use our best efforts to obtain approval of our application and to
maintain the listing after the merger.
PURCHASE BY ISSUER
The combined company may purchase from time to time any of the SAILS that
are then outstanding by tender, in the open market or by private agreement.
DESCRIPTION OF THE SAILS
108
<PAGE> 115
BOOK-ENTRY ISSUANCE
The Depository Trust Company will act as securities depositary for the
SAILS. The SAILS will be issued only as fully-registered securities registered
in the name of Cede & Co. or another nominee of the depositary.
One or more fully-registered global security certificates, representing the
total aggregate number of SAILS, will be issued, and will be deposited with the
depositary. The certificates will bear a legend regarding restrictions on their
exchange and registration of transfer.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability of a beneficial owner to transfer beneficial interests in
the SAILS as long as the SAILS are represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, as a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with it. The depositary also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
The depositary is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the depositary system is also
available to others, such as securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a direct or indirect
custodial relationship with a direct participant. The rules applicable to the
depositary and its participants are on file with the Securities and Exchange
Commission.
No transfer of global security certificates in whole or in part may be
registered in the name of any person other than the depositary or a nominee of
the depositary unless the depositary has notified New NiSource that it is
unwilling or unable to continue as depositary for such global security
certificates or has ceased to be qualified to act as depositary under the
purchase contract agreement. All SAILS and portions of SAILS represented by
global security certificates will be registered in such names as the depositary
may direct.
As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or the nominee, as the case may be,
will be considered the sole owner and holder of the global security certificates
and all SAILS represented by them for all purposes under the SAILS, the purchase
contracts, the purchase contract agreement and the pledge agreement. Except in
the limited circumstances referred to in the paragraph above, owners of
beneficial interests in global security certificates will not be entitled to
have such global security certificates or the underlying SAILS registered in
their names, will not receive or be entitled to receive physical delivery of
certificates, and will not be considered to be owners or holders of such global
security certificates or any underlying SAILS for any purpose under the SAILS,
purchase contracts and principal
DESCRIPTION OF THE SAILS
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<PAGE> 116
agreements. All payments on the SAILS represented by the global security
certificates and all deliveries of pledged debentures, pledged Treasury
securities or common shares to the holders will be made to the depositary or its
nominee, as the case may be, as the holder.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests through
institutions that have accounts with the depositary. Ownership of beneficial
interests in global security certificates will be shown only on, and the
transfer of those ownership interests will be effected only through, records
maintained by the depositary or its nominee (with respect to participants'
interests) or any such participant (with respect to interests of persons held by
such participants on their behalf). Procedures for settlement of purchase
contracts on the purchase contract settlement date will be governed by
arrangements among the depositary, participants and persons that may hold
beneficial interests through participants designed to permit such settlement
without the physical movement of certificates. Payments, transfers, deliveries,
exchanges and other matters relating to beneficial interests in global security
certificates may be subject to various policies and procedures adopted by the
depositary from time to time. The depositary has advised New NiSource that it
will not take any action permitted to be taken by a holder of SAILS unless
directed to do so by one or more participants to whose account the beneficial
interests in the global security certificates are credited and only for the
number of SAILS as to which such participant or participants has or have given
such direction. None of New NiSource, the purchase contract agent or any of
their agents will have any responsibility or liability for any aspect of the
depositary's or any participant's records relating to, or for payment made on
account of, beneficial interests in global security certificates, or for
maintaining, supervising or reviewing any of the depositary's records or any
participant's records relating to such beneficial ownership interests.
This information concerning the depositary and its book-entry system has
been obtained from sources that we believe to be reliable, but we do not take
responsibility for its accuracy.
The foregoing discussion of book-entry issuance applies to Treasury SAILS
as well as SAILS. Similar provisions also apply with respect to the debentures.
See "-- Description of the Debentures -- Book-Entry Issuance" on page 124.
DESCRIPTION OF THE PURCHASE CONTRACTS
SETTLEMENT RATE
Each purchase contract obligates you to purchase, and New NiSource to sell,
on the purchase contract settlement date, a number of newly issued common shares
equal to the rate described below, for $2.60 in cash, unless the purchase
contract terminates prior to that date. The number of common shares issuable
upon settlement of each purchase contract on the purchase contract settlement
date will be determined as follows:
- If the Applicable Market Value (as defined below) is equal to or greater
than $23.10, then each purchase contract will be settled for 0.1126 New
NiSource common shares.
- If the Applicable Market Value is less than $23.10 but greater than
$16.50, then each purchase contract will be settled for a number of New
NiSource common
DESCRIPTION OF THE SAILS
110
<PAGE> 117
shares determined by dividing the stated amount of $2.60 by the
Applicable Market Value (carried to four decimal places).
- If the Applicable Market Value is less than or equal to $16.50, then each
purchase contract will be settled for 0.1576 New NiSource common shares.
The settlement rate is subject to adjustment as described under
"-- Anti-Dilution Adjustments" on page 114.
The following table shows the number of common shares issuable upon
settlement of each purchase contract at various assumed Applicable Market
Values. The table assumes that the settlement rate has not been adjusted as
described under "-- Anti-Dilution Adjustments" below. There can be no assurance
that the actual Applicable Market Value will be within the range set forth
below. You would receive the following number of New NiSource common shares on
the purchase contract settlement date:
<TABLE>
<CAPTION>
NUMBER OF COMMON MARKET VALUE OF COMMON
APPLICABLE MARKET VALUE SHARES PER SAILS SHARES PER SAILS
- ----------------------- ---------------- ----------------------
<S> <C> <C>
$25.00 0.1126 $2.82
$23.10 0.1126 $2.60
$20.00 0.1300 $2.60
$16.50 0.1576 $2.60
$15.00 0.1576 $2.36
</TABLE>
As the foregoing table illustrates, if, on the purchase contract settlement
date, the Applicable Market Value is greater than or equal to $23.10, New
NiSource will be obligated to deliver 0.1126 common shares for each purchase
contract. If, on the purchase contract settlement date, the Applicable Market
Value is less than $23.10 but greater than $16.50, New NiSource will deliver a
number of common shares equal to $2.60 divided by the Applicable Market Value,
and New NiSource would retain the benefit of all appreciation in the market
value of the common shares above $16.50. If, on the purchase contract settlement
date, the Applicable Market Value is less than or equal to $16.50, New NiSource
will deliver 0.1576 common shares for each purchase contract, regardless of the
market price of the common shares. As a result, you would realize the entire
loss attributable to a lower market value of the common shares.
If we complete the merger using the alternative merger structure, the
SAILS, including the related debentures will be issued by NiSource rather than
by New NiSource, the stated amount of the SAILS will be $3.02 rather than $2.60,
and the settlement rate will be based on a formula under which you will receive
0.1830 of a NiSource common share if the Applicable Market Value during the same
measurement period is $16.50 or less and 0.1307 of a NiSource common share if
the Applicable Market Value is equal to or more than $23.10. For prices between
$16.50 and $23.10, the number of common shares will be $3.02 divided by the
Applicable Market Value.
The Applicable Market Value means the average of the closing prices of the
common shares on each of the 30 consecutive trading days ending on the third
trading day preceding the purchase contract settlement date.
DESCRIPTION OF THE SAILS
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<PAGE> 118
The closing price of the common shares, on any date of determination,
means:
- the closing sale price (or, if no closing sale price is reported, the
last reported sale price) of the common shares on the New York Stock
Exchange on that date or, if the common shares are not listed for trading
on the New York Stock Exchange on that date, as reported in the composite
transactions for the principal United States securities exchange on which
the common shares are so listed, or if the common shares are not so
listed on a United States national or regional securities exchange, as
reported by The Nasdaq Stock Market; or
- if prices for the common shares are not so reported, the last quoted bid
price for the common shares in the over-the-counter market as reported by
the National Quotation Bureau or a similar organization or, if such bid
price is not available, the average of the mid-point of the last bid and
ask prices of the common shares on such date from at least three
nationally recognized independent investment banking firms retained for
this purpose by New NiSource.
Trading day means a day on which the common shares:
- are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business; and
- have traded at least once on the national or regional securities exchange
or association or over-the-counter market that is the primary market for
the trading of the common shares.
We will not issue fractional common shares upon settlement of a purchase
contract. If you surrender for settlement at one time more than one purchase
contract, then the number of common shares issuable pursuant to such purchase
contracts will be computed based upon the aggregate number of purchase contracts
surrendered. In lieu of a fractional share, you will receive an amount of cash
equal to such fraction multiplied by the Applicable Market Value.
Prior to the settlement of a purchase contract, the common shares
underlying the purchase contract will not be outstanding, and you will not have
any voting rights, dividend rights or other rights or privileges of a
shareholder.
By accepting a SAILS or a Treasury SAILS, you will be deemed to have:
- agreed to be bound by, and to have consented to, the terms and provisions
of the related purchase contract;
- irrevocably authorized the purchase contract agent as your
attorney-in-fact to enter into and perform the purchase contract and the
pledge agreement on your behalf; and
- agreed to be bound by the pledge arrangement contained in the pledge
agreement.
In addition, you will be deemed to have agreed to treat yourself as the
owner of the related debentures, or the Treasury securities, as the case may be,
in each case for U.S. federal, state and local income and franchise tax
purposes.
DESCRIPTION OF THE SAILS
112
<PAGE> 119
NOTICE TO SETTLE WITH CASH
Although you are not obligated to do so, you may choose to settle the
purchase contracts included in your SAILS or Treasury SAILS by delivering $2.60
per New NiSource SAILS (or $3.02 per NiSource SAILS) in cash before the purchase
contract settlement date. To do so, you must notify the purchase contract agent
by delivering a "Notice to Settle by Separate Cash" on or prior to 5:00 p.m.,
New York City time:
- on the seventh business day preceding the purchase contract settlement
date, in the case of SAILS; and
- on the second business day preceding the purchase contract settlement
date, in the case of Treasury SAILS.
If you wish to settle with cash, you must deliver to the securities
intermediary cash payment in the form of a certified or cashier's check or by
wire transfer, in each case in immediately available funds payable to or upon
the order of the securities intermediary. You must deliver your payment prior to
11:00 a.m., New York City time, on the fifth business day prior to the purchase
contract settlement date in the case of SAILS, or on the business day prior to
the purchase contract settlement date in the case of Treasury SAILS. Upon
receipt of the cash payment, the related debentures or Treasury securities will
be released from the pledge arrangement and transferred to the purchase contract
agent for distribution to your account. If your payment is not received by that
time and date, then the related debentures will be remarketed or New NiSource
will receive at maturity the principal amount of the related Treasury securities
in full satisfaction of your obligations under the related purchase contract.
The securities intermediary will invest any cash received in permitted
investments. The securities intermediary will pay the aggregate settlement price
to New NiSource on the purchase contract settlement date. If you settled with
cash, any earnings from such investments will be distributed to the purchase
contract agent for payment to you.
SETTLEMENT THROUGH REMARKETING
If you do not notify the purchase contract agent, on or prior to the
seventh business day preceding the purchase contract settlement date, of your
intention to settle the purchase contracts included in your SAILS or Treasury
SAILS with cash in the manner described under "-- Notice to Settle with Cash,"
or if you so notify the purchase contract agent but fail to deliver cash when
required, your debentures will be sold to the public on the third business day
preceding the purchase contract settlement date in a remarketing process. Under
the remarketing agreement, Credit Suisse First Boston, the remarketing agent,
will use commercially reasonable efforts to remarket your debentures, together
with all other debentures pledged under the pledge agreement for SAILS holders
not choosing to settle in cash on such date at a price of 100.50% of the total
principal amount of such debentures. The proceeds from the remarketing of the
debentures that are a part of the SAILS will automatically be applied to satisfy
in full the holders' obligations to purchase common shares under the related
purchase contracts. Any remaining proceeds will be used to pay the remarketing
agent's fees and, to the extent not so used, will be paid to New NiSource. See
"-- Description of the Debentures -- Interest Rate Established by Remarketing"
starting on page 120.
DESCRIPTION OF THE SAILS
113
<PAGE> 120
If the remarketing agent cannot remarket the debentures, New NiSource will
be entitled to exercise its rights as a secured party and, subject to applicable
law, retain the debentures pledged as collateral under the pledge agreement or
sell them in one or more private sales. In either case, your obligation under
the purchase contracts would be satisfied in full. New NiSource will cause a
notice of failed remarketing to be published no later than the business day
preceding the purchase contract settlement date in a daily newspaper in the
English language of general circulation in New York City, which is expected to
be The Wall Street Journal.
As long as the SAILS or the debentures are held in book-entry form through
The Depository Trust Company, New NiSource will request, not later than 15 nor
more than 30 calendar days prior to the remarketing date, that DTC notify its
participants holding SAILS or debentures of the remarketing and of the
procedures to be followed for settlement with separate cash. If the remarketing
is due to a change in control, New NiSource will make that request eight
business days prior to the remarketing date. See "-- Book-Entry Issuance" above.
Prior to the remarketing date, New NiSource will prepare and have in effect a
registration statement, if required, covering the debentures to be remarketed,
in a form approved by the remarketing agent.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the settlement rate will be adjusted if New
NiSource:
- pays dividends in, or makes other distributions of, its common shares to
its common shareholders;
- issues to its common shareholders rights, options or warrants entitling
them, for a period of up to 45 days, to subscribe for or purchase common
shares at less then current market price;
- subdivides, splits or combines its common shares;
- distributes evidences of indebtedness or assets to its common
shareholders; or
- distributes cash to its common shareholders, or pays cash and other
consideration pursuant to a self-tender or exchange offer for its common
shares, in an amount that, together with (a) other all-cash distributions
made within the preceding 12 months and (b) the aggregate of any cash
plus the fair market value of consideration payable in respect of any
self-tender or exchange offer within the preceding 12 months, exceeds 15%
of the combined company's total market capitalization on the date of the
distribution.
In the case of a reclassification, consolidation, merger, sale or transfer
of assets or other transaction in which the common shares are converted into the
right to receive other securities, cash or property, each purchase contract then
outstanding would automatically become, without your consent, a contract to
purchase the same kind and amount of securities, cash and other property that
you would have received in that transaction if you had settled the purchase
contracts included in your SAILS immediately prior to the transaction. However,
if the transaction involves a change in control of New NiSource, the settlement
date will be accelerated. See "-- Acceleration of Settlement Date Upon Change in
Control" on page 115.
DESCRIPTION OF THE SAILS
114
<PAGE> 121
If New NiSource makes a distribution of property to its shareholders that
would be taxable as a dividend for United States federal income tax purposes
(for example, distributions of evidences of indebtedness or assets of New
NiSource, but generally not share dividends or rights to subscribe for capital
shares) and, pursuant to the settlement rate adjustment provisions of the
purchase contract agreement, the settlement rate is increased, you may be deemed
to have received a taxable dividend. See "United States Federal Income Tax
Consequences -- Material United States Federal Income Tax Consequences of Owning
SAILS" on page 91.
In addition, New NiSource may make any increases in the settlement rate
that it deems advisable in order to avoid or diminish any income tax to holders
of its capital shares resulting from any dividend or distribution of capital
shares, or rights to acquire capital shares, or from any event treated as such
for income tax purposes or for any other reason.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. The settlement rate will not be adjusted unless the
adjustment would require an increase or decrease of at least 1%. However, any
adjustments not required to be made by reason of the foregoing will be carried
forward and taken into account in any subsequent adjustment.
Whenever the settlement rate is adjusted, New NiSource must deliver to the
purchase contract agent a certificate setting forth the settlement rate,
detailing the calculation of the new rate and describing the facts upon which
the adjustment is based. In addition, New NiSource must notify you of the
adjustment within ten business days of any event requiring the adjustment and
describe in reasonable detail the method by which the settlement rate was
adjusted.
If the settlement rate is adjusted as a result of an event described above,
an adjustment also will be made to the Applicable Market Value solely to
determine which settlement rate will apply.
ACCELERATION OF SETTLEMENT DATE UPON CHANGE IN CONTROL
If there is a change in control of New NiSource before the fourth
anniversary of the completion of the merger, the settlement date will be
accelerated. In that case, the settlement date will be eight business days after
the date on which the change of control becomes effective. For this purpose, a
change in control of New NiSource means (1) the acquisition of more than 50% of
the outstanding voting power of all capital stock of New NiSource entitled to
vote generally in elections of directors, (2) a merger or consolidation of New
NiSource after which the holders of the outstanding voting power of New NiSource
immediately prior to the transaction will hold less than 50% of the voting power
of the surviving entity (3) a transfer of more than 50% of the voting power of
New NiSource to an entity of which New NiSource owns less than 50%, (4) a sale
of all or substantially all of New NiSource's assets, (5) the acquisition by an
unaffiliated person of the contractual ability to elect a majority of the board
of directors or (6) the actual vote by an unaffiliated person of shares entitled
to vote generally in the election of directors sufficient to elect a majority of
the board of directors.
DESCRIPTION OF THE SAILS
115
<PAGE> 122
TERMINATION
The purchase contracts, the obligations and rights of New NiSource under
the purchase contracts, and your obligations and rights under the purchase
contracts, including your obligation and right to purchase and receive common
shares, will terminate immediately and automatically upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to New
NiSource or upon the occurrence of an event of default under the indenture with
respect to the debentures. Upon termination, the collateral agent will release
the related debentures or Treasury securities from the pledge arrangement and
cause the securities intermediary to transfer such debentures or Treasury
securities to the purchase contract agent for distribution to the holders of
SAILS and Treasury SAILS. If New NiSource becomes the subject of a case under
the Bankruptcy Code, the release and distribution of the debentures or Treasury
securities may be delayed. The delay may occur as a result of the automatic stay
under the Bankruptcy Code and may continue until such automatic stay has been
lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The debentures that are a part of your SAILS or, if you have created
Treasury SAILS, the Treasury securities that are a part of your Treasury SAILS
will be pledged to the collateral agent for the benefit of New NiSource under
the pledge agreement to secure your obligation to purchase common shares under
the related purchase contracts. Your rights with respect to the securities
pledged under the pledge agreement will be subject to New NiSource's security
interest. You will not be permitted to withdraw the pledged securities from the
pledge arrangement except:
(1) to substitute Treasury securities for the related debentures;
(2) to substitute debentures for the related Treasury securities; or
(3) upon settlement for separate cash or termination of the purchase
contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, you will be entitled, through the purchase
contract agent and the collateral agent, to your share of all of the rights and
preferences of the debentures and Treasury securities pledged in respect of the
related purchase contracts. New NiSource will have no interest in the pledged
securities, other than its security interest, until the settlement date. On the
settlement date, New NiSource will be entitled to receive the principal of the
maturing Treasury securities and the full amount of the proceeds from the
remarketing of debentures.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACTS, THE PURCHASE CONTRACT AGREEMENT
AND THE PLEDGE AGREEMENT
GENERAL
The purchase contracts will be settled, and transfers of the SAILS will be
registrable, at the office of the purchase contract agent in the Borough of
Manhattan, New York City. No service charge will be payable for any registration
of transfer or exchange of the SAILS, except for any tax or other governmental
charge that may be imposed in connection with any such transfer.
DESCRIPTION OF THE SAILS
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<PAGE> 123
MODIFICATION
Subject to limited exceptions, New NiSource and the purchase contract agent
may not modify the terms of the purchase contracts or the purchase contract
agreement without the consent of the holders of a majority of the outstanding
purchase contracts. The following modifications require the unanimous consent of
all SAILS and Treasury SAILS holders whose related purchase contracts are
affected:
- to change any payment date;
- to change the amount or type of collateral required to be pledged to
secure a holder's obligations under the purchase contract (except for the
right to substitute Treasury securities for debentures or debentures for
Treasury securities), or otherwise adversely affect the holder's rights
in or to the collateral;
- to impair the right to institute suit for the enforcement of a purchase
contract;
- to reduce the number of common shares purchasable under a purchase
contract, increase the purchase price on settlement, change the
settlement date or otherwise adversely affect the holder's rights under a
purchase contract; or
- to change the requirements for modifying the purchase contracts or the
purchase contract agreement.
However, if any modification would adversely affect only the SAILS or only the
Treasury SAILS, there is no requirement to obtain the consent of the class of
holders that is not affected.
Subject to limited exceptions, New NiSource, the collateral agent, the
securities intermediary and the purchase contract agent may not modify the terms
of the pledge agreement without the consent of the holders of a majority of the
outstanding purchase contracts. The following modifications require the
unanimous consent of all SAILS and Treasury SAILS holders adversely affected by
such modification:
- to change the amount or type of collateral underlying a SAILS (except to
substitute Treasury securities for debentures or debentures for Treasury
securities) or otherwise adversely affect the holder's rights in or to
the collateral;
- to effect any other action that, under the purchase contract agreement,
would require the unanimous consent of all affected SAILS or Treasury
SAILS holders; or
- to change the requirements for modifying the pledge agreement.
However, if any modification would adversely affect only the SAILS or only the
Treasury SAILS, there is no requirement to obtain the consent of the class of
holders that is not affected.
NO CONSENT TO ASSUMPTION
By accepting SAILS or Treasury SAILS, you will be deemed to have expressly
withheld any consent to the assumption (also known as affirmance) of the related
purchase contracts by New NiSource, or its receiver, liquidator or trustee if
New NiSource becomes
DESCRIPTION OF THE SAILS
117
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the subject of a case under the Bankruptcy Code or other similar state or
federal law providing for reorganization or liquidation.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
New NiSource will not merge or consolidate with any other company or sell
or transfer all or substantially all of its properties and assets to any other
entity or group of affiliated entities, unless:
- either New NiSource is the continuing corporation or the successor
corporation is organized in the United States and expressly assumes all
of the obligations of New NiSource under the purchase contracts, the
purchase contract agreement and the pledge agreement; and
- New NiSource or that successor corporation is not, immediately after such
merger, consolidation, sale or transfer, in default under the purchase
contract agreement or the pledge agreement.
GOVERNING LAW
The purchase contracts, the purchase contract agreement and the pledge
agreement will be governed by and construed in accordance with the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT, COLLATERAL AGENT AND
SECURITIES INTERMEDIARY
Purchase Contract Agent. The Chase Manhattan Bank will be the purchase
contract agent. The purchase contract agent will act as the agent for the
holders of the SAILS and Treasury SAILS from time to time. The purchase contract
agent will not be obligated to take any discretionary action in connection with
a default under the terms of the SAILS and Treasury SAILS or the purchase
contract agreement.
The purchase contract agreement contains provisions limiting the liability
of the purchase contract agent. The purchase contract agreement also contains
provisions under which the purchase contract agent may resign or be replaced.
Resignation or replacement would be effective upon the acceptance of appointment
by a successor.
Collateral Agent. Bank One, National Association, will be the collateral
agent. The collateral agent will act solely as the agent of New NiSource and
will not assume any obligation or relationship of agency or trust for or with
any of the holders of the SAILS and Treasury SAILS except for the obligations
owed by a pledgee of property to the owner of that property under the pledge
agreement and applicable law.
The pledge agreement contains provisions limiting the liability of the
collateral agent. The pledge agreement also contains provisions under which the
collateral agent may resign or be replaced. The collateral agent's resignation
or replacement would not be effective until the acceptance of appointment by a
successor.
Securities Intermediary. Bank One, National Association, will be the
securities intermediary. All property delivered to the securities intermediary
pursuant to the purchase contract agreement or the pledge agreement will be
credited to a collateral account established by the securities intermediary for
the collateral agent. The securities intermediary will treat the purchase
contract agent as entitled to exercise all rights relating
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to any financial asset credited to such collateral account, subject to the
provisions of the pledge agreement.
MISCELLANEOUS
New NiSource will pay all fees and expenses related to (1) the retention of
the collateral agent and the securities intermediary and (2) the enforcement by
the purchase contract agent of the rights of the holders of the SAILS and
Treasury SAILS. However, if you elect to create Treasury SAILS or recreate
SAILS, you will be responsible for any fees or expenses payable in connection
with substituting Treasury securities for debentures, or debentures for Treasury
securities, as well as for any commissions, fees or other expenses incurred in
acquiring the securities to be substituted. New NiSource will not be responsible
for any of those fees or expenses.
DESCRIPTION OF THE DEBENTURES
GENERAL
The debentures form a part of the SAILS and, after the creation of Treasury
SAILS, will trade separately from the SAILS. The debentures will also trade
separately after the purchase contract settlement date. The debentures will be
issued under an indenture to be entered into between New NiSource and The Chase
Manhattan Bank, as indenture trustee, as it will be supplemented by a first
supplemental indenture. For additional information, you should refer to the
forms of indenture and supplemental indenture that are filed as exhibits to the
registration statement.
The debentures will be unsecured senior obligations of New NiSource. The
debentures will not be subject to a sinking fund provision and will not be
redeemable by New NiSource prior to maturity. The entire principal amount of the
debentures will mature and become due and payable, together with any accrued and
unpaid interest, on the sixth anniversary of the completion of the merger.
The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transactions involving New NiSource that may adversely affect such
holders.
INTEREST AFTER THE SETTLEMENT DATE
The debentures will not bear interest before the purchase contract
settlement date, which is the fourth anniversary of the completion of the
merger. The debentures will bear interest at the rate described below from that
date until principal is paid. Interest will be payable quarterly in arrears to
the persons in whose names the debentures are registered, subject to certain
exceptions, at the close of business on the business day preceding the interest
payment date. If the debentures do not remain in book-entry only form, the
record dates will be 15 business days prior to each interest payment date.
The interest rate on the debentures after the purchase contract settlement
date will be established on the third business day preceding the purchase
contract settlement date. The interest rate will be equal to the annual rate
that results from the remarketing of the debentures as described below under
"-- Interest Rate Established by Remarketing." However, if a failed remarketing
occurs, the interest rate will be equal to (1) the Two-
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Year Benchmark Treasury Rate plus (2) a spread ranging from 300 to 700 basis
points, based on the credit ratings of the debentures at that time.
The amount of interest payable on the debentures for any period will be
computed (1) for any full quarterly period on the basis of a 360-day year of
twelve 30-day months and (2) for any period shorter than a full quarterly
period, on the basis of a 30-day month and, for any period less than a month, on
the basis of the actual number of days elapsed per 30-day month. If any date on
which interest is payable on the debentures is not a business day, then payment
of the interest payable on that date will be made on the next day that is a
business day and without any interest or other payment in respect of the delay.
However, if the business day is in the next calendar year, then the payment will
be made on the preceding business day.
INTEREST RATE ESTABLISHED BY REMARKETING
The interest rate on the debentures will be established on the third
business day preceding the purchase contract settlement date, which will be the
remarketing date. On the remarketing date, Credit Suisse First Boston, as
remarketing agent, will use commercially reasonable efforts to remarket the
debentures at a price equal to 100.50% of the aggregate stated amount of the
debentures. The following discussion summarizes the procedures to be followed in
connection with a remarketing of the debentures.
As long as the SAILS or the debentures are evidenced by one or more global
security certificates deposited with The Depository Trust Company, New NiSource
will request, not later than 15 nor more than 30 calendar days prior to the
remarketing date, that The Depository Trust Company notify its participants
holding debentures or SAILS of the remarketing. However, if the remarketing is
due to a change in control, New NiSource will make that request eight business
days prior to the remarketing date.
The remarketing agent will treat as tendered for purchase in the
remarketing:
- debentures that are part of the SAILS, if the holders do not give notice
to the purchase contract agent, prior to 5:00 p.m., New York City time,
on the seventh business day before the purchase contract settlement date,
of their intention to settle their related purchase contracts for cash;
and
- debentures that are part of the SAILS, if the holders give notice of
their intention to settle their related purchase contracts for cash but
fail to deliver cash to the securities intermediary prior to 11:00 a.m.,
New York City time, on the fifth business day before the purchase
contract settlement date.
Debentures that are not part of the SAILS will not be eligible to be remarketed.
If no debentures are tendered for purchase in the remarketing, the interest
rate will be the rate determined by the remarketing agent, in its sole
discretion, as the rate that would have been established had a remarketing been
held on the remarketing date.
If the remarketing agent determines that it will be able to remarket all
the debentures tendered for purchase at a price of 100.50% of the aggregate
stated amount of such debentures prior to 4:00 p.m., New York City time, on the
remarketing date, the remarketing agent will determine the interest rate, which
will be the rate, rounded to the nearest one-thousandth (0.001) of one percent,
per annum that the remarketing agent
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determines, in its sole judgment, to be the lowest rate per year that will
enable it to remarket all the debentures tendered for purchase at that price.
If, by 4:00 p.m., New York City time, on the remarketing date, the
remarketing agent is unable to remarket all the debentures tendered for
purchase, the remarketing agent will advise The Depository Trust Company, the
indenture trustee and New NiSource that the remarketing has failed. If a failed
remarketing occurs, the interest rate will be equal to (1) the Two-Year
Benchmark Treasury Rate plus (2) a spread ranging from 300 to 700 basis points
based on the credit ratings of the debentures at that time.
"Two-Year Benchmark Treasury Rate" means the bid side rate displayed at
10:00 a.m., New York City time, on the third business day preceding the purchase
contract settlement date for direct obligations of the United States having a
maturity comparable to the remaining term to maturity of the debentures, as
agreed upon by New NiSource and the remarketing agent. This rate will be as
displayed in the Telerate system or, if the Telerate system is no longer
available or, in the opinion of the remarketing agent after consultation with
New NiSource, no longer an appropriate system from which to obtain the rate,
some other nationally recognized quotation system that, in the opinion of the
remarketing agent after consultation with New NiSource, is appropriate. If this
rate is not so displayed, the Two-Year Benchmark Treasury Rate will be
calculated by the remarketing agent as the yield to maturity for direct
obligations of the United States having a maturity comparable to the remaining
term to maturity of the debentures, expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis, and
computed by taking the arithmetic mean of the secondary market bid rates, as of
10:30 a.m., New York City time, on the third business day preceding the purchase
contract settlement date of three leading United States government securities
dealers selected by the remarketing agent after consultation with New NiSource.
These dealers may include the remarketing agent or an affiliate.
By approximately 4:30 p.m., New York City time, on the remarketing date, so
long as there has not been a failed remarketing, the remarketing agent will
advise:
- The Depository Trust Company, the indenture trustee and New NiSource of
the interest rate determined in the remarketing and the number of
debentures sold in the remarketing;
- each person purchasing debentures in the remarketing of the interest rate
and the number of debentures such person is to purchase; and
- each such purchaser of the need to give instructions to its Depository
Trust Company participant to pay the purchase price on the purchase
contract settlement date in same-day funds against delivery of the
debentures purchased through the facilities of The Depository Trust
Company.
In accordance with The Depository Trust Company's normal procedures, on the
purchase contract settlement date, the transactions described above with respect
to each debenture tendered for purchase and sold in the remarketing will be
executed through The Depository Trust Company, and the accounts of the
appropriate Depository Trust Company participants will be debited and credited
and the debentures delivered by book entry as necessary to effect purchases and
sales of the debentures. The Depository Trust Company will make payment in
accordance with its normal procedures.
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The remarketing agent is not obligated to purchase any debentures that
would otherwise remain unsold in the remarketing. Neither New NiSource nor the
remarketing agent will be obligated to provide funds to make payment upon tender
of debentures for remarketing.
New NiSource will receive all of the proceeds from the remarketing and will
be liable for any and all fees, costs and expenses incurred in connection with
the remarketing.
Remarketing Agent. The remarketing agent will be Credit Suisse First Boston
Corporation. Under a remarketing agreement with Credit Suisse First Boston, the
remarketing agent will act as the exclusive remarketing agent and will use
commercially reasonable efforts to remarket securities tendered for purchase in
the remarketing at a price of 100.50% of their principal amount.
The remarketing agreement provides that the remarketing agent will incur no
liability to New NiSource, the collateral agent, the securities intermediary,
the purchase contract agent, the indenture trustee or any holder of the SAILS or
the debentures in its individual capacity or as remarketing agent for any action
or failure to act in connection with a remarketing or otherwise, pursuant to the
terms of the remarketing agreement, the indenture, the first supplemental
indenture, the pledge agreement or the purchase contract agreement, except as a
result of gross negligence or willful misconduct on the remarketing agent's
part. The remarketing agent will receive customary fees consistent with the
amount of debentures remarketed.
New NiSource has agreed to indemnify the remarketing agent against certain
liabilities, including liabilities under the federal securities laws, arising
out of or in connection with its duties under the remarketing agreement.
The remarketing agreement also provides that the remarketing agent may
resign and be discharged from its duties and obligations under the remarketing
agreement. However, no resignation will become effective unless a nationally
recognized broker-dealer has been appointed by New NiSource as successor
remarketing agent and the successor remarketing agent has entered into a
remarketing agreement with New NiSource. In that case, New NiSource will use
reasonable efforts to appoint a successor remarketing agent and enter into a
remarketing agreement with that person as soon as reasonably practicable.
EVENTS OF DEFAULT
Under the indenture, each of the following events constitutes an event of
default with respect to the debentures:
- New NiSource defaults in the payment of any interest that becomes due and
payable and the default continues for 30 days;
- New NiSource defaults in the payment of principal or any premium that
becomes due and the default continues for three business days;
- New NiSource defaults in the performance of or breaches any covenant or
warranty in the indenture for 60 days after written notice from the
indenture trustee or from the holders of at least 25% of the outstanding
debentures;
- New NiSource fails to pay indebtedness for borrowed money within any
applicable grace period after final maturity or such indebtedness is
accelerated by the holders
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thereof because of a default; the total amount of such unpaid or accelerated
indebtedness exceeds $5 million; and such default shall not have been cured or
such acceleration rescinded within a 60 day period; and
- certain events of bankruptcy, insolvency or reorganization.
If an event of default occurs with respect to the debentures, the indenture
trustee or the holders of one-third of the outstanding principal amount of the
debentures may declare the principal of the debentures immediately due and
payable, and the indenture trustee may seek other remedies against New NiSource.
Generally, the indenture trustee will represent the holders of the debentures in
pursuing remedies against New NiSource; the indenture limits the circumstances
in which holders of the debentures may seek remedies independent of the
indenture trustee. The holders of a majority in principal amount of the
debentures may direct the indenture trustee in exercising remedies on behalf of
the holders, if the directions are lawful, do not unduly prejudice the other
holders and do not expose the indenture trustee to personal liability.
MODIFICATION OF THE INDENTURE
Subject to limited exceptions, New NiSource and the indenture trustee may
not modify or amend the indenture without the consent of the holders of a
majority of the outstanding debentures. Any modification or amendment of the
indenture that would have any of the following effects will require the consent
of the holder of each debenture:
- to change the stated maturity of the principal or the terms and
conditions for payment of principal, premium or interest on any
debenture;
- to reduce the percentage in principal amount of the outstanding
debentures or reduce any quorum or voting requirements;
- to change any obligation of New NiSource to maintain an office or agency
in the place of payment; and
- to change the provisions of the indenture relating to modification of the
indenture except to increase the percentage of holders whose consent is
required or to further limit modification.
CONSOLIDATION, MERGER AND SALE
Under the indenture, New NiSource may not consolidate or merge with any
other corporation or convey, transfer or lease substantially all of its assets
or properties to any entity unless:
- that corporation or entity is organized under the laws of the United
States or any state,
- that corporation or entity assumes New NiSource's obligations under the
indenture,
- after giving effect to the transaction, New NiSource is not in default
under the indenture and
- New NiSource delivers to the indenture trustee an officer's certificate
and an opinion of counsel to the effect that the transaction complies
with the indenture.
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LIMITATION ON LIENS
Subject to certain exceptions, as long as any debentures remain
outstanding, neither New NiSource nor any subsidiary of New NiSource other than
a utility may issue, assume or guarantee any debt secured by any mortgage,
security interest, pledge, lien or other encumbrance on any property owned by
New NiSource or that subsidiary, except intercompany indebtedness, without
securing the debentures equally or ratably with the new debt, unless the total
amount of all of the secured debt would not exceed 5% of the consolidated net
tangible assets of New NiSource.
PAYMENT OF FEES AND EXPENSES
New NiSource will pay all fees and expenses related to (1) the offering of
the debentures, (2) the retention of the indenture trustee and (3) the
enforcement by the indenture trustee of the rights of the holders of the
debentures.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
Prior to default, the indenture trustee will perform only those duties
specifically set forth in the indenture. After default, the indenture trustee
will exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. The indenture trustee is under no
obligation to exercise any of the powers vested in it by the indenture at the
request of any holder of debentures unless the holder offers the indenture
trustee reasonable indemnity against the costs, expenses and liability that the
indenture trustee might incur in exercising those powers. The indenture trustee
is not required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if it reasonably believes
that it may not receive repayment or adequate indemnity.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of New York.
BOOK-ENTRY ISSUANCE
The debentures will initially be issued in the form of one or more global
certificates deposited with The Depository Trust Company. The debentures will be
issued in accordance with the procedures set forth under "Description of the
SAILS -- Book-Entry Issuance" on page 109. Under limited circumstances, the
debentures may be issued in certificated form in exchange for the global
certificates. If the debentures are issued in certificated form, the debentures
will be in denominations of $2.60 (or $3.02 in the case of NiSource debentures)
and integral multiples of that amount and may be transferred or exchanged at the
offices of the trustee. Payments on debentures issued as global certificates
will be made to DTC, a successor depositary or, if no depositary is used, to a
paying agent for the debentures. If the debentures are issued in certificated
form, principal and -- after the purchase contract settlement date -- interest
will be payable, the transfer of the debentures will be registrable and the
debentures will be exchangeable for debentures of other denominations of a like
aggregate principal amount at the trust office or agency of the indenture
trustee in New York City. However, at the option of New NiSource, payment of
interest may be made by check.
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DESCRIPTION OF NEW NISOURCE CAPITAL STOCK
FOLLOWING THE MERGER
GENERAL
The authorized capital stock of New NiSource consists of 420,000,000
shares, $0.01 par value, of which 400,000,000 are common shares and 20,000,000
are preferred shares. The board of directors has designated 4,000,000 of the
preferred shares as Series A Junior Participating Preferred Shares. These shares
are reserved for issuance under New NiSource's Shareholder Rights Plan,
described in "Comparison of Rights of Shareholders of New NiSource, NiSource and
Columbia -- Shareholder Rights Plan" on page 136.
COMMON SHARES
New NiSource expects that, upon completion of the merger, its common shares
will be listed on the New York Stock Exchange, and may also be listed on the
Chicago Stock Exchange and the Pacific Exchange, under the symbol "NI". Common
shareholders may receive dividends when declared by the board of directors.
Dividends may be paid in cash, stock or other form. In certain cases, common
shareholders may not receive dividends until obligations to any preferred
shareholders have been satisfied. All common shares will be fully paid and
non-assessable. Each common share is entitled to one vote in the election of
directors and other matters. Common shareholders are not entitled to preemptive
or cumulative voting rights. Common shareholders will be notified of any
shareholders' meeting according to applicable law. If New NiSource liquidates,
dissolves or winds-up its business, either voluntarily or involuntarily, common
shareholders will share equally in the assets remaining after creditors and
preferred shareholders are paid.
PREFERRED SHARES
The board of directors can, without approval of shareholders, issue one or
more series of preferred shares. The board can also determine the number of
shares of each series and the rights, preferences and limitations of each
series, including any dividend rights, voting rights, conversion rights,
redemption rights and liquidation preferences, the number of shares constituting
each series and the terms and conditions of issue. In some cases, the issuance
of preferred shares could delay a change in control of New NiSource and make it
harder to remove incumbent management. Under certain circumstances, preferred
shares could also restrict dividend payments to holders of common shares. The
preferred shares will, if issued, be fully paid and non-assessable.
NEW YORK STOCK EXCHANGE LISTING; DELISTING OF NISOURCE AND COLUMBIA SHARES
It is a condition to the merger that the New NiSource common shares
issuable in the merger be approved for listing on the New York Stock Exchange.
If we complete the merger, the existing NiSource common shares and the Columbia
common shares will cease to be listed on the New York Stock Exchange.
FEDERAL SECURITIES LAW CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS
Unless you are an affiliate of NiSource or Columbia, the New NiSource
common shares you receive in the merger will be freely transferable. Generally,
an affiliate is
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someone who is controlled by or who controls NiSource or Columbia. Affiliates
generally include certain officers, directors and principal shareholders of a
company. The Securities Act of 1933 and Rules 144 and 145 under that act
restrict the ability of affiliates of NiSource and Columbia to resell their New
NiSource common shares. The merger agreement requires us to use our reasonable
best efforts to obtain written agreements from our affiliates that they will not
sell or otherwise dispose of their shares in violation of the Securities Act.
STOCK INCENTIVE PLANS
Upon completion of the merger, NiSource will merge into New NiSource, and
New NiSource will assume NiSource's Long-Term Incentive Plan, its Nonemployee
Director Stock Incentive Plan and its Nonemployee Director Restricted Stock Unit
Plan as those plans are then in effect. If the NiSource shareholders approve the
amended and restated Long-Term Incentive Plan at the NiSource shareholders
meeting, the NiSource amended and restated Long-Term Incentive Plan will become
the New NiSource amended and restated Long-Term Incentive Plan and will relate
to shares of New NiSource after the merger. See "Additional Matters for
NiSource's Annual Meeting -- Election of NiSource Directors -- Compensation of
NiSource Directors" and "-- Approval of NiSource's Amended and Restated
Long-Term Incentive Plan" on pages 152 and 164. In effect, therefore, adoption
or approval of the merger agreement includes approval of these stock
compensation plans.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF NEW NISOURCE, NISOURCE AND COLUMBIA
Columbia shareholders who receive New NiSource common shares in the merger
will become New NiSource shareholders upon completion of the merger. Columbia
shareholders who continue to hold New NiSource SAILS received as part of the
cash and SAILS consideration will become New NiSource shareholders on the
settlement date of the purchase contracts included in the SAILS. New NiSource's
certificate of incorporation and bylaws will be similar to Columbia's
certificate of incorporation and bylaws and, like Columbia, New NiSource will be
governed by the Delaware General Corporation Law. Accordingly, the rights of New
NiSource shareholders will be similar to the current rights of Columbia
shareholders. UNLESS THE SUMMARY BELOW INDICATES OTHERWISE, THE SUMMARY OF THE
RIGHTS OF NEW NISOURCE SHAREHOLDERS ALSO DESCRIBES THE RIGHTS OF COLUMBIA
SHAREHOLDERS.
As for NiSource shareholders, if we complete the merger using the holding
company structure, your rights as shareholders will change when you become New
NiSource shareholders, because NiSource is governed by the Indiana Business
Corporation Law and NiSource's articles of incorporation and bylaws.
If we complete the merger using the alternative merger structure, NiSource
shareholders will continue to hold their NiSource shares, and their rights as
shareholders will not change. The rights of the shareholders of NiSource after
the alternative merger will continue to be governed by NiSource's articles of
incorporation and bylaws and the Indiana Business Corporation Law. Under the
alternative merger structure, Columbia shareholders will receive NiSource SAILS
as part of the cash and SAILS consideration. As holders of NiSource SAILS, they
will become NiSource shareholders on the settlement date of the purchase
contracts included in the SAILS. For this reason,
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126
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Columbia shareholders should read the description of current NiSource
shareholders' rights to understand what their rights would be under the
alternative merger structure.
The following discussion summarizes the material differences between the
rights of New NiSource shareholders and the rights of NiSource shareholders. It
also summarizes the relatively few differences between the rights of
shareholders of Columbia and of New NiSource. This summary is qualified in its
entirety by reference to the relevant provisions of the Delaware General
Corporation Law, Columbia's certificate of incorporation and bylaws, New
NiSource's certificate of incorporation and bylaws, and the Indiana Business
Corporation Law and NiSource's articles of incorporation and bylaws.
VOTING RIGHTS
New NiSource/Columbia. New NiSource shareholders are entitled to one vote
for each common share they hold of record upon any matter submitted to a vote of
New NiSource shareholders, including the election of directors. The Delaware
General Corporation Law provides that directors are elected by a plurality of
the votes cast by the shares entitled to vote on the election of directors. New
NiSource preferred shareholders will have no voting rights except as provided in
the resolutions of the board of directors establishing the particular series of
preferred shares or as provided by Delaware law. The resolutions establishing
the Series A Junior Participating Preferred Shares provide that the holders of
such shares, when issued and outstanding, will be entitled to 100 votes per
share on all matters submitted to a vote of New NiSource shareholders, subject
to adjustments for share splits, share dividends and other events.
The voting rights of New NiSource shareholders will differ from the rights
of Columbia shareholders because Columbia shareholders are entitled to cumulate
their votes when electing directors. With cumulative voting, each Columbia
shareholder is entitled to a number of votes equal to the product of the number
of the holder's common shares multiplied by the number of directors seeking
election. A Columbia shareholder can cast all of his or her votes for one of the
directors running for election or may distribute them among any two or more of
the directors running for election. New NiSource shareholders will not be
entitled to cumulative voting.
NiSource. NiSource shareholders are entitled to one vote for each common
share they hold of record upon any matter submitted to a vote of NiSource
shareholders, including the election of directors. NiSource preferred
shareholders have no voting rights except as provided in the resolutions of the
board of directors establishing the particular series of preferred shares or as
provided by applicable state law. The Indiana Business Corporation Law provides
that directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
Shareholders do not have a right to cumulate their votes unless the articles of
incorporation so provide. NiSource's articles of incorporation make no such
provision.
NUMBER, VACANCY AND REMOVAL OF DIRECTORS
New NiSource/Columbia. The board of directors consists of between 9 and 12
directors. The board of directors fixes by resolution the exact number. The
directors are divided into three classes as equal in number as possible.
Directors hold office for three-year terms, and the term of one class of
directors expires each year. The majority of the directors, even if less than a
quorum, is entitled to fill any vacancies. A vacancy is filled for
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the remainder of the term and until the director's successor is elected and
qualified. The shareholders can remove any director only for cause. The
affirmative vote of the holders of at least 80% of the combined voting power of
all of the then-outstanding shares of stock entitled to vote generally, voting
together as a single class, is required to remove a director.
The size of the New NiSource board of directors differs from the size of
the Columbia board of directors, which is between 13 and 18 directors.
NiSource. The board of directors consists of 10 directors. The directors
are divided into three classes, and each class consists of one-third, or as
close to one-third as possible, of the total number of directors constituting
the board of directors. Directors hold office for three-year terms, and the term
of one class of directors expires each year. The majority of the directors, even
if less than a quorum, is entitled to fill any vacancy on the board of
directors. A vacancy is filled for the remainder of the term and until the
director's successor is elected and qualified. The shareholders or the directors
can remove a director for cause. Removal by vote of the shareholders may only be
considered at an annual shareholder meeting. The affirmative vote of two-thirds
of the shares entitled to vote for the election of directors must be obtained to
remove a director.
MEETINGS OF SHAREHOLDERS
New NiSource/Columbia. The bylaws provide that the annual shareholder
meeting will be held on the second Wednesday in April of each year or on such
other date as the board of directors determines. The shareholders have no right
to call a special meeting. A majority of the board of directors by resolution
may call a special meeting, except as otherwise required by law and subject to
the rights of the holders of any class or any series of preferred shares. New
NiSource must give notice of the annual and of all special meetings to each
shareholder entitled to vote at the meeting not less than 10 nor more than 60
days prior to the meeting. The notice must state the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called.
The date of the annual meeting of New NiSource shareholders differs from
the annual meeting date of Columbia shareholders, which is held on the third
Wednesday in May of each year or on such other date as the board of directors
determines.
NiSource. The bylaws provide that the annual shareholder meeting will be
held in each year on the second Wednesday in April or on such other date as the
board of directors determines. The chairman, the president or the board of
directors may call a special shareholder meeting for any purpose. The chairman
must call a special meeting at the request of shareholders holding at least 25%
of the shares entitled to vote on the business proposed to be transacted at the
meeting. Notices of shareholder meetings must state the date, time and place
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. NiSource must give notice to each shareholder entitled to
vote not less than 10 nor more than 60 days prior to the date of the meeting.
SHAREHOLDER ACTION WITHOUT A MEETING
New NiSource/Columbia. The bylaws prohibit shareholders from acting by
written consent.
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NiSource. The bylaws permit shareholders to take by unanimous written
consent any action that may be taken at a meeting. Such written consents must be
filed with the records of the meetings of shareholders.
SHAREHOLDER INSPECTION RIGHTS AND SHAREHOLDERS' LISTS
New NiSource/Columbia. The Delaware General Corporation Law provides that a
shareholders' list must be available for inspection by any shareholder entitled
to vote at the meeting, beginning ten business days before the date of the
meeting for which the list was prepared and continuing through the meeting, at
the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held. The corporation must make the
list available at the meeting, and any shareholder is entitled to inspect the
list at any time during ordinary business hours. A shareholder is entitled to
inspect and copy certain records of the corporation (including the shareholders'
list) during regular business hours of the corporation, if the shareholder
presents a written demand made under oath, stating a purpose for the inspection
reasonably related to that person's interest as a shareholder.
NiSource. The Indiana Business Corporation Law provides that a
shareholders' list must be available for inspection by any shareholder entitled
to vote at the meeting, beginning five business days before the date of the
meeting for which the list was prepared and continuing through the meeting, at
the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held. The corporation must make the
list available at the meeting, and any shareholder is entitled to inspect the
list at any time during the meeting or any adjournment. A shareholder is
entitled to inspect and copy certain records of the corporation (including the
shareholders' list) during regular business hours of the corporation, if the
shareholder gives the corporation at least five business days' written notice of
the shareholder's demand, the demand is made in good faith and for a proper
purpose, the shareholder describes the purpose and the records the shareholder
desires to inspect, and the records are directly connected with the
shareholder's purpose.
DIVIDENDS
New NiSource/Columbia. The Delaware General Corporation Law provides that,
subject to any restrictions in a corporation's certificate of incorporation, a
corporation may declare and pay dividends out of surplus or, if no surplus
exists, out of net profits for the fiscal year in which the dividend is declared
or the preceding fiscal year. The New NiSource board of directors may declare
dividends on the common shares subject to the preferential rights of the
preferred shareholders, if any. New NiSource's certificate of incorporation does
not otherwise restrict the payment of dividends. Delaware law also provides that
the directors of a corporation may not pay any dividends out of net profits if
depreciation in the value of the corporation's property, losses or another cause
has diminished the capital of the corporation to an amount less than the
aggregate amount of capital represented by the issued and outstanding stock of
all classes of shares having preferential rights upon a distribution of assets.
NiSource. The Indiana Business Corporation Law provides that a board of
directors may authorize and the corporation may make distributions to its
shareholders, except as restricted by the articles of incorporation and except
that a distribution may not be made
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if, after giving it effect: (1) the corporation would not be able to pay its
debts as they become due in the usual course of business; or (2) the
corporation's total assets would be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights that are superior to those
receiving the distribution. The board of directors may declare dividends on
NiSource common shares subject to the preferential rights of the preferred
shareholders, if any. NiSource's articles of incorporation do not otherwise
restrict the payment of dividends.
AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION
New NiSource/Columbia. Under the Delaware General Corporation Law,
amendments to a corporation's certificate of incorporation must be approved by
the board of directors, the affirmative vote of the holders of a majority of the
outstanding stock entitled to vote for the amendment and the affirmative vote of
the holders of a majority of the outstanding stock of each class entitled to
vote for the amendment, unless the certificate of incorporation requires a
greater vote. New NiSource's certificate of incorporation does not require a
greater vote. New NiSource's certificate of incorporation reserves in the board
of directors the right to amend, change or repeal any provision of the
certificate of incorporation in the manner Delaware law prescribes, provided
that the certificate of incorporation cannot be amended in any manner which
would materially change the rights of the holders of the Series A Junior
Participating 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 Junior Participating Preferred Shares.
NiSource. Under the Indiana Business Corporation Law, amendments to a
corporation's articles of incorporation must be approved by the board of
directors, the affirmative vote of the holders of a majority of the outstanding
stock entitled to vote for the amendment and the affirmative vote of the holders
of a majority of the outstanding stock of each class entitled to vote for the
amendment, unless the articles of incorporation require a greater vote.
NiSource's articles of incorporation require the affirmative vote of the holders
of not less than 75% of the outstanding shares to amend, change or repeal the
provisions related to directors, business combinations, indemnification and
amendment of the articles of incorporation. This 75% vote requirement, which is
greater than the majority vote requirement under the Indiana Business
Corporation Law, could give certain minority shareholders of NiSource, including
the members of the board of directors of NiSource in their capacity as
shareholders, a veto power over subsequent changes to provisions relating to
directors, business combinations, indemnification and amendment of the articles
of incorporation, ultimately making it more difficult to amend such provisions,
even if a majority of the NiSource shareholders favors such changes. The
articles of incorporation cannot be amended in any manner which would materially
change the rights of the holders of the Series A Junior Participating 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 Junior Participating
Preferred Shares.
AMENDMENTS TO BYLAWS
New NiSource/Columbia. New NiSource's certificate of incorporation reserves
in the board of directors the power to amend, change or repeal the bylaws,
subject to the rights of shareholders under the Delaware General Corporation
Law. The bylaws state that the
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directors or shareholders may amend or repeal the bylaws at any meeting of the
board of directors or the shareholders, provided that the notice of the meeting
included the proposed change. The affirmative vote of at least 80% of the total
number of authorized directors is required to alter or repeal the provisions
related to calling special shareholder meetings; shareholder actions without a
meeting; the size and classification of the board of directors; resignation,
removal and newly created positions and vacancies on the board of directors;
quorum for board action and the powers of the board to amend the bylaws and the
certificate of incorporation.
Columbia's bylaws permit the board of directors to amend, change or repeal
the bylaws in a national emergency. New NiSource's bylaws contain no such
provision.
NiSource. The affirmative vote of a majority of a quorum of the board of
directors at any directors' meeting is required to amend, change or repeal any
of the bylaws. The shareholders have no right to adopt or amend the bylaws.
LIABILITY OF DIRECTORS
New NiSource/Columbia. Delaware law allows a Delaware corporation to
include in its certificate of incorporation, and New NiSource's certificate of
incorporation contains, a provision eliminating the liability of a director for
monetary damages for breach of his or her fiduciary duties as a director, except
liability:
- for any breach of the director's duty of loyalty to New NiSource or its
shareholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, which deals
generally with unlawful payments of dividends, stock repurchases and
redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
NiSource. The Indiana Business Corporation Law provides that a director is
not liable for any acts or omissions unless the director has breached or failed
to perform his or her duties in compliance with the Indiana Business Corporation
Law and the director's breach or failure to act constitutes willful misconduct
or recklessness. The Indiana Business Corporation Law generally requires a
director to act in good faith with the care that a prudent person in a like
position would exercise under similar circumstances and in a manner that the
director reasonably believes to be in the best interests of the corporation.
INDEMNIFICATION
New NiSource/Columbia. The Delaware General Corporation Law permits a
corporation to indemnify any person who is a party or is threatened to be made a
party to any action, suit or proceeding brought or threatened by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving as such with respect to another corporation at
the request of the corporation, if:
- that person acted in good faith;
- in the case of conduct in his or her official capacity, that person
reasonably believed his or her conduct to be in the best interests of the
corporation, or in the case of all
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other conduct, that person reasonably believed his or her conduct was not
opposed to the best interests of the corporation; and
- with respect to any criminal action, that person had reasonable cause to
believe his or her conduct was lawful or had no reasonable cause to
believe his or her actions were unlawful.
A corporation must indemnify a 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, because he or she is or was a director or officer or is or
was serving at the request of the corporation as a director or officer of
another corporation or other enterprise, if the person has been wholly
successful in defense of the proceeding on the merits or otherwise. A
corporation may advance expenses, including attorneys' fees, to any director or
officer who is a party to a proceeding in advance of final disposition of the
proceeding if the director or officer furnishes the corporation a written
undertaking to repay the advance if it is ultimately determined that the
director did not meet the required standard of conduct. Amounts to be
indemnified include judgments, penalties, fines, settlements and reasonable
expenses that were actually incurred by the person. However, if the proceeding
was by or in the right of the corporation, the person will be indemnified only
against reasonable expenses incurred and indemnification will not be provided if
the individual is adjudged liable to the corporation in the proceeding.
New NiSource's certificate of incorporation permits New NiSource to
indemnify directors, officers, employees and agents of the corporation and its
wholly-owned subsidiaries to the fullest extent permitted by law.
NiSource. The Indiana Business Corporation Law permits a corporation to
indemnify officers, directors, employees and agents under substantially the same
circumstances as the Delaware General Corporation Law. NiSource's articles of
incorporation provide that NiSource will indemnify each officer and director to
the fullest extent permitted by law. The bylaws provide that NiSource will
indemnify each officer and director who is a party to litigation or
investigation in such officer or director's capacity as an officer or director
against expenses incurred 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
NiSource and, with respect to any criminal action, had no reasonable cause to
believe his or her conduct was unlawful.
CERTAIN BUSINESS COMBINATIONS AND SHARE PURCHASES
New NiSource/Columbia. New NiSource is subject to Section 203 of the
Delaware General Corporation Law. Section 203 prohibits a publicly held
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date that the stockholder
becomes an interested stockholder, unless: (1) prior to the date that the
stockholder becomes an interested stockholder, either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation; (2) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by persons who are both directors and officers and
employee stock plans in circumstances specified in Section 203;
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or (3) on or after the date that the stockholder becomes an interested
stockholder, the business combination is approved by the board and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock which is
not owned by the interested stockholder. A business combination includes a
merger, consolidation, asset sale, or other transaction resulting in a financial
benefit to the interested stockholder, and an interested stockholder is a person
who, together with affiliates and associates, owns, or within three years did
own, 15% or more of the corporation's voting stock.
The Delaware General Corporation Law does not contain provisions comparable
to those governing NiSource with respect to "control share acquisitions" or
"takeover offers" described below.
NiSource. The Indiana Business Corporation Law regulates "control share
acquisitions" of securities of, and "business combinations" with, certain
Indiana corporations. These statutory provisions apply to NiSource.
A "control share acquisition" occurs when a person acquires shares of a
corporation that, when added to any shares already owned by that person, entitle
that person to vote or direct the voting of shares of the corporation having
voting power in the election of directors within any of the following ranges:
(1) one-fifth or more but less than one-third of all voting power; (2) one-third
or more but less than a majority of all voting power; or (3) a majority or more
of all voting power. Shares acquired in a control share acquisition do not have
the same voting rights, including voting for directors, as all other shares of
the same class or series of the corporation. The affirmative vote of the holders
of a majority of all of the shares entitled to vote generally in the election of
directors, excluding shares held by the acquiring person, any officer of the
corporation or any employee of the corporation who is also a director of the
corporation, is necessary to grant the control shares the same voting rights.
The acquiring person may cause a special shareholders' meeting to be held to
consider whether the acquiring person can vote its shares. If no such request
for a special shareholders' meeting is made, the matter must be taken up at the
next special or annual shareholders' meeting of the corporation. If the
acquiring person fails to file a statement requesting a special shareholder
meeting or the remaining shareholders vote not to grant voting rights to the
acquiring person's shares, the corporation may redeem all of the acquiring
person's shares for fair value, if the corporation's articles or bylaws
authorize such a redemption. NiSource's bylaws authorize such a redemption. If
the shareholders grant the acquiring person voting rights and the acquiring
person acquires beneficial ownership of a majority of the shares of the
corporation entitled to vote on the election of directors, each shareholder who
has not voted in favor of granting the acquiring person such voting rights may
demand an appraisal and payment for his or her stock at fair value. Control
shares will cease to be control shares upon the transfer to another person,
unless that transfer also constitutes a control share acquisition. These
provisions apply to Indiana corporations that have one hundred or more
shareholders; their principal place of business, their principal office or
substantial assets within Indiana; and either more than 10% of its shareholders
resident in Indiana, more than 10% of its shares owned by Indiana residents, or
10,000 shareholders resident in Indiana, unless the articles of incorporation or
bylaws of the corporation provide that these restrictions do not apply. These
provisions apply to NiSource.
The Indiana Business Corporation Law regulates "business combinations"
involving Indiana corporations having a class of voting shares registered under
the Securities
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Exchange Act of 1934 and an "interested shareholder." An "interested
shareholder" is generally (1) a person who is the beneficial owner of 10% or
more of the voting power of the outstanding voting shares of the corporation; or
(2) an affiliate or associate of the corporation who, at any time within the
five-year period immediately preceding the date of the business combination, was
the beneficial owner of 10% or more of the voting power of the then outstanding
shares of the corporation. A "business combination" includes:
- a merger, sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets, outstanding stock or earning
power of the corporation, to or with an interested shareholder;
- any transaction resulting in the issuance or transfer to an interested
shareholder of any stock of the corporation or its subsidiaries having 5%
or more of the aggregate market value of all outstanding shares (except
pursuant to the exercise of certain warrants or rights to purchase
shares, or pro rata dividends or distributions);
- any proposal for liquidation or dissolution by the interested
shareholder;
- any transaction involving the corporation or its subsidiaries that would
result in increasing the proportionate share of the stock of the
corporation or its subsidiaries owned by an interested shareholder; and
- any receipt by an interested shareholder of the benefit (except
proportionately as a shareholder) of loans, guarantees or other financial
benefits.
The corporation may not engage in any business combination with an interested
shareholder for a period of five years following the date the shareholder became
an interested shareholder, unless prior to that date the board of directors
approved either the business combination or the transaction that resulted in the
shareholder becoming an interested shareholder. Subsequent to the expiration of
the five year prohibition, a combination will be allowed only if (1) the
combination is approved by a majority of the disinterested shareholders or (2)
the business combination meets a number of conditions relating to the amount and
type of consideration to be received by shareholders, other than the interested
shareholder.
A corporation may elect not to be governed by the business combination
provisions by amendment to its articles of incorporation. NiSource has not
adopted such an amendment. NiSource's articles contain provisions similar to
those of the Indiana Business Corporation Law, except that NiSource's articles
also include an exception for a business combination with an interested
shareholder approved by 80% of the outstanding voting shares.
These provisions of the Indiana Business Corporation Law and NiSource's
articles encourage a party seeking to control NiSource, in advance of the party
becoming an interested shareholder, to negotiate and reach an agreement with
NiSource's board of directors as to the terms of its proposed business
combination. Without such a prior agreement with NiSource's board of directors,
it could take over five years for a party who is an interested shareholder to
obtain approval of its proposed business combination unless the proposed
business combination is approved by the requisite 80% vote or satisfies the fair
price and procedural requirements. As a result of these restrictions on business
combinations with interested shareholders, takeovers that might be favored by a
majority of NiSource's shareholders may be impeded or prevented. On the other
hand, the negotiation of terms of a takeover transaction in advance is likely to
result in more
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favorable terms for all of the shareholders of NiSource than are likely to be
offered in takeovers initiated without advance negotiations.
The Indiana Business Corporation Law provides that a person shall not make
a takeover offer unless the following conditions are satisfied: (1) a statement
which consists of each document required to be filed with the Securities and
Exchange Commission is filed with the Indiana securities commissioner and
delivered to the president of the target company before making the takeover
offer; (2) a consent to service of process and the requisite filing fee
accompanies the statement filed with the Indiana securities commissioner; (3)
the takeover offer is made to all offerees holding the same class of equity
securities on substantially equivalent terms; (4) a hearing is held within 20
business days after the statement described above is filed; and (5) the Indiana
securities commissioner approves the takeover offer.
In addition, no offeror may acquire any equity security of any class of a
target company within two years following the conclusion of the takeover offer
with respect to that class, unless the holder of such equity security is
afforded, at the time of that acquisition, a reasonable opportunity to dispose
of such securities to the offeror upon substantially equivalent terms. A
"takeover offer" means an offer to acquire or an acquisition of any equity
security of a target company pursuant to a tender offer or request or invitation
for tenders if, after the acquisition, the offeror is directly or indirectly a
record or beneficial owner of more than ten percent of any class of the
outstanding equity securities of the target company. A "target company" means an
issuer of securities which is organized under the laws of Indiana, has its
principal place of business in Indiana and has substantial assets in Indiana.
DISSENTERS' OR APPRAISAL RIGHTS
New NiSource/Columbia. Under the Delaware General Corporation Law,
shareholders are entitled to receive payment of the fair value of their common
shares under certain circumstances if they dissent from mergers, statutory share
exchanges and other corporate transactions. Shareholders do not have appraisal
rights if the shares are listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders unless, by the terms of the transaction, they must accept
consideration other than the shares of the surviving corporation, shares of
stock which are listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system or held of
record by more than 2,000 shareholders and/or cash in lieu of fractional shares.
Shareholders who perfect their appraisal rights are entitled to receive cash
from the corporation equal to the value of their shares as established by
judicial appraisal. Shareholders do not have appraisal rights in the event of
the sale of all or substantially all of a corporation's assets or the adoption
of an amendment to its certificate unless the corporation's certificate of
incorporation grants appraisal rights. New NiSource's certificate does not grant
these appraisal rights.
NiSource. Under the Indiana Business Corporation Law, shareholders of
Indiana corporations have the right to object and obtain payment of the fair
value of their shares in certain business combination transactions and other
specified corporate actions. These rights are not available to holders of shares
if, on the record date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting at which the corporate action is to be acted
upon, such shares are traded on a registered United States securities
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exchange or on the Nasdaq National Market or a similar market. The Indiana
Business Corporation Law permits a corporation to grant appraisal rights in
connection with other corporate actions by inclusion of a provision in its
articles, bylaws or by a resolution of the board of directors, but NiSource's
articles of incorporation and bylaws do not include any such provisions.
SHAREHOLDER RIGHTS PLAN
New NiSource/Columbia. Each New NiSource common share includes one
preferred share purchase right. Each preferred share purchase right entitles its
holder to purchase one-hundredth (1/100) of a Series A Junior Participating
Preferred Share at a price of $60 per one-hundredth of a share, subject to
adjustment. The preferred share purchase rights will become exercisable if a
person or group acquires 25% or more of the voting power of New NiSource or
announces a tender or exchange offer following which the person or group would
hold 25% or more of New NiSource's voting power. If such an acquisition were
consummated, or if New NiSource were acquired by the person or group in a merger
or other business combination, then each preferred share purchase right would be
exercisable for that number of New NiSource common shares or the acquiring
company's common shares having a market value of two times the exercise price of
the preferred share purchase right. The preferred share purchase rights will
also become exercisable on or after the date on which the 25% threshold has been
triggered, if New NiSource is acquired in a merger or other business combination
in which New NiSource is not the survivor or in which New NiSource is the
survivor but its common shares are changed into or exchanged for securities of
another entity, cash or other property, or 50% or more of the assets or earning
power of New NiSource and its subsidiaries is sold. At that time, each preferred
share purchase right will become exercisable for that number of common shares of
the acquiring company having a market value of two times the exercise price of
the preferred share purchase right. The preferred share purchase rights will not
be exercisable in this instance if the person who acquired sufficient shares to
reach the 25% threshold acquired its shares under an offer at a price and on
terms which the board of directors determines is fair to shareholders and that
is in the best interests of New NiSource, provided that the price per common
share offered in the merger or other business combination is not less than the
price paid in the offer and the form of consideration offered in the merger or
other business combination is the same as that paid in the offer. New NiSource
may redeem the preferred share purchase rights at a price of $.01 per right
prior to the occurrence of an event that causes the preferred share purchase
rights to be exercisable for common shares. The preferred share purchase rights
will expire on March 12, 2010.
The rights of New NiSource shareholders differ from Columbia shareholders
as Columbia does not have a shareholder rights plan.
NiSource. NiSource has a shareholder rights plan substantially the same as
the New NiSource shareholder rights plan described above.
VOLUNTARY DISSOLUTION
New NiSource/Columbia. The Delaware General Corporation Law provides that
the dissolution of a corporation must be first approved by a majority of the
whole board of directors and then recommended to the shareholders and approved
by the holders of a
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majority of all votes entitled to be cast by each voting group entitled to vote
on the dissolution unless the certificate of incorporation requires a greater or
lesser vote. The New NiSource certificate does not modify the Delaware statute
concerning the voting requirements for dissolution.
NiSource. Under the Indiana Business Corporation Law, the board of
directors may propose to the shareholders the dissolution of the corporation.
The shareholders must approve the proposal by a majority of all the votes
entitled to be cast unless the articles of incorporation or the board of
directors require a greater vote or a vote by voting groups. NiSource's articles
of incorporation do not require a greater vote.
LIQUIDATION RIGHTS
New NiSource/Columbia. In the event of the liquidation, dissolution or
winding up of the affairs of New NiSource, the common shareholders will be
entitled to receive the remaining assets after the payment to the holders of any
outstanding preferred shares of the preferential amounts to which they are
entitled. Holders of the Series A Junior Participating Preferred Shares will be
entitled to a liquidation preference in the event of a voluntary liquidation,
dissolution or winding up of $6,000 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of the payment, provided that these holders shall be entitled to receive an
aggregate amount per share, subject to certain adjustments, equal to 100 times
the aggregate amount to be distributed per share to common shareholders or to
the holders of shares ranking on a parity with the Series A Junior Participating
Preferred Shares.
NiSource. Similar to New NiSource, in the event of any voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding
up of NiSource, the common shareholders will be entitled to receive the
remaining assets after the payment to the holders of any outstanding preferred
shares of the preferential amounts to which they are entitled. Holders of the
Series A Junior Participating Preferred Shares will be entitled to a liquidation
preference in the event of a voluntary liquidation, dissolution or winding up of
$6,000 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of the payment,
provided that these holders shall be entitled to receive an aggregate amount per
share, subject to certain adjustments, equal to 100 times the aggregate amount
to be distributed per share to common shareholders or to the holders of shares
ranking on a parity with the Series A Junior Participating Preferred Shares.
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DESCRIPTION OF NISOURCE
NiSource is an energy and utility-based holding company that provides
natural gas, electricity, water and related services for residential, commercial
and industrial uses through a number of regulated and non-regulated
subsidiaries. NiSource operates principally in Indiana, Texas, Louisiana,
Massachusetts, New Hampshire and Maine.
NISOURCE'S BUSINESS STRATEGY
NiSource's business strategy is to establish itself as the premier supplier
of natural gas, electricity and water in the Midwest and Northeast regions; and
to support its energy and utility businesses with strong gas storage,
transportation and distribution assets, innovative products and technologies,
and superior service.
NiSource believes that it can best serve its customers and grow shareholder
value by focusing on its core transmission and distribution businesses and the
upstream and downstream opportunities in related businesses.
RECENT ACQUISITIONS IN UTILITY AND ENERGY SERVICES BUSINESSES
NiSource intends to concentrate on the distribution of natural gas,
electricity and water and related products and services in its selected markets.
As the energy industry has deregulated, NiSource has expanded its product and
service offerings and distribution channels through a combination of internal
growth and strategic partnerships and acquisitions. In 1997, NiSource entered
the water utility business and expanded its non-regulated utility services
businesses by acquiring Indianapolis Water Company, SM&P Utility Resources, Inc.
and Miller Pipeline Corporation. NiSource completed its acquisition of Bay State
Gas Company and its subsidiaries, including Northern Utilities, Inc. and
EnergyUSA, Inc., in the first quarter of 1999, which further expanded NiSource's
natural gas utility business and utility services businesses. These acquisitions
strengthened NiSource's position as a regional supplier and distributor in the
energy and utility services business and diversified its offerings of
utility-related products and services. Also in 1999, NiSource acquired TPC
Corporation, now renamed EnergyUSA-TPC Corp., a natural gas asset management
company, and Market Hub Partners, L.P., the leading developer, owner and
operator of high deliverability salt cavern natural gas storage capacity, both
based in Houston, Texas.
TPC is a major natural gas asset portfolio manager. During 1999, TPC
assumed the operations of NiSource's subsidiary NESI Energy Marketing LLC, which
provided natural gas sales and management services to industrial and commercial
customers and engaged in natural gas marketing activities. During 1999, TPC and
NESI Energy Marketing had combined sales of over 300 million dekatherms.
Market Hub Partners is the largest developer, owner and operator of high
deliverability salt cavern natural gas storage capacity in North America. Market
Hub Partners' Moss Bluff and Egan facilities, located near Houston, Texas, and
in Acadia Parish, Louisiana, are strategically positioned at industry-recognized
market hubs near the convergence of major natural gas pipelines and serve as
aggregation points for natural gas collected along the Texas and Louisiana Gulf
Coast. The Moss Bluff and Egan facilities have bi-directional interconnects to
five pipelines, which form hub and spoke systems and enable Market Hub Partners
to provide its customers with storage and other services that
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allow better management of their variable gas load requirements. At December 31,
1999, Market Hub Partners' two facilities maintained approximately 22.7 billion
cubic feet of natural gas working storage capacity, 91.6% of which was leased
under storage contracts with major utilities, pipeline companies, local
distribution companies, natural gas producers and natural gas marketers. These
storage contracts provide an assured level of revenue regardless of usage by the
customer. Market Hub Partners supplements these revenues by providing a variety
of load management services. On February 17, 2000, drilling began at Tioga, a
third storage facility located in Tioga County, Pennsylvania. The new facility
is scheduled to be completed in mid-June 2002, and will represent the first
major high deliverability storage facility in the northeast U.S. gas market.
NATURAL GAS
NiSource distributes natural gas to approximately 751,000 customers in
northern Indiana through three wholly-owned utility subsidiaries: Northern
Indiana Public Service Company, Kokomo Gas and Fuel Company and Northern Indiana
Fuel and Light Company, Inc. Northern Indiana, Kokomo Gas and NIFL operate in 41
counties across northern Indiana, serving an area of about 13,900 square miles
with a population of approximately 2.4 million.
Bay State and Northern Utilities distribute natural gas to more than
320,000 customers in the areas of Brockton, Lawrence and Springfield,
Massachusetts, Lewiston and Portland, Maine and Portsmouth, New Hampshire. Bay
State and Northern Utilities operate in 12 counties in New England, serving an
area of about 2,100 square miles with a population of approximately 1.8 million.
Based on total throughput, NiSource is the tenth largest gas distribution
company in the United States. NiSource purchases its gas supply on the spot
market and under short-term and seasonal agreements with gas marketers and
producers. NiSource ensures an adequate supply of natural gas for its customers
through firm transportation agreements with all of the major interstate
pipelines serving its territories, an underground gas storage field, liquefied
natural gas plants, salt dome gas storage facilities and gas storage service
agreements. The gas asset portfolio management services of EnergyUSA-TPC and the
high deliverability storage assets of Market Hub Partners, each described above,
complement NiSource's distribution assets to provide a complete package of
services to its customers.
NiSource's wholly-owned subsidiary, Crossroads Pipeline Company, owns and
operates a 201-mile, 20 inch diameter interstate pipeline extending from the
northwestern corner of Indiana (near the border with Chicago) eastward into
Ohio. Another wholly-owned NiSource subsidiary, Granite State Transmission, owns
and operates a 105-mile, 6 to 12 inch diameter interstate pipeline that extends
from Haverhill, Massachusetts in a northeasterly direction to Maine. In addition
to the Crossroads and Granite State pipelines, NiSource owns a 19% share of
Portland Natural Gas Transmission System, a 292-mile pipeline built to bring
Canadian gas from New Brunswick into Maine, New Hampshire and Massachusetts in
order to increase the gas supply to the region.
DESCRIPTION OF NISOURCE
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ELECTRICITY
NiSource generates and distributes electricity to the public primarily
through its largest subsidiary, Northern Indiana. Through its Primary Energy,
Inc. subsidiary, NiSource also is active in developing unregulated power
projects. Northern Indiana provides electric service in 30 counties in the
northern part of Indiana, with an area of approximately 12,000 square miles and
a population of approximately 2.2 million. At December 31, 1999, Northern
Indiana provided approximately 426,000 customers with electricity. For the year
ended December 31, 1999, industrial NiSource customers accounted for
approximately 37% of NiSource's electric energy revenues, with residential
customers providing approximately 26%, commercial customers contributing
approximately 25% and wholesale customers accounting for approximately 12%.
Northern Indiana owns and operates four coal-fired electric generating
stations, two hydroelectric generating plants and four gas-fired combustion
turbine generating units, providing a total system net capability of 3,392
megawatts. Northern Indiana has no nuclear power plants. During the year ended
December 31, 1999, Northern Indiana generated approximately 90% of its electric
energy requirements and purchased the balance in the spot market.
Deregulation in the electric energy industry is giving utility customers
broader choices in meeting their electricity needs. NiSource believes that
industrial customers that consume large amounts of electricity, such as steel
and refining companies, are most likely to take advantage of these increased
choices. These customers historically have required a significant portion of
Northern Indiana's generating capacity and have negotiated relatively low rates
in return. Primary Energy works with industrial customers to develop cost-
effective, long-term sources of energy for energy-intensive facilities. In these
projects, Primary Energy offers its expertise in managing the engineering,
construction, operation and maintenance of "inside the fence" cogeneration
plants that process waste fuels or improve plant efficiency to provide
lower-cost electricity and steam. In addition, by helping large industrial
customers satisfy their demands for power, NiSource has been able to free up its
generating capacity and focus on providing electricity to a growing base of
residential and commercial consumers in northwest Indiana.
WATER
NiSource operates the sixth largest investor-owned water utility business
in the United States, serving approximately 275,000 customers through the water
utility subsidiaries. These companies supply water for residential, commercial
and industrial uses and for fire protection service in Indianapolis and the
surrounding areas. The principal sources of the water utilities' present water
supply are the White River and other streams, supplemented by three large
surface reservoirs. The territory served by the water utilities covers an area
of approximately 650 square miles in seven counties of central Indiana.
Subsidiaries of NiSource also manage the municipal water system for Lawrence,
Indiana, and participate in a partnership that operates municipal wastewater
treatment facilities in Indianapolis and Gary, Indiana.
NON-REGULATED ENERGY SERVICES
In addition to the activities of Primary Energy, TPC and Market Hub
Partners described above, NiSource provides non-regulated energy services
through its wholly-
DESCRIPTION OF NISOURCE
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owned subsidiary, EnergyUSA, Inc. Through its subsidiaries and investments,
EnergyUSA provides to customers in 22 states a variety of energy-related
services, including installing, repairing and maintaining underground pipelines
used in gas and water distribution systems; underground utility locating and
marking services; energy efficiency design services; and marketing and
distributing retail non-regulated products and services, such as propane. These
products and services are branded and operated either under the local utility's
label or with the EnergyUSA name. EnergyUSA is a partner in Mosaic Energy,
L.L.C., a new venture to develop and market proprietary fuel cell distributed
generation technology. EnergyUSA is also developing and field-testing
microturbine cogeneration technology for commercial and small industrial
customers.
DESCRIPTION OF NISOURCE
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DESCRIPTION OF COLUMBIA
GENERAL
Columbia Energy Group, formerly The Columbia Gas System, Inc., and its
subsidiaries comprise one of the nation's largest integrated 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 distribution of propane and petroleum products,
marketing of natural gas and electricity and the generation of electricity,
primarily fueled by natural gas. Columbia, organized under the laws of the State
of Delaware on September 30, 1926, is a registered holding company under the
Holding Company Act and derives substantially all its revenues and earnings from
the operating results of its 19 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 subsidiaries are sometimes
collectively referred to herein as the Columbia Group.
TRANSMISSION AND STORAGE OPERATIONS
Columbia's two interstate pipeline subsidiaries, Columbia Gas Transmission
Corporation and Columbia Gulf Transmission Company, own a pipeline network of
approximately 16,250 miles 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 15
northeastern, mid-Atlantic, 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 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 the Federal Energy
Regulatory Commission (FERC).
Columbia Transmission and Columbia Gulf provide an array of competitively
priced natural gas transportation and storage services for local distribution
companies and industrial and commercial customers who contract directly with
producers or marketers for their gas supplies.
In 1999, Columbia Transmission completed construction of the largest ever
expansion of its storage and transportation system. The expansion adds
approximately 500,000 Mcf (thousand cubic feet) per day of firm storage to 23
customers. Columbia Transmission is also participating in the proposed 442-mile
Millennium Pipeline Project that has been submitted to the FERC for approval. As
proposed, the project will transport approximately 700,000 Mcf of natural gas
per day from the Lake Erie region to eastern markets.
DISTRIBUTION OPERATIONS
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 32,400 miles of
distribution pipelines serve these major markets. The distribution subsidiaries
have initiated transportation
DESCRIPTION OF COLUMBIA
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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.
EXPLORATION AND PRODUCTION OPERATIONS
Columbia's exploration and production subsidiary, Columbia Energy
Resources, Inc., explores for, develops, gathers and produces natural gas and
oil in Appalachia and Canada. As of December 31, 1999, Columbia Resources held
interests in approximately 3.9 million net acres of gas and oil leases and had
proved reserves of 965.8 billion cubic feet of natural gas equivalent. Columbia
Resources owns and operates 8,188 wells and 6,069 miles of gathering facilities
and has expanded its reserve base and production through an aggressive drilling
and acquisition program. During 1999, Columbia Resources purchased 800 wells,
gathering assets and approximately 800,000 undeveloped acres in the U.S. and
Canada. In August 1997, Columbia Resources acquired Alamco, Inc., an Appalachian
gas and oil exploration and development company. Through Columbia Resources'
operations in north-central West Virginia, southern Kentucky, northern Tennessee
and New York, it is one of the largest-volume independent natural gas and oil
producers in the Appalachian Basin.
ENERGY MARKETING OPERATIONS
The energy marketing segment includes Columbia Energy Services that
consists of a retail mass marketing business, an internet based service and a
wholly-owned subsidiary that provides energy related services and products. Also
included in the energy marketing segment are the operations of Columbia Propane
Corporation.
As a result of an ongoing strategic assessment in 1999, Columbia Energy
Services decided to focus its efforts on the Mass Markets business, which
provides energy products to smaller volume retail customers, and to exit the
Wholesale and Trading and Major Accounts businesses. The Wholesale and Trading
business was sold at the end of 1999 and the Major Accounts business is being
offered for sale. These businesses are recorded as discontinued operations, in
accordance with generally accepted accounting principles.
Columbia Propane sells propane at wholesale and retail and has been
aggressively expanding its operations through acquisitions and internal growth.
At the end of 1999, Columbia Propane served more than 350,600 customers in 31
states and the District of Columbia, which is more than triple the number of
customers served at the end of 1998. Columbia Petroleum Corporation, a
subsidiary of Columbia Propane, owns and operates petroleum assets and had sales
of 202.4 million gallons in 1999 with approximately 42,600 customers in five
states.
POWER GENERATION, LNG AND OTHER OPERATIONS
Columbia Electric Corporation is an unregulated electric generation company
whose primary focus is the development, ownership and operation of clean,
natural gas fueled power projects. Columbia currently has three operating
facilities totaling 248 megawatts, one 550-megawatt (equivalent) plant under
construction in Gregory, Texas and approximately 3,000 megawatts of gas-fired
generation under development. Publicly announced projects in Columbia Electric's
development portfolio include the Kelson Ridge Project in
DESCRIPTION OF COLUMBIA
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Charles County, Maryland, the Liberty Electric Project in Eddystone,
Pennsylvania, the Grassy Point Energy Project in Haverstraw, New York, the
Ceredo Electric Generating Station in Ceredo, West Virginia and the Henderson
Generating Station in Henderson, Kentucky.
The Gregory Project, a partnership between subsidiaries of Columbia
Electric and LG&E Power, Inc., is anticipated to start operations in the summer
of 2000.
Construction of the Liberty Electric Project is anticipated to commence in
spring 2000. Ownership of the Liberty Electric Project was jointly held by
Columbia Electric and subsidiaries of Westcoast Energy, Inc. In December 1999,
the ownership agreement between Columbia and Westcoast was terminated due to
allocation of capital to other projects by Westcoast in geographic areas more
closely aligned with other Westcoast operating assets and the desire of
Westcoast to focus its resources in ventures that will generate near-term
operating income. Columbia Electric announced on February 16, 2000, that it
purchased Westcoast's 50% interest and now owns 100% of the Liberty Electric
Project.
In December 1999, a limited partnership company established between
Columbia Electric and Atlantic Generation, Inc. completed a transaction
terminating a long-term power purchase contract. Columbia Electric's portion of
the proceeds was approximately $71 million pre-tax under the terms of the
buyout. The partners will continue to operate the facility as a merchant power
plant.
Columbia LNG Corporation and an affiliate company own an LNG facility,
located in Cove Point, Maryland, which is one of the largest natural gas peaking
and storage facilities in the United States. The facility has the capacity to
liquefy natural gas at a rate of 15,000 Mcf of natural gas per day. The facility
enables LNG to be stored until needed for the winter peak-day requirements of
utilities and other large gas users.
Columbia Network Services Corporation, a wholly-owned subsidiary of
Columbia, and its subsidiaries provide telecommunications and information
services and assist personal communications service providers and other
microwave radio service licensees in locating and constructing antenna
facilities.
In 1999, Columbia Transmission Communications Corporation, a wholly-owned
subsidiary of Columbia, began the construction of its telecommunications network
along the Washington, D.C. to New York City corridor. Transcom will build and
maintain a fiber optics network for voice and data communications on
rights-of-way of Columbia's pipeline companies. Transcom expects to complete the
D.C. to New York fiber optics link in the first half of 2000. The route covers
260 miles and provides access to 16 million people in the busiest
telecommunications corridor in the United States. Columbia is developing plans
to extend the fiber optics network beyond the initial route.
COMPETITION
Open access to natural gas supplies over interstate pipelines and the
deregulation of the commodity price of gas has led to tremendous change in the
energy markets, which continue to evolve. During the past couple of years, local
distribution company customers and marketers began to purchase gas directly from
producers and marketers and an open competitive market for gas supplies has
emerged. This separation or "unbundling" of the transportation and other
services offered by pipelines and LDCs allows customers to select
DESCRIPTION OF COLUMBIA
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the service they want independent from the purchase of the commodity. Columbia's
distribution subsidiaries are involved in programs that provide residential
customers the opportunity to purchase their natural gas requirements from third
parties and use the distribution subsidiaries for transportation services. It is
likely that, over time, distribution companies will have a very limited merchant
function. At the same time that the natural gas markets are evolving, the
markets for competing energy sources are also changing. In 1997, open access to
interstate transmission of electricity was approved by the FERC and was
subsequently approved by several state regulatory commissions, which approvals
provide for increased competition in the electricity market. Columbia's other
operations also experience competition for energy sales and related services
from third party providers. Columbia meets these challenges through innovative
programs aimed at providing energy products and services at competitive prices
while also providing new services that are responsive to the evolving energy
market and customer requirements.
OTHER RELEVANT BUSINESS INFORMATION
Columbia Group's customer base is broadly diversified, with no single
customer accounting for a significant portion of revenues.
As of January 31, 2000, the Columbia Group had 9,683 full-time employees of
which 1,797 are subject to collective bargaining agreements.
Columbia's subsidiaries are subject to extensive federal, state and local
laws and regulations relating to environmental matters. These laws and
regulations, which are constantly changing, require expenditures for corrective
action at various operating facilities, waste disposal sites and former gas
manufacturing sites for conditions resulting from past practices that have
subsequently become subject to environmental regulation.
DESCRIPTION OF COLUMBIA
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LEGAL MATTERS
Schiff Hardin & Waite will pass upon the validity of the New NiSource
common shares and SAILS to be issued in connection with the merger, if the new
holding company structure is used, and the validity of the NiSource SAILS and
the NiSource common shares to be issued pursuant to those SAILS, if the
alternative merger structure is used.
EXPERTS
The consolidated financial statements and schedules of NiSource
incorporated by reference herein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports.
The consolidated financial statements of Columbia incorporated in this
document by reference herein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
FUTURE SHAREHOLDER PROPOSALS
Any NiSource shareholder who intends to submit a proposal for inclusion in
the proxy materials for the 2001 annual meeting must submit such proposal by
November 21, 2000, to the Secretary of New NiSource or, if the merger has not
been completed by that date or is completed using the alternative merger
structure, the Secretary of NiSource. Securities and Exchange Commission rules
set forth standards as to what shareholder proposals are required to be
included. In addition, New NiSource's and NiSource's bylaws provide that any
shareholder wishing to make a nomination for director, or wishing to introduce a
proposal or other business, at the 2001 annual meeting must give at least sixty
days advance notice, subject to exceptions, and that notice must meet other
requirements set forth in the bylaws. The bylaws provide that the annual meeting
of shareholders is to be held on the second Wednesday in April of each year,
unless the board of directors fixes another date.
If the merger is not consummated, the 2001 annual meeting of shareholders
of Columbia is expected to be held on May 16, 2001 unless otherwise determined
by Columbia's board of directors.
FUTURE SHAREHOLDER PROPOSALS
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WHERE YOU CAN FIND MORE INFORMATION
NiSource and Columbia file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Our Securities and Exchange Commission filings
are also available to the public from commercial document retrieval services and
at the web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
New NiSource and NiSource filed a Registration Statement on Form S-4 to
register with the Securities and Exchange Commission the New NiSource common
shares and SAILS to be issued in the merger and the New NiSource common shares
to be issued upon settlement of those SAILS (assuming the new holding company
structure) and the NiSource SAILS to be issued in the merger and the NiSource
common shares to be issued upon settlement of those SAILS (assuming the
alternative structure). This document constitutes a prospectus of New NiSource
and NiSource in addition to being a joint proxy statement of NiSource and
Columbia. As permitted by Securities and Exchange Commission rules, this joint
proxy statement/prospectus does not contain all the information you can find in
the registration statement or the exhibits to the registration statement.
The Securities and Exchange Commission permits us to incorporate by
reference information into this joint proxy statement/prospectus, which means
that we can disclose important information to you by referring you to another
document filed separately with the Securities and Exchange Commission. The
following documents previously filed with the Securities and Exchange Commission
by NiSource (File Number 1-9779) are incorporated by reference into this
document:
1. NiSource's Annual Report on Form 10-K for the fiscal year ended December
31, 1999; and
2. NiSource's Current Reports on Form 8-K filed with the Securities and
Exchange Commission on March 3, 2000 and April 3, 2000, relating to the
merger agreement.
The following documents previously filed with the Securities and Exchange
Commission by Columbia (File Number 1-01098) are incorporated by reference into
this document:
1. Columbia's Annual Report on Form 10-K for the fiscal year ended December
31, 1999; and
2. Columbia's Proxy Statement relating to the Annual Meeting of
Shareholders of Columbia to be held on May 17, 2000 (other than the
compensation committee report and stock performance chart).
3. Columbia's Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 13, 2000, reporting its earnings for the
first quarter 2000.
WHERE YOU CAN FIND MORE INFORMATION
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We also are incorporating by reference any additional documents that we
file with the Securities and Exchange Commission between the date of this
document and the date election forms are required to be submitted by Columbia
shareholders.
If you are a shareholder, we may have sent you some of the documents
referenced above, but you can obtain any of them through us or the Securities
and Exchange Commission. You may obtain documents incorporated by reference
without charge by writing or calling the appropriate party at the following
addresses:
<TABLE>
<S> <C>
NiSource Inc. Columbia Energy Group
Investor Relations Investor Relations
801 East 86th Avenue 13880 Dulles Corner Lane
Merrillville, Indiana 46410 Herndon, Virginia 20171
(219) 647-6085 (703) 561-6000
</TABLE>
If you would like to receive documents from us before the shareholder
meetings, please request them by May 19, 2000.
In voting on the merger, you should rely only on the information contained
or expressly incorporated by reference in this joint proxy statement/prospectus.
We have not authorized anyone to provide you with information that is different
from what is contained in this document. This document is dated April 24, 2000.
You should not assume that the information contained in the joint proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of the joint proxy statement/prospectus to shareholders nor
the issuance of common shares or SAILS in the merger shall create any
implication to the contrary.
WHERE YOU CAN FIND MORE INFORMATION
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ADDITIONAL MATTERS FOR NISOURCE'S ANNUAL MEETING
---------------
ELECTION OF NISOURCE DIRECTORS
NOMINEES FOR ELECTION AS NISOURCE DIRECTORS
NiSource's board of directors is composed of ten directors, who are divided
into three classes. Each class serves for a term of three years, and one class
is elected each year. The NiSource board of directors, with the recommendation
of its Nominating and Compensation Committee, has nominated Arthur J. Decio,
Gary L. Neale and Robert J. Welsh for re-election as directors of NiSource, each
for a term of three years that will expire in 2003. The board of directors does
not anticipate that any of the nominees will be unable to serve, but if any
nominee is unable to serve the proxies will be voted in accordance with the best
judgment of the person or persons acting thereunder.
The following chart gives information about nominees (who have consented to
being named in the proxy statement and to serve if elected) and incumbent
directors. The dates shown for service as a director include service as a
director of Northern Indiana Public Service Company prior to the March 3, 1988
share exchange with NiSource. If NiSource completes its merger with Columbia
using the new holding company structure, the directors will serve the balance of
their terms as directors of New NiSource.
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN A
FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD DIRECTOR SINCE
-------------------------------------------------- --------------
<S> <C>
Nominees For Terms to Expire in 2003
Arthur J. Decio, 69
Chairman of the Board and Director of Skyline
Corporation, Elkhart, Indiana, a manufacturer of
manufactured housing and recreational vehicles......... 1991
Gary L. Neale, 60
Chairman, President and Chief Executive Officer of
NiSource since March 1, 1993; prior thereto, Executive
Vice President of NiSource, and President and Chief
Operating Officer of Northern Indiana Public Service
Company. Mr. Neale is also a director of Modine
Manufacturing Company, Chicago Bridge and Iron Company,
and Mercantile National Bank of Indiana................ 1991
Robert J. Welsh, 64
Chairman and Chief Executive Officer of Welsh, Inc.,
Merrillville, Indiana, a marketer of petroleum products
through convenience stores and travel centers. Mr.
Welsh is also the Chairman of the Board of Aspen,
Inc.................................................... 1988
</TABLE>
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<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN A
FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD DIRECTOR SINCE
-------------------------------------------------- --------------
<S> <C>
Directors Whose Terms Expire in 2002
Ian M. Rolland, 66
Director of Wells Fargo & Co., Tokheim Corporation and
Bright Horizons Family Solutions. Prior to his
retirement in 1998, Mr. Rolland served as Chairman and
Chief Executive Officer of Lincoln National
Corporation, of Ft. Wayne, Indiana..................... 1978
John W. Thompson, 50
Chairman, President and Chief Executive Officer of
Symantec Corp., Cupertino, California. Symantec
produces software and provides Internet security
technology. Prior to joining Symantec in 1999, Mr.
Thompson was General Manager of IBM Americas. Mr.
Thompson is also a director of Fortune Brands Inc...... 1993
Roger A. Young, 54
Chairman, Bay State Gas Company, Westborough,
Massachusetts since 1996. Bay State Gas Company has
been a subsidiary of NiSource since 1999. Mr. Young
also served as Chief Executive Officer of Bay State Gas
Company from 1990 to 1999. Mr. Young also serves as a
regional director of BankBoston Corporation. Mr. Young
is director of Watts Industries, Inc................... 1999
Directors Whose Terms Expire in 2001
Steven C. Beering, 67
President of Purdue University, West Lafayette,
Indiana. Dr. Beering is also a director of Arvin
Industries, Inc., American United Life Insurance
Company and Eli Lilly and Company...................... 1986
Dennis E. Foster, 59
Vice Chairman of ALLTEL Corporation, Little Rock,
Arkansas, a full service telecom and information
service provider. Mr. Foster is a director of ALLTEL
Corporation, Cellular Telecommunications Industry
Association and Salient 3 Communications............... 1999
James T. Morris, 56
Chairman and Chief Executive Officer, IWC Resources
Corporation, Indianapolis, Indiana, a subsidiary of
NiSource since 1997. Mr. Morris is also a director of
Paul Harris Stores, Inc. and National City Bank
(Indianapolis)......................................... 1997
Carolyn Y. Woo, 45
Gillen Dean and Siegfried Professor, College of
Business Administration, University of Notre Dame,
South Bend, Indiana. Dr. Woo is also a director of
Bindley Western Industries, Inc., Arvin Industries,
Inc. and AON Corporation............................... 1997
</TABLE>
THE NISOURCE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE TO APPROVE THE
PROPOSAL TO ELECT MESSRS. DECIO, NEALE AND WELSH AS DIRECTORS OF NISOURCE, EACH
TO SERVE FOR A TERM OF THREE YEARS UNTIL 2003.
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MEETINGS AND COMMITTEES OF THE NISOURCE BOARD OF DIRECTORS
The board of directors of NiSource met eight times during 1999. The board
has the following six standing committees:
- the Executive Committee,
- the Audit Committee,
- the Nominating and Compensation Committee,
- the Environmental Affairs Committee,
- the Public Affairs and Career Development Committee and
- the Corporate Governance Committee.
During 1999, each director attended at least 75% of the combined total
number of NiSource's board meetings and the meetings of the committees on which
he or she was a member, except Mr. Thompson who attended 71% of the board
meetings and the meetings of the committees on which he was a member.
The Executive Committee has the authority to act on behalf of the board if
reasonably necessary when the board is not in session. The Executive Committee
met four times in 1999. Mr. Neale was Chairman and Dr. Beering and Messrs.
Decio, Rolland and Welsh were members of the Executive Committee in 1999.
The Audit Committee met six times in 1999. The Audit Committee has reviewed
and made recommendations to the board with respect to the engagement of the
independent public accountants, both for 1999 and 2000, and the fees relating to
audit services and other services performed by them. The Audit Committee meets
with the independent public accountants and officers responsible for company
financial matters. NiSource adopted a charter for the Audit Committee on August
24, 1999. Mr. Rolland was Chairman and Messrs. Schroer (until his retirement
from the board in April 1999), Foster and Thompson and Dr. Woo were members of
the Audit Committee in 1999.
The Nominating and Compensation Committee met three times in 1999. This
committee advises the board with respect to nominations of directors and the
salary, compensation and benefits of directors and officers of NiSource. Dr.
Beering was Chairman of the Compensation Committee, and Messrs. Decio, Ribordy
and Welsh were members during 1999. The Compensation Committee considers
nominees for directors recommended by shareholders. NiSource's by-laws require
that shareholders who desire to nominate a person for election as a director at
the 2001 annual meeting must deliver a written notice to the secretary of the
corporation by November 15, 2000. The notice of nomination must provide:
- the name, age and address of each nominee proposed,
- the principal occupation or employment of the nominee,
- the number of common shares beneficially owned by the nominee,
- such other information concerning the nominee as would be required, under
the rules of the Securities and Exchange Commission, in a proxy statement
soliciting proxies for the election of the nominee,
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- the nominating shareholder's name and address, and
- the number of common shares beneficially owned by the shareholder.
The shareholder must also furnish the signed consent of the nominee to serve as
a director, if elected.
The Environmental Affairs Committee met twice during 1999. This committee
reviews the status of environmental compliance of NiSource, and considers
company public policy issues. Mr. Welsh was Chairman and Messrs. Decio and Young
were members of the Environmental Affairs Committee in 1999.
The Public Affairs and Career Development Committee met twice in 1999. This
committee advises the board regarding charitable and political contributions,
employment policies, shareholder proposals concerning matters of general public
interest and consumer and utility industry related issues. Mr. Thompson was
Chairman and Dr. Beering and Messrs. Foster, Morris and Rolland were members of
the Public Affairs and Career Development Committee in 1999.
The Corporate Governance Committee met once in 1999. The Corporate
Governance Committee consists of all members of the board who are not also
officers. The Corporate Governance Committee meets once a year to evaluate and
advise the board regarding the performance of the board of directors and each of
its members and the nature and amount of information flowing between the Board,
management and shareholders. Mr. Rolland was Chairman and Drs. Beering and Woo
and Messrs. Decio, Ribordy, Thompson and Welsh were members of the Committee in
1999.
COMPENSATION OF NISOURCE DIRECTORS
NiSource pays each director who is not receiving a salary from NiSource
$20,000 per year, $3,000 annually per standing committee on which the director
sits, $1,000 annually for each committee chairmanship, $1,000 for each board
meeting attended and $750 per committee meeting attended. Directors of NiSource
do not receive any additional compensation for services as a director of any
subsidiary. Under a deferred compensation arrangement, directors may have their
fees deferred in the current year and credited to an interest-bearing account or
to a phantom stock account for payment in the future.
NiSource's Nonemployee Director Retirement Plan provides a retirement
benefit for each nonemployee director who has completed at least five years of
service on the board. The benefit under the plan will be an amount equal to the
annual retainer for board service in effect at the time of the director's
retirement from the board and will be paid for ten years, or the number of years
of service the individual served as a nonemployee director of NiSource,
whichever is less.
NiSource's Nonemployee Director Stock Incentive Plan provides for grants of
restricted common shares to nonemployee directors of NiSource. The plan provides
for a grant of 2,000 shares to each person, other than an employee of NiSource,
upon his or her election or re-election as a director of NiSource. The grants of
restricted shares vest in 20% annual increments, with all of a director's shares
vesting five years after the date of award. In 1999, Messrs. Rolland, Thompson
and Foster each received a grant of 2,000 restricted common shares under this
plan.
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NiSource's Nonemployee Director Restricted Stock Unit Plan, which was
adopted by the Board in December 1998 and made effective as of January 1, 1999,
is a phantom stock plan that provides for grants to nonemployee directors of
restricted stock units that have a value related to NiSource's common shares.
Each nonemployee director received an initial grant of 500 units in April 1999.
Subsequent grants of 500 units will be made annually to nonemployee directors
upon election or re-election to the Board. The grants of units vest in 20%
annual increments, with all of a director's units vesting five years after the
date of award. The units have no voting or stock ownership rights. In 1999,
Messrs. Decio, Welsh, Rolland, Thompson, Ribordy and Foster and Drs. Woo and
Beering each received a grant of 500 units.
NiSource has adopted a Directors' Charitable Gift Program for nonemployee
directors. Under the program, NiSource makes a donation to one or more eligible
tax-exempt organizations as designated by each eligible director. NiSource
contributes up to an aggregate of $125,000 for each nonemployee director who has
served as a director of NiSource for at least five years and up to an additional
$125,000 (for an overall $250,000) for each nonemployee director who has served
ten years or more. Organizations eligible to receive a gift under the program
include charitable organizations and educational institutions located in Indiana
and educational institutions that the director attended or for which he or she
serves on its governing board. Individual directors derive no financial benefit
from the program, as all deductions relating to the charitable donations accrue
solely to NiSource. All current nonemployee directors are eligible to
participate in the program.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 12, 1999, NiSource acquired Bay State Gas Company. Roger A.
Young was Chairman of the Board and Chief Executive Officer of Bay State at the
time of the acquisition and held shares in Bay State. Pursuant to the
acquisition transaction, Mr. Young received common shares and/or cash in
exchange for his Bay State shares in the same proportion as other Bay State
shareholders. In connection with the Bay State acquisition transaction, Mr.
Young was elected as a director of NiSource. Bay State entered into a nine month
employment agreement with Mr. Young, guaranteed by NiSource, and Mr. Young
entered into a covenant not to compete with NiSource. The employment agreement
provided Mr. Young with a base compensation and a performance-based bonus. For
the nine month term of the employment contract, Mr. Young received base
compensation of $641,000 and earned a performance-based bonus of $1,600,000. In
consideration of Mr. Young's covenant not to compete, he was paid $3,200,000.
Mr. Young elected to defer payment of some of these payments. Deferred amounts
will bear interest at a market rate of interest and no interest was paid to Mr.
Young in 1999.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Security Ownership of NiSource, Columbia and New NiSource" on page 102
for information as to the beneficial ownership of common shares, as of January
31, 2000, for each of the NiSource directors, nominees and named executive
officers, and for all directors and executive officers as a group.
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NISOURCE EXECUTIVE COMPENSATION
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Nominating and Compensation Committee's compensation policy is designed
to relate total compensation (base salary, incentive bonus and long-term
stock-based compensation) to corporate performance. This policy applies to all
executive officers, including the Chief Executive Officer of NiSource and the
four other most highly compensated executive officers, who collectively
constitute the "Named Officers." In 1999, the Named Officers were the Chief
Executive Officer, Mr. Neale, and Messrs. Adik, Yundt, Mulchay and Turner. The
Committee has implemented a "pay-for-performance" program which is designed to
position NiSource's executive compensation competitively and to reward
performance that creates additional shareholder value. The Committee discusses
and considers executive compensation matters, then makes recommendations to the
full board of directors, which takes the final action on these matters. The
board accepted all of the Committee's recommendations in 1999.
The Committee has engaged Hewitt Associates, an independent compensation
consulting firm, to advise it and provide surveys of comparative compensation
practices for (1) a group of similarly sized utility companies, typically
electric, gas or combination utility companies; and (2) a group of similarly
sized energy-oriented companies, including diversified energy companies and
companies with gas marketing transmission and distribution operations and energy
services operations. These 1999 executive compensation comparative groups
consisted of 28 and 23 companies, respectively, from which data was available to
Hewitt and which the Committee believed to be competitors of NiSource for
executive talent. Seven companies were in both the utility and the energy
comparative groups. The comparative compensation groups are subject to change in
future years if information about any company included in a group is not
available, any companies included in a group are no longer competitors for
executive talent, or if different energy or other types of companies are
determined to be competitors. The changing nature of NiSource's competitive
businesses has required the consideration of the compensation practices of
non-utility and non-energy companies in evaluating the compensation of certain
of NiSource's officers and may require the inclusion of non-utility and
non-energy companies in the comparative compensation group in future years.
NiSource's comparative compensation group is not the same as the corporations
that make up the Dow Jones Utilities Index in the Stock Price Performance Graph
included in this proxy statement.
The Committee considers the surveys provided by Hewitt in determining base
salary, incentive bonus and long-term stock-based compensation. The Committee's
philosophy is to set conservative base salaries at or near the medians of the
utility and energy comparative groups, which are similar, while providing
performance-based variable compensation through the bonus and incentive plans
described below to allow total compensation to fluctuate according to NiSource's
financial performance. Long-term incentive awards are stock-based (for example,
stock options or performance-based restricted stock awards) to emphasize
long-term stock price appreciation and the concomitant increased shareholder
value. In 1999, total compensation of the executive officers, including the
Chief Executive Officer, was targeted between the 50th and the 75th percentile
of the relevant comparative compensation group. Total compensation would reach
this level only if NiSource met the applicable performance targets under the
bonus incentive plans. For those executive officers with significant
responsibilities for certain
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business units, total compensation is dependent on NiSource's financial
performance and on business unit operating income or on other measures unique to
the respective business unit.
In establishing Mr. Neale's base salary for 1999, the Committee reviewed
information provided by Hewitt regarding the chief executive officer
compensation practices of comparative utility and energy companies. The
Committee determined to set base salary near the median salary of the
comparative group, giving regard to Mr. Neale's proven abilities and strong
performance with NiSource since joining it as Executive Vice President and Chief
Operating Officer in 1989. In establishing the officer compensation for 1999,
the Committee noted that NiSource, over the most recent five years, had
significantly out-performed both comparative groups in return on equity,
earnings per share growth and total shareholder return. As with the other
executive officers, Mr. Neale's total compensation was targeted to be between
the 50th and the 75th percentile of the utility comparative compensation group,
depending upon NiSource's financial performance. The result of the Committee's
determination as to Mr. Neale's total compensation package was that more than
65% of Mr. Neale's total target compensation was performance-based and at risk,
dependent upon NiSource's earnings per share and stock price performance. The
compensation would be realized only if NiSource reached specific financial
benchmarks.
The Committee determines annual incentive awards for all executive officers
in accordance with the Senior Management Incentive Plan. This Plan sets forth a
formula established at the beginning of each fiscal year by the Committee for
awarding incentive bonuses, based upon NiSource's financial performance and, for
certain officers, a mix of company and business unit financial performance.
Bonuses awarded to each of the Named Officers (including the Chief Executive
Officer) are based on overall corporate and business unit financial performance,
rather than individual performance of the executive. In 1999, the bonus formula
(and the relative weight of the factors on which it was based) was based upon
attaining targets for NiSource's earnings per share and, in the case of
executive officers who have significant responsibilities for certain business
units, the pre-tax operating income or other appropriate measure of financial
performance for the respective business unit. Each year the Incentive Plan
establishes a threshold level of financial performance (below which no bonus
whatsoever is paid), a target level, and a maximum level (above which no
additional bonus is paid). The range of awards and levels of awards (as a
percent of base salary), if financial performance targets are achieved, are as
follows:
<TABLE>
<CAPTION>
AWARD IF
RANGE TARGETS MET
-------- -----------
<S> <C> <C>
Chief Executive Officer.................... 0 to 85% 70%
Senior Executive Vice President and
Executive Vice Presidents................ 0 to 75% 65%
Senior Vice Presidents and Vice
Presidents............................... 0 to 65% 45%
</TABLE>
The required financial performance levels of NiSource necessary to attain the
threshold, target, and maximum bonus levels have been increased annually since
the inception of the Incentive Plan in 1990. In 1999, NiSource's actual earnings
per share were $1.29 which was below target and also below the threshold.
Consequently, Messrs. Neale and Adik received no bonus in 1999 and Messrs.
Mulchay, Yundt and Turner received only that portion of the bonus related to
their respective business units' financial performance.
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Executive officers are also eligible to receive awards under NiSource's
Long-Term Incentive Plan. Under the Long-Term Incentive Plan, stock options,
stock appreciation rights, performance units, restricted stock awards and
supplemental cash payments may be awarded. Stock options were awarded to each
Named Officer (including Mr. Neale) in 1999, and Mr. Neale also received a
restricted stock award in 1999. The Committee considers base salaries of the
executive officers, prior awards under the Long-Term Incentive Plan, and
NiSource's total compensation target in establishing long-term incentive awards.
Options and restricted stock awards granted to executive officers are valued
using the Black-Scholes option pricing model at the time of grant for purposes
of determining the number of options to be granted to reach total target
compensation. In 1999, the number of options and restricted shares granted to
the Chief Executive Officer and other executive officers (including all Named
Officers) was based on these considerations. The compensation value of stock
options and/or restricted stock awards depends on actual stock price
appreciation. In addition, restricted stock awards are subject to performance
vesting criteria as established by the Committee. The criteria for 1999 awards
involved meeting specific performance objectives.
Section 162(m) of the Internal Revenue Code provides that compensation in
excess of $1,000,000 per year paid to the chief executive officer or any of the
four other most highly compensated executive officers employed at year-end,
other than compensation meeting the definition of "performance based
compensation," will not be deductible by a corporation for federal income tax
purposes. The Committee believes that NiSource's long-term stock-based
compensation constitutes performance-based compensation for purposes of the
Internal Revenue Code. In light of its emphasis on such performance based
compensation, the Committee does not anticipate that the limits of Section
162(m) will materially affect the deductibility of compensation paid by
NiSource. However, the Committee will continue to review the deductibility of
compensation under Section 162(m) and related regulations.
The Committee believes that its overall executive compensation program has
been successful in providing competitive compensation sufficient to attract and
retain highly qualified executives, while at the same time encouraging increased
performance from the executive officers which creates additional shareholder
value.
Nominating and Compensation Committee
Steven C. Beering, Chairman
Arthur J. Decio
Robert J. Welsh
January 29, 2000
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COMPENSATION OF NISOURCE EXECUTIVE OFFICERS
Summary. The following table summarizes compensation for services to
NiSource and its subsidiaries for the years 1999, 1998 and 1997 awarded to,
earned by or paid to each of the Named Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
--------------------------- ----------------------
AWARDS PAYOUTS
---------- ---------
SECURITIES
OTHER UNDER- LONG-TERM
ANNUAL LYING INCENTIVE ALL OTHER
COMPEN- OPTIONS/ PLAN COMPEN-
SALARY BONUS SATION SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) (#) ($)(4) ($)(5)
--------------------------- ---- ------- ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Neale,................... 1999 689,583 0 6,436 50,000 484,313 33,465
Chairman, President and Chief 1998 561,250 345,000 7,073 50,000 415,251 31,704
Executive Officer 1997 520,000 390,000 6,711 50,000 -- 42,993
Stephen P. Adik,................. 1999 343,749 0 2,980 30,000 -- 5,645
Senior Executive Vice 1998 268,750 148,500 2,202 20,000 207,626 5,324
President, Chief Financial 1997 250,000 171,250 2,575 20,000 -- 5,673
Officer and Treasurer
Patrick J. Mulchay, (6).......... 1999 294,166 104,670 2,800 25,000 -- 7,163
Executive Vice President and 1998 225,000 148,350 1,412 20,000 -- 6,666
President, Chief Operating 1997 210,000 150,675 851 20,000 -- 7,506
Officer -- Northern Indiana
Public Service Company
Jeffrey W. Yundt, (6)............ 1999 294,166 62,130 149,415 25,000 -- 3,776
Executive Vice President and 1998 225,000 124,200 6,348 20,000 -- 3,485
President and Chief Executive 1997 210,000 143,850 8,905 20,000 -- 3,693
Officer -- Bay State Gas
Company
Joseph L. Turner, (7)............ 1999 208,750 69,968 3,791 10,000 -- 7,396
Senior Vice President 1998 195,000 205,838 2,203 10,000 -- 6,948
President -- Primary Energy,
Inc. 1997 180,000 113,675 1,175 8,000 -- 7,599
</TABLE>
- -------------------------
(1) Compensation deferred at the election of the Named Officer is reported in
the category and year in which such compensation was earned.
(2) All bonuses are paid pursuant to the Senior Management Incentive Plan,
except for a portions of the bonuses paid to Messrs. Mulchay, Yundt and
Turner, which are described in notes (6) and (7). The incentive plan is
designed to supplement a conservative base salary with incentive bonus
payments if targeted financial performance is attained. The 1999 target
aggregate payout for the incentive plan for the Named Officers was
$1,212,500, which was more than the actual aggregate payout for the Named
Officers. See "Nominating and Compensation Committee Report on Executive
Compensation" on page 154.
(3) In accordance with applicable Securities and Exchange Commission rules, the
amounts shown for each of the Named Officers do not include perquisites and
other personal benefits, as the aggregate amount of such benefits is less
than the lesser of
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$50,000 and 10% of the total salary and bonus of the Named Officer. In 1999,
this amount includes a one-time relocation allowance of $85,305 and a
related tax allowance of $60,412 for Mr. Yundt.
(4) The payouts shown are based on the value, at date of vesting, of restricted
shares awarded under the Long-Term Incentive Plan which vested during the
years shown. Vesting was based on meeting certain performance requirements.
Total restricted shares held (assuming 100% vesting) and aggregate market
value at December 31, 1999 (based on the average of the high and low sale
prices of the common shares on that date as reported in The Wall Street
Journal) for the Named Officers were as follows: Mr. Neale, 120,000 shares
valued at $2,148,744; Messrs. Adik, Mulchay and Yundt, 50,000 shares each,
valued at $895,310; and Mr. Turner, 33,200 shares (includes 9,201 shares
purchased pursuant to the Primary Energy Incentive Plan described in note
(7)) valued at $594,504. Dividends on the restricted shares are paid to the
Named Officers.
(5) The Chairman, President and Chief Executive Officer, the Senior Executive
Vice President, the Executive Vice President, the Senior Vice Presidents,
and certain Vice Presidents of NiSource and Northern Indiana Public Service
Company have available to them a supplemental life insurance plan which
provides split-dollar coverage of up to 3.5 times base compensation as of
commencement of the plan in 1991 and could provide life insurance coverage
after retirement if there is adequate cash value in the respective policy.
"All Other Compensation" represents company contributions to the 401(k) plan
and the dollar value of the benefit to the Named Officers under the
supplemental life insurance plan, as follows: Mr. Neale -- $1,066 401(k)
Plan, $28,856 premium value and $3,543 term insurance cost; Mr.
Adik -- $1,110 401(k) Plan, $3,474 premium value and $1,061 term insurance
cost; Mr. Mulchay -- $362 401(k) Plan, $5,671 premium value and $1,130 term
insurance cost; Mr. Yundt -- $2,976 premium value and $800 term insurance
cost and Mr. Turner -- $5,512 premium value and $1,884 term insurance cost.
The value of the life insurance premiums paid by NiSource in excess of term
insurance cost on behalf of the Named Officers under the supplemental life
insurance plan has been restated for all periods in accordance with the
present value interest-free loan method.
(6) Messrs. Mulchay and Yundt are also Presidents of Northern Indiana Public
Service Company and Bay State Gas Company, respectively, and 50% of their
annual incentive compensation is determined based on the financial
performance of the business unit for which they are responsible.
(7) Mr. Turner is also President of Primary Energy, Inc., and participates in
the Primary Energy Incentive Plan. The plan provides for a bonus based on
meeting certain financial performance criteria of Primary Energy. Under the
plan, $39,982 of Mr. Turner's bonus for 1999 was used to purchase common
shares of NiSource on or about February 29, 2000, the date of payment of the
bonus. The plan provides that the common shares are restricted for a period
of five years, subject to continued employment, except that they vest
earlier in the event of the employee's retirement, death or disability.
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Option Grants in 1999. The following table sets forth grants of options to
purchase common shares made during 1999 to the Named Officers. No stock
appreciation rights were awarded during 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/SH)(3) DATE VALUE ($)(4)
---- -------------- ---------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gary L. Neale........ 50,000 6.71 24.59 8/24/09 183,000
Stephen P. Adik...... 30,000 4.03 24.59 8/24/09 109,800
Patrick J. Mulchay... 25,000 3.36 24.59 8/24/09 91,500
Jeffrey W. Yundt..... 25,000 3.36 24.59 8/24/09 91,500
Joseph L. Turner..... 10,000 1.34 24.59 8/24/09 36,600
</TABLE>
- -------------------------
(1) All options granted in 1999 are fully exercisable commencing one year from
the date of grant. Vesting may be accelerated as a result of certain events
relating to a change in control of NiSource. The exercise price and tax
withholding obligation related to exercise may be paid by delivery of
already owned common shares or by reducing the number of common shares
received on exercise, subject to certain conditions.
(2) Based on an aggregate of 744,750 options granted to all employees in 1999.
(3) All options were granted at the average of high and low sale prices of the
common shares as reported in The Wall Street Journal on the date of grant.
(4) Grant date present value is determined using the Black-Scholes option
pricing model. The assumptions used in the Black-Scholes option pricing
model were as follows: volatility -- 15.72% (calculated using daily common
share prices for the twelve-month period preceding the date of grant);
risk-free rate of return -- 5.87% (the rate for a ten-year U.S. treasury);
dividend yield -- $1.02; option term -- ten years; vesting -- 100% one year
after date of grant; and an expected option term of 5.4 years. No
assumptions relating to non-transferability or risk of forfeiture were made.
Actual gains, if any, on option exercises and common shares are dependent on
the future performance of the common shares and overall market condition.
There can be no assurance that the amounts reflected in this table will be
achieved.
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Option Exercises in 1999. The following table sets forth certain
information concerning the exercise of options or stock appreciation rights
during 1999 by each of the Named Officers and the number and value of
unexercised options and stock appreciation rights at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Neale........ -- -- 310,000 50,000 407,190 0
Stephen P. Adik...... 12,000 220,499 160,000 30,000 454,376 0
Patrick J. Mulchay... 4,400 76,862 150,000 25,000 360,626 0
Jeffrey W. Yundt..... 12,000 220,499 160,000 25,000 454,376 0
Joseph L. Turner..... -- -- 75,000 10,000 122,782 0
</TABLE>
- -------------------------
(1) Represents the difference between the option exercise price and $17.9063,
the average of high and low sale prices of the common shares on December 31,
1999, as reported in The Wall Street Journal.
Long-Term Incentive Plan Awards in 1999. The following table sets forth
restricted shares awarded pursuant to the Long-Term Incentive Plan during 1999
to each of the Named Officers.
LONG-TERM STOCK INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
SHARES, OR OTHER NON-STOCK PRICE-BASED PLANS
UNITS OR PERIOD UNTIL ------------------------------
OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT* (#) (#) (#)
---- ------------ ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Gary L. Neale................ 10,000 2 0 10,000 10,000
Stephen P. Adik.............. -- -- -- -- --
Patrick J. Mulchay........... -- -- -- -- --
Jeffrey W. Yundt............. -- -- -- -- --
Joseph L. Turner............. -- -- -- -- --
</TABLE>
- -------------------------
* Amounts stated in years.
The restrictions on shares awarded during 1999 lapse two years from the
date of grant. The vesting of the restricted shares varies from 0% to 100% of
the number awarded, based upon meeting certain specific financial performance
objectives. There is a two-year holding period for the shares after the
restrictions lapse.
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PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table shows estimated annual benefits, giving effect to
NiSource's Pension Plan and Supplemental Executive Retirement Plan, payable upon
retirement to persons in the specified remuneration and years-of-service
classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$350,000..................... $144,750 $193,000 $201,750 $210,500 $210,500
400,000..................... 167,250 223,000 233,000 243,000 243,000
450,000..................... 189,750 253,000 264,250 275,500 275,500
500,000..................... 212,250 283,000 295,500 308,000 308,000
550,000..................... 234,750 313,000 326,750 340,500 340,500
600,000..................... 257,250 343,000 358,000 373,000 373,000
650,000..................... 279,750 373,000 389,250 405,500 405,500
700,000..................... 302,250 403,000 420,500 438,000 438,000
750,000..................... 324,750 433,000 451,750 470,500 470,500
800,000..................... 347,250 463,000 483,000 503,000 503,000
850,000..................... 369,750 493,000 514,250 535,500 535,500
900,000..................... 392,250 523,000 545,500 568,000 568,000
950,000..................... 414,750 553,000 576,750 600,500 600,500
1,000,000................... 437,250 583,000 608,000 633,000 633,000
1,050,000................... 459,750 613,000 639,250 665,500 665,500
1,100,000................... 482,250 643,000 670,500 698,000 698,000
</TABLE>
The credited years of service for each of the Named Officers, pursuant to
the Pension Plan and Supplemental Executive Retirement Plan, are as follows:
Gary L. Neale -- 25 years; Stephen P. Adik -- 21 years; Patrick J. Mulchay -- 37
years; Jeffrey W. Yundt -- 20 years; and Joseph L. Turner -- 28 years.
Upon their retirement, regular employees and officers of NiSource and its
subsidiaries which adopt the plan (including directors who are also full-time
officers) will be entitled to a monthly pension in accordance with the
provisions of NiSource's pension plan, originally effective as of January 1,
1945. The directors who are not and have not been officers of NiSource are not
included in the pension plan. The pensions are payable out of a trust fund
established under the pension plan with The Northern Trust Company, trustee. The
trust fund consists of contributions made by NiSource and the earnings of the
fund. Over a period of years the contributions are intended to result in overall
actuarial solvency of the trust fund. The pension plan of NiSource has been
determined by the Internal Revenue Service to be qualified under Section 401 of
the Internal Revenue Code.
Pension benefits are determined separately for each participant. The
formula for a monthly payment for retirement at age 65 is 1.7% of average
monthly compensation multiplied by years of service (to a maximum of 30 years)
plus 0.6% of average monthly compensation multiplied by years of service over
30. Average monthly compensation is the average for the 60 consecutive
highest-paid months in the employee's last 120 months of service. Covered
compensation is defined as wages reported as W-2 earnings (up to a limit set
forth in the Internal Revenue Code and adjusted periodically) plus any salary
reduction contributions made under NiSource's 401(k) plan, minus any portion of
a bonus in excess
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<PAGE> 168
of 50% of base pay and any amounts paid for unused vacation time and vacation
days carried forward from prior years. The benefits listed in the Pension Plan
table are not subject to any deduction for Social Security or other offset
amounts.
NiSource also has a Supplemental Executive Retirement Plan for officers.
Participants in the supplemental plan are selected by the board of directors.
Benefits from this plan are to be paid from the general assets of NiSource.
The Supplemental Executive Retirement Plan provides the greater of (i) 60%
of five-year average pay less Primary Social Security Benefits (prorated for
less than 20 years of service) and an additional 0.5% of 5-year average pay less
Primary Social Security Benefits per year for participants with between 20 and
30 years of service, or (ii) the benefit formula under NiSource's Pension Plan.
In either case, the benefit is reduced by the actual pension payable from
NiSource's Pension Plan. In addition, the Supplemental Executive Retirement Plan
provides certain disability and pre-retirement death benefits for the spouse of
a participant.
NISOURCE CHANGE IN CONTROL AND TERMINATION AGREEMENTS
The board of directors of NiSource has authorized Change in Control and
Termination Agreements with Mr. Neale and the vice presidents of NiSource
(including each of the Named Officers). NiSource believes that these agreements
and related shareholder rights protections are in the best interests of the
shareholders, to insure that in the event of extraordinary events, totally
independent judgment is enhanced to maximize shareholder value. The agreements
can be terminated on three years' notice and provide for the payment of
specified benefits if the executive terminates employment for good reason or is
terminated by NiSource for any reason other than good cause within 24 months
following certain changes in control. Each of these agreements also provides for
payment of these benefits if the executive voluntarily terminates employment
during a specified one-month period within 24 months following a change in
control. No amounts will be payable under the agreements if the executive's
employment is terminated by NiSource for good cause (as defined in the
agreements).
The agreements provide for the payment of three times the executive's
current annual base salary and target incentive bonus compensation. The
executive will also receive a pro rata portion of the executive's targeted
incentive bonus for the year of termination. The executive would also receive
benefits from NiSource that would otherwise be earned during the three-year
period following the executive's termination under NiSource's Supplemental
Executive Retirement Plan and qualified retirement plans. All stock options held
by the executive would become immediately exercisable upon the date of
termination of employment, and the restrictions would lapse on all restricted
shares awarded to the executive. NiSource will increase the payment made to the
executive as necessary to compensate the executive for any parachute penalty tax
imposed on the payment of amounts under the contracts.
During the three-year period following the executive's termination, the
executive and his or her spouse will continue to be covered by applicable health
or welfare plans of NiSource. If the executive dies during the three-year period
following the executive's termination, all amounts payable to the executive will
be paid to a named beneficiary.
The agreement with Mr. Neale provides for the same severance payments as
described above in the event his employment is terminated at any time by
NiSource (other than for
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good cause) or due to death or disability, or if he voluntarily terminates
employment with good reason (as defined in the agreements), even in the absence
of a change in control.
If the merger is completed using the holding company structure, the Change
in Control and Termination Agreements will become obligations of, and will
relate to changes in control of, New NiSource.
NISOURCE STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly change in NiSource's cumulative
total shareholder return on common shares, from 1994 through 1999, with the
cumulative total return on the Standard & Poor's 500 Stock Index and the Dow
Jones Utilities Average, assuming the investment of $100 on December 31, 1994
and the reinvestment of dividends.
[GRAPH]
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NiSource 100.00 134.79 146.03 190.32 242.78 148.48
- ---------------------------------------------------------------------------------------------------------------
S & P 500 100.00 137.53 169.09 225.49 289.93 350.93
- ---------------------------------------------------------------------------------------------------------------
DJ Utilities 100.00 132.32 144.48 177.70 211.16 198.91
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL MATTERS FOR NISOURCE MEETING
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APPROVAL OF NISOURCE'S AMENDED AND RESTATED
LONG-TERM INCENTIVE PLAN
BACKGROUND
At the annual meeting of shareholders held on April 13, 1994, the
shareholders of NiSource approved an amendment and restatement of the NIPSCO
Industries, Inc. 1994 Long-Term Incentive Plan. Since 1994, the Compensation
Committee of the board of directors has approved certain minor amendments to the
1994 Long-Term Incentive Plan. Also, at the annual meeting of shareholders held
on April 14, 1999, the shareholders of NiSource approved further amendments to
the 1994 Long-Term Incentive Plan.
At a meeting on January 29, 2000, the board of directors of NiSource
approved certain additional amendments to the 1994 Long-Term Incentive Plan,
described more fully below, and contained in an amendment and restatement of the
plan effective January 1, 2000. The board directed that the amendment and
restatement of the 1994 Long-Term Incentive Plan be submitted to the
shareholders for their approval. The proposed amended and restated Long-Term
Incentive Plan would increase the total number of shares or other awards
available for issuance under the plan, would expand the types of awards
available under the plan, and would extend the term of the plan from April 13,
2004 to December 31, 2005.
The NiSource board of directors recommends that the shareholders approve
the amended and restated Long-Term Incentive Plan, which is summarized in the
remainder of this section. If the amended and restated Long-Term Incentive Plan
is not approved, NiSource intends to continue the 1994 Long-Term Incentive Plan
in its current form. A copy of the amended and restated Long-Term Incentive Plan
is set forth in Annex VI to this joint proxy statement/prospectus. The following
summary is qualified in its entirety by reference to the full text of the plan
set forth as Annex VI.
GENERAL DESCRIPTION OF THE AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
The amended and restated Long-Term Incentive Plan is a stock-based
compensation plan, currently providing for the grant of:
- incentive stock options within the meaning of section 422 of the Internal
Revenue Code,
- options not intended to be incentive stock options (nonqualified stock
options),
- stock appreciation rights,
- restricted stock and
- performance units
to officers and other key executives of NiSource who are in positions in which
their decisions, actions and counsel significantly impact profitability. The
amended and restated Long-Term Incentive Plan is intended to recognize the
contributions made to NiSource by officers and other key executives who make
substantial contributions through their loyalty, ability, industry and
invention, and to improve the ability of NiSource to secure, retain and motivate
such employees upon whom NiSource's future earnings depend, by providing
ADDITIONAL MATTERS FOR NISOURCE MEETING
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them with an opportunity either to acquire or increase their proprietary
interest in NiSource or to receive additional compensation based upon the
performance of NiSource's common shares. In furtherance of that goal, the
proposed amendments expand the types of awards available under the plan to
include contingent stock awards and dividend equivalents payable on grants of
options, stock appreciation rights, performance units and contingent stock
awards. The proposed amendments also increase the maximum number of common
shares that NiSource can issue or use as a measure of stock appreciation rights
granted under the plan, increase per participant limits with respect to options,
stock appreciation rights, restricted stock awards and performance units and
expand the criteria that must be satisfied to earn grants of restricted stock
and performance units. The amendments also extend the term of the plan from
April 13, 2004 to December 31, 2005.
PLAN PROVISIONS
Shares Subject to Awards. Under the proposed amendments, the maximum number
of NiSource common shares that may be subject to awards would be increased from
5,000,000 common shares to 11,000,000 common shares. All awards and common
shares available under the plan are subject to adjustment in the event of a
merger, recapitalization, stock dividend, stock split or other similar change
affecting the number of outstanding NiSource common shares. Unpurchased shares
subject to an option that lapses or terminates without exercise, and shares
subject to restricted stock awards, that are never earned because the conditions
of the award are not fulfilled, are available for future awards. Common shares
delivered in lieu of cash payments or withheld by NiSource to satisfy income tax
withholding obligations are considered to have been used by the plan and are not
available for further awards or such delivery.
Information relating to awards which have been granted to the executive
officers named in the Summary Compensation Table is presented above in the
various tables under "-- NiSource Executive Compensation." As of December 31,
1999, 595,800 options had been granted under the plan to all executive officers
as a group at exercise prices ranging from $16.21 to $29.22 and 2,647,337
options had been granted to all employees as a group at exercise prices from
$16.22 to $29.22. As of December 31, 1999, there were 52,834 shares of
restricted stock that had been granted to all executive officers under the plan
which had not yet vested and 52,834 shares of restricted stock that had been
granted to all employees as a group which had not yet vested. Future awards to
be made are within the discretion of the Compensation Committee.
Administration. The plan is administered by the Compensation Committee,
which must be composed of two or more directors who are "nonemployee directors"
within the meaning of Rule 16b-3 of the Securities Exchange Act and are "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The Compensation Committee has the sole power to administer the plan and to
make rules with regard to how the plan is implemented. Subject to the provisions
of the plan, the Compensation Committee's powers include determining the
officers and employees of NiSource and its subsidiaries to whom awards shall be
granted, and fixing the size, terms, conditions and timing of all awards. The
Compensation Committee is, however, limited in the number of common shares
subject to awards that may be granted to certain executive officers of NiSource.
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<PAGE> 172
Under the proposed amendments, the maximum number of common shares subject
to options and stock appreciation rights that may be granted to any single
qualifying executive officer during the term of the plan would be increased from
500,000 to 1,500,000. The maximum number of NiSource common shares subject to
options and stock appreciation rights that may be granted to a qualifying
executive officer in any one year would be increased from 50,000 to 300,000.
"Qualifying executive officer" means any executive officer named from time to
time in the summary compensation table in the proxy statement and who is
employed on the last day of the taxable year.
The proposed amendments further provide that the maximum number of common
shares subject to restricted stock awards that may be granted to any single
qualifying executive officer during the term of the plan would be increased from
150,000 to 750,000. The proposed amendments also would increase the number of
shares of restricted stock or performance units that may be awarded to an
executive in any one year from 50,000 to 200,000, provided that no more than
400,000 (previously, 50,000) shares of restricted stock or performance units may
be awarded in any three year period. The limitations may in each case be
adjusted in the event of any stock dividend, recapitalization, stock split or
other capital adjustment or any other transaction materially affecting common
shares.
The proposed amendments also expand the types of awards available under the
plan to include contingent stock awards. The maximum number of common shares
subject to contingent stock awards that may be granted to any qualifying
executive officer would be 200,000 per year; provided, however, that no more
than 400,000 shares of contingent stock may be awarded in any three year period,
and that the maximum number of shares of contingent stock granted to any
qualifying executive officer during the term of the plan would be 750,000.
The proposed amendments also provide for the award of dividend equivalents
payable on grants of options, stock appreciation rights, performance units and
contingent stock awards, in addition to payment of dividend equivalents on
restricted stock, which the plan already allows.
The Compensation Committee retains its discretion as to the timing and
amount of particular awards. In establishing the number of options, stock
appreciation rights, restricted stock awards, contingent stock awards and
performance units that may be granted to qualifying executive officers, the
Compensation Committee is not obligated to grant any particular amount within
any year, during the term of the plan or at any other time.
Eligibility. The Compensation Committee may select any executive and
managerial employee of NiSource and its subsidiaries who is in a position in
which the employee's decisions, actions and counsel significantly impact
profitability to be a participant in the plan. A director who is not an employee
is not eligible to receive awards under the plan. The determination of who is
eligible to participate and the awards to be granted is made on a year-to-year
basis. Approximately 200 employees were eligible to participate in the plan in
1999.
Stock Options. An incentive stock option or a nonqualified option is the
right to purchase, in the future, NiSource common shares at a set price. Under
the plan, the purchase price of shares subject to any option, which can be
either an incentive stock option or a nonqualified option, must be at least 100%
of the fair market value of the
ADDITIONAL MATTERS FOR NISOURCE MEETING
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<PAGE> 173
shares on the date of grant. Fair market value is defined as the average of the
high and low prices of the common shares on the New York Stock Exchange on the
date on which the option is granted. On April 24, 2000, the closing price of the
common shares on the New York Stock Exchange was $17 11/16. The proposed
amendments would prohibit repricing any outstanding option or granting an option
subject to cancellation and replacement, except in the case of adjustments for a
merger, recapitalization, stock dividend, stock split or other similar change.
Each option terminates on the earliest of (1) the expiration of the term,
which may not exceed ten years from the date of grant; (2) 30 days after the
date the option holder's employment terminates for any reason other than
disability, death or retirement; or (3) the expiration of three years from the
date an option holder's employment terminates by reason of disability, death or
retirement.
If an incentive stock option is granted to an employee who then owns,
directly or by attribution under the Internal Revenue Code, shares possessing
more than 10% of the total combined voting power of all classes of shares of
NiSource, the term of the incentive stock option will not exceed five years and
the exercise price will be at least 110% of the fair market value of the shares
on the date that the incentive stock option is granted.
An option holder may pay the exercise price for an option (1) in cash, (2)
in cash received from a broker-dealer to whom the holder has submitted an
exercise notice consisting of a fully endorsed option (however, in the case of a
holder subject to Section 16 of the Securities Exchange Act, this payment option
shall only be available to the extent such holder complies with Regulation T
issued by the Federal Reserve Board), (3) by delivering common shares having an
aggregate fair market value on the date of exercise equal to the exercise price,
(4) by directing NiSource to withhold such number of common shares otherwise
issuable upon exercise of such option having an aggregate fair market value on
the date of exercise equal to the exercise price, (5) by such other medium of
payment as the Compensation Committee, in its discretion, shall authorize at the
time of grant, or (6) by any combination of these methods.
Each option will be evidenced by a written option agreement containing
provisions consistent with the plan and such other provisions as the
Compensation Committee deems appropriate. No incentive stock option granted
under the plan may be transferred, except by will or the laws of descent and
distribution. Nonqualified options may be assigned, without consideration and
with the approval of the Compensation Committee, to the option holder's spouse
or lineal descendant, a trustee for his or her spouse or lineal descendant, or a
tax-exempt organization.
Restricted Stock Awards. A restricted stock award is the grant of a right
to receive common shares of NiSource, subject to satisfaction of certain
criteria or conditions, which may or may not be performance based. Common shares
awarded may not be transferred or encumbered until the restrictions established
by the Compensation Committee lapse.
Pursuant to the plan, the business criteria that the Compensation Committee
uses to define the performance targets must relate to corporate, division or
business unit performance and may be established in terms of one or more of the
following:
- change in stock price;
- growth in gross revenue, pre-tax operating income or pre-tax earnings per
share;
ADDITIONAL MATTERS FOR NISOURCE MEETING
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<PAGE> 174
- ratio of stock price, earnings or pre-tax operating income to
shareholder's equity, earnings, total assets or assets employed; or
- a comparison of any of the preceding measures to similar measures for
other companies, including competitors.
The Compensation Committee will choose which of these criteria, if any, to
include in each individual grant and the performance targets that must be
satisfied before the restrictions will be lifted.
In the event of a participant's termination of employment (other than due
to death, disability or retirement) prior to the lapse of applicable
restrictions, all shares as to which there still remain unlapsed restrictions
will be forfeited. Each restricted stock award will be evidenced by a written
restricted stock award agreement containing provisions consistent with the plan
and such other provisions as the Compensation Committee deems appropriate.
Stock Appreciation Rights. A stock appreciation right is a right to
receive, in the future in cash or common shares, all or a portion of the excess
of the fair market value of NiSource's common shares, at the time the stock
appreciation right is exercised, over a specified price not less than the fair
market value of the NiSource common shares at the date of the grant. Stock
appreciation rights may be granted in tandem with a previously or
contemporaneously granted stock option, or separately from the grant of a stock
option. Stock appreciation rights granted under the plan may not be granted for
a period of more than ten years and will be exercisable in whole or in part, at
such time or times and as determined by the Compensation Committee at the time
of the grant, which period may not commence any earlier than six months after
the date of grant.
Performance Units. A performance unit is a right to a future payment,
either in cash or common shares, based upon the achievement of pre-established
long-term performance objectives. The Compensation Committee may establish
performance periods of not less than two, nor more than five, years and maximum
and minimum performance targets during the period. The level of achievement of
targets will determine what portion of value of a unit is awarded. The business
criteria that the Compensation Committee may use to define the performance
targets are the same as those used in awarding restricted stock, as described on
page 167.
In the event a participant holding a performance unit ceases to be employed
prior to the end of the applicable performance period by reason of death,
disability or retirement, such participant's units, to the extent earned, shall
be payable at the end of the performance period in proportion to his active
service during the performance period as determined by the Committee. Upon any
other termination of employment, participation will terminate and all
outstanding performance units will be canceled.
Contingent Stock Awards. A contingent stock award is a contingent right to
receive restricted stock in the future, subject to the satisfaction of certain
vesting requirements and performance targets as specified by the Compensation
Committee. Contingent stock awards may be granted either alone or in tandem with
restricted stock awards. The Compensation Committee may establish performance
periods and maximum and minimum performance targets during the period. The
Compensation Committee has the authority to permit an acceleration of the
expiration of the applicable restriction period with respect to any part or all
of a contingent stock award. The business criteria that the Compensation
ADDITIONAL MATTERS FOR NISOURCE MEETING
168
<PAGE> 175
Committee may use to define the performance targets are the same as those used
in awarding restricted stock, as described on page 167.
In the event of a participant's termination of employment (other than due
to death, disability or retirement) prior to the lapse of applicable
restrictions, all awards and related shares as to which there still remain
unlapsed restrictions will be forfeited. Each contingent stock award will be
evidenced by a written contingent stock award agreement containing provisions
consistent with the plan and such other provisions as the Compensation Committee
deems appropriate.
Duration of the Plan. No award may be granted under the plan after December
31, 2005.
Provisions Relating to a Change in Control of NiSource. In the event of a
"change in control" of NiSource, the date upon which each award then outstanding
under the plan first becomes exercisable or vests, as the case may be, will
automatically accelerate to the effective date of the change in control. The
Compensation Committee, as constituted before the change in control, is
authorized, and has sole discretion, as to any award, either at the time the
award is granted or any time thereafter, to take any one or more of the
following actions:
- to provide for the exercise of any award for an amount of cash equal to
the difference between the exercise price and the then fair market value
of the common shares covered by the award as if the award were currently
exercisable;
- to provide for the vesting or termination of the restrictions on any
award;
- to make any adjustment to any award then outstanding as the Compensation
Committee deems appropriate to reflect the change in control; and
- to cause any award then outstanding to be assumed by the acquiring or
surviving corporation, after the change in control.
"Change in control" has the meaning given to the term in separate change in
control agreements between NiSource and certain executives. See "-- NiSource's
Change in Control and Termination Agreements" on page 162.
Termination, Suspension or Amendment. The board or the Compensation
Committee may terminate, suspend or amend the plan without the authorization of
shareholders to the extent allowed by law or the rules of the New York Stock
Exchange, including any rules issued by the Securities and Exchange Commission
under Section 16 of the Securities Exchange Act, as long as shareholder approval
is not required for the plan to continue to satisfy the requirements of Rule
16b-3. No termination, suspension or amendment of the plan shall adversely
affect any right acquired by any participant under an award granted before the
date of the termination, suspension or amendment, unless the participant
consents. It shall be conclusively presumed that any adjustment for changes in
capitalization as provided in the plan does not adversely affect any right. The
plan will apply to grants made under the plan at any time.
Tax Aspects with Respect to Grants under the Amended and Restated Incentive
Plan. The following discussion summarizes the general principles of United
States federal income tax law applicable to awards granted under the plan. A
recipient of an incentive stock option will not recognize taxable income upon
either the grant or exercise of the
ADDITIONAL MATTERS FOR NISOURCE MEETING
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incentive stock option. The option holder will recognize long-term capital gain
or loss on a disposition of the common shares acquired upon exercise of an
incentive stock option, provided the option holder does not dispose of those
common shares within two years from the date the incentive stock option was
granted or within one year after the common shares were transferred to the
option holder. If the option holder satisfies both of the foregoing holding
periods, then NiSource will not be allowed a deduction by reason of the grant or
exercise of the incentive stock option.
As a general rule, if the option holder disposes of the common shares
without satisfying the above holding periods, in a manner different than
described above, the gain recognized will be taxed as ordinary income to the
extent of the difference between (1) the lesser of the fair market value of the
common shares on the date of exercise or the amount received for the common
shares, and (2) the adjusted basis of the common shares. Under these
circumstances, NiSource will be entitled to a deduction in an equal amount. Any
gain in excess of the amount recognized as ordinary income on such disposition
will be long-term or short-term capital gain, depending on the length of time
the option holder held the common shares prior to the disposition.
The amount by which the fair market value of a common share at the time of
exercise of any incentive stock option exceeds the exercise price will be
included in the computation of an option holder's "alternative minimum taxable
income" in the year the option holder exercises the incentive stock option. If
an option holder pays alternative minimum tax with respect to the exercise of an
incentive stock option, the amount of tax paid will be allowed as a credit
against regular tax liability in subsequent years. The option holder's basis in
the common shares for purposes of the alternative minimum tax will be adjusted
when income is included in alternative minimum taxable income.
A recipient of a nonqualified stock option will not recognize taxable
income at the time of grant, and NiSource will not be allowed a deduction by
reason of the grant. In the taxable year in which the option holder exercises
the nonqualified stock option, the option holder will recognize ordinary income
in an amount equal to the excess of the fair market value of the common shares
received at the time of exercise of such an option over the exercise price of
the option, and NiSource will be allowed a deduction in that amount. Upon
disposition of the common shares subject to the option, an option holder will
recognize long-term or short-term capital gain or loss, depending upon the
length of time the common shares were held prior to disposition, equal to the
difference between the amount realized on disposition and the option holder's
adjusted basis of the common shares subject to the option (which adjusted basis
ordinarily is the fair market value of the common shares subject to the option
on the date the option was exercised.)
At the date of grant, the holder of a stock appreciation right will not be
deemed to receive income, and NiSource will not be entitled to a deduction. On
the date of exercise, the holder of a stock appreciation right will realize
ordinary income equal to the amount of cash or the fair market value of the
common shares received on exercise. NiSource will be entitled to a corresponding
deduction with respect to ordinary income realized by the holder of a stock
appreciation right. Upon the vesting of restricted stock awards or contingent
stock awards, the holder will realize ordinary income in an amount equal to the
fair market value of the unrestricted shares at that time and NiSource will
receive a corresponding deduction. Upon receipt of payment of a performance
unit, the recipient will realize ordinary income equal to the amount paid and
NiSource will receive a corresponding deduction.
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VOTE REQUIRED FOR APPROVAL OF THE AMENDED AND RESTATED INCENTIVE PLAN
Approval of the proposed amended and restated Long-Term Incentive Plan
requires the affirmative vote of a majority of the votes cast at the NiSource
shareholder meeting, assuming the presence of a quorum.
THE NISOURCE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF THE AMENDED
AND RESTATED LONG-TERM INCENTIVE PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has selected Arthur Andersen LLP to serve as
NiSource's independent public accountants for the year 2000, as they have served
for many years past. A representative of that firm will be present at the
meeting and will be given an opportunity to make a statement if he so desires.
The Arthur Andersen representative has informed NiSource that he does not
presently intend to make a statement. The representative will also be available
to respond to questions from shareholders.
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ANNEXES
<TABLE>
<S> <C>
Annex I Agreement and Plan of Merger
Annex II Section 262 of the Delaware General Corporation Law
Annex III Opinion of Credit Suisse First Boston Corporation
Annex IV Opinion of Morgan Stanley & Co. Incorporated
Annex V Opinion of Salomon Smith Barney Inc.
Annex VI NiSource Inc. 1994 Long-Term Incentive Plan, as amended and
restated effective January 1, 2000
</TABLE>
ANNEXES
172
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ANNEX I
AGREEMENT AND PLAN OF MERGER
AMONG
COLUMBIA ENERGY GROUP,
NISOURCE INC.,
NEW NISOURCE INC.,
PARENT ACQUISITION CORP.,
COMPANY ACQUISITION CORP.
AND
NISOURCE FINANCE CORP.
Dated as of February 27, 2000
As Amended and Restated as of March 31, 2000
ANNEX I
<PAGE> 180
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I
FORMATION OF HOLDING COMPANY AND SUBSIDIARIES
1.1 Organization of Holdco...................................... 1
1.2 Directors and Officers of Holdco............................ 2
1.3 Organization of Merger Subsidiaries......................... 2
1.4 Actions of Directors and Officers........................... 2
1.5 Actions of Parent and the Company........................... 2
ARTICLE II
THE MERGERS; CLOSING; EFFECTIVE TIME
2.1 The Mergers................................................. 3
(a) Parent Merger........................................... 3
(b) Company Merger.......................................... 3
2.2 Closing..................................................... 4
2.3 Effective Time.............................................. 4
2.4 Alternative Structure....................................... 4
ARTICLE III
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF PARENT,
THE COMPANY AND THE MERGER SUBS; EXCHANGE OF CERTIFICATES
3.1 Merger Sub Shares........................................... 5
3.2 Holdco Shares............................................... 5
3.3 Conversion of Parent Shares................................. 5
3.4 Conversion of Company Shares................................ 6
3.5 Stock Elections............................................. 7
3.6 Proration................................................... 8
3.7 Exchange of Company Certificates............................ 9
3.8 Dividends, Etc. ............................................ 10
ARTICLE IV
ADJUSTMENT TO PREVENT DILUTION
4.1 Adjustments of the Exchange Ratio........................... 11
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Company............... 11
(a) Organization, Good Standing and Qualification........... 11
(b) Capital Structure....................................... 12
(c) Corporate Authority; Approval and Fairness.............. 13
(d) Governmental Filings; No Violations..................... 13
(e) Company Reports; Financial Statements................... 14
(f) Absence of Certain Changes.............................. 15
(g) Litigation.............................................. 16
(h) Employee Benefits....................................... 16
(i) Compliance with Laws.................................... 17
</TABLE>
ANNEX I
i
<PAGE> 181
<TABLE>
<C> <S> <C>
(j) Takeover Statutes.................................................................... 18
(k) Environmental Matters................................................................ 18
(l) Taxes................................................................................ 18
(m) Labor Matters........................................................................ 19
(n) Intellectual Property................................................................ 19
(o) Brokers and Finders.................................................................. 20
(p) Regulation as a Utility.............................................................. 20
(q) Trading Position Risk Management..................................................... 20
(r) Registration Statement and Proxy Statement........................................... 20
(s) Tax Matters.......................................................................... 20
(t) Employment Agreements................................................................ 20
(u) No Other Representations or Warranties............................................... 21
5.2 Representations and Warranties of Parent................................................. 21
(a) Capitalization of Holdco, Merger Subs and Finance Co. ............................... 21
(b) Organization, Good Standing and Qualification........................................ 21
(c) Capital Structure.................................................................... 22
(d) Corporate Authority and Approval..................................................... 22
(e) Governmental Filings; No Violations.................................................. 23
(f) Parent Reports; Financial Statements................................................. 24
(g) Absence of Certain Changes........................................................... 25
(h) Litigation........................................................................... 25
(i) Employee Benefits.................................................................... 25
(j) Compliance with Laws................................................................. 27
(k) Takeover Statutes.................................................................... 27
(l) Environmental Matters................................................................ 27
(m) Tax Matters.......................................................................... 27
(n) Taxes................................................................................ 27
(o) Labor Matters........................................................................ 28
(p) Intellectual Property................................................................ 28
(q) Brokers and Finders.................................................................. 29
(r) Available Funds...................................................................... 29
(s) Regulation as a Utility.............................................................. 29
(t) Registration Statement and Proxy Statement........................................... 29
(u) No Other Representations or Warranties............................................... 29
ARTICLE VI
COVENANTS
6.1 Interim Operations of the Company........................................................ 30
6.2 Acquisition Proposals.................................................................... 32
6.3 Shareholders Meeting..................................................................... 33
(a) Company Shareholders Meeting......................................................... 33
(b) Parent Shareholders Meeting.......................................................... 34
(c) Meeting Date......................................................................... 34
6.3A Joint Proxy Statement and Registration Statement......................................... 34
(a) Preparation and Filing............................................................... 34
(b) Letter of the Company's Accountants.................................................. 34
(c) Letter of Parent's Accountants....................................................... 35
6.4 Filings; Other Actions; Notification..................................................... 35
6.5 Access................................................................................... 36
</TABLE>
ANNEX I
ii
<PAGE> 182
<TABLE>
<C> <S> <C>
6.6 Stock Exchange De-listing................................... 37
6.7 Publicity................................................... 37
6.8 Benefits.................................................... 37
(a) Stock Options........................................... 37
(b) Employee Benefits....................................... 37
(c) Employees............................................... 38
(d) Community Involvement................................... 38
(e) Integration Committee................................... 38
(f) Phantom Shares.......................................... 38
6.9 Expenses.................................................... 39
6.10 Indemnification; Directors' and Officers' Insurance......... 39
6.11 Takeover Statute............................................ 40
6.12 Parent Vote................................................. 41
6.13 1935 Act.................................................... 41
6.14 Necessary Action............................................ 41
6.15 Certain Mergers............................................. 41
6.16 Rule 145 Affiliates......................................... 41
6.17 Executive Consent Rights.................................... 41
6.18 Listing of Units............................................ 42
6.19 Organization of Finance Co.................................. 42
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the 42
Mergers.....................................................
(a) Shareholder Approval.................................... 42
(b) Registration Statement.................................. 42
(c) Listing of Shares....................................... 42
(d) HSR..................................................... 43
(e) Other Regulatory Consents............................... 43
(f) Litigation.............................................. 43
7.2 Conditions to Obligations of Parent, Holdco, Merger Subs and 43
Finance Co. ................................................
(a) Representations and Warranties.......................... 43
(b) Performance of Obligations of the Company............... 44
(c) Consents Under Agreements............................... 44
(d) Material Adverse Effect................................. 44
7.3 Conditions to Obligation of the Company..................... 44
(a) Representations and Warranties.......................... 44
(b) Performance of Obligations of Parent.................... 44
(c) Tax Opinion............................................. 44
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent............................... 45
8.2 Termination by Either Parent or the Company................. 45
8.3 Termination by the Company.................................. 45
8.4 Termination by Parent....................................... 46
8.5 Effect of Termination and Abandonment....................... 46
</TABLE>
ANNEX I
iii
<PAGE> 183
<TABLE>
<C> <S> <C>
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1 Survival.................................................... 47
9.2 Modification or Amendment................................... 47
9.3 Waiver of Conditions........................................ 48
9.4 Counterparts................................................ 48
9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL............... 48
9.6 Notices..................................................... 48
9.7 Entire Agreement; NO OTHER REPRESENTATIONS.................. 49
9.8 No Third Party Beneficiaries................................ 49
9.9 Obligations of Parent and of the Company.................... 49
9.10 Severability................................................ 50
9.11 Interpretation.............................................. 50
9.12 Assignment.................................................. 50
</TABLE>
ANNEX I
iv
<PAGE> 184
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of February 27, 2000, as amended and restated as of March 31, 2000, among
Columbia Energy Group, a Delaware corporation (the "Company"), NiSource Inc., an
Indiana corporation ("Parent"), New NiSource Inc., a corporation organized under
the laws of the State of Delaware, Parent Acquisition Corp., a corporation
organized under the laws of the State of Indiana, Company Acquisition Corp., a
corporation organized under the laws of the State of Delaware, and NiSource
Finance Corp., a corporation to be organized under the laws of the State of
Indiana.
WHEREAS, the boards of directors of each of Parent and the Company have
approved and declared it advisable and in the best interests of their respective
companies and stockholders to consummate the mergers provided for herein,
pursuant to which a newly formed holding company, New NiSource Inc. ("Holdco"),
will acquire all of the common stock of each of Parent and the Company through
mergers of subsidiaries of Holdco with and into each of Parent and the Company
or, if the Parent Requisite Vote (as hereinafter defined) is not obtained,
pursuant to which a wholly owned subsidiary of Parent will merge with and into
the Company;
WHEREAS, for federal income tax purposes, it is intended that (i) the
Parent Merger (as hereinafter defined) qualify as a reorganization under the
provisions of Section 368(a) of the United States Internal Revenue Code of 1986,
as amended (the "Code"); and/or as an exchange under the provisions of Section
351 of the Code and (ii) that, if the Parent Requisite Vote is obtained, the
Company Merger (as hereinafter defined) qualify as an exchange under the
provisions of Section 351 of the Code; and
WHEREAS, the Company and Parent desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
FORMATION OF HOLDING COMPANY AND SUBSIDIARIES
1.1 Organization of Holdco. As promptly as practicable and in any event no
later than five days following the execution of this Agreement, Parent shall
cause Holdco to be organized under the laws of the State of Delaware. The
Certificate of Incorporation and By-Laws of Holdco shall be in such forms as
shall be determined by Parent; provided that, if the Parent Requisite Vote has
been received, prior to the Closing Date (as hereinafter defined), the
Certificate of Incorporation of Holdco shall be amended to be substantially in
the form of the Certificate of Incorporation of the Company in effect as of the
date hereof (other than the name of the corporation and the number of authorized
shares, which shall each be as Parent shall decide, and the elimination of
cumulative voting) and concurrent with or immediately after the consummation of
the Parent Merger (as defined below), the Certificate of Incorporation of Holdco
shall be amended to change the name of Holdco to "NiSource Inc." The authorized
capital stock of Holdco shall initially consist of 100 common shares, par value
$.01 per share (the "Holdco Shares"), all of which shares shall
ANNEX I
I-1
<PAGE> 185
be issued to Parent. Parent shall provide the Company with copies of the
Certificate of Incorporation and By-Laws of Holdco promptly upon the Company's
request.
1.2 Directors and Officers of Holdco. The directors and officers of Holdco
shall be designated by Parent. Each such officer and director shall remain in
office until his or her successor is elected.
1.3 Organization of Merger Subsidiaries. As promptly as practicable, and in
any event no later than five days following the execution of this Agreement,
Holdco shall cause to be organized for the sole purpose of effectuating the
mergers contemplated herein:
(a) Parent Acquisition Corp., a corporation to be organized under the
laws of the State of Indiana ("PAC"). The Articles of Incorporation and
By-Laws of PAC shall be in such forms as shall be determined by Parent. The
authorized capital stock of PAC shall initially consist of 100 common
shares, without par value ("PAC Shares"), all of which shares shall be
issued to Holdco at a price of $1.00 per share.
(b) Company Acquisition Corp., a corporation to be organized under the
laws of the State of Delaware ("CAC" and, together with PAC, the "Merger
Subs"). The Certificate of Incorporation and By-Laws of CAC shall be in
such forms as shall be determined by Parent. The authorized capital stock
of CAC shall initially consist of 100 shares of common stock, par value
$0.01 per share ("CAC Shares"), all of which shares shall be issued to
Holdco at a price of $1.00 per share.
Parent shall provide the Company with copies of the Articles of
Incorporation or Certificate of Incorporation, as the case may be, and By-Laws
of PAC and CAC promptly upon the Company's request.
1.4 Actions of Directors and Officers. As promptly as practicable and in
any event no later than five days following the execution of this Agreement,
Parent shall take all requisite action to designate the directors and officers
of Holdco and each of the Merger Subs and to take such steps as may be necessary
or appropriate to complete the organization of Holdco and the Merger Subs.
Parent shall cause the directors of Holdco and the directors of the Merger Subs
to declare advisable, ratify and approve this Agreement.
1.5 Actions of Parent and the Company. As promptly as practicable and in
any event no later than five days following the execution of this Agreement,
Parent, as the holder of all the outstanding Holdco Shares, shall cause Holdco,
as the sole stockholder of each of the Merger Subs, to adopt and declare
advisable this Agreement. Parent shall cause Holdco, and Holdco shall cause
Parent and the Merger Subs, to perform their respective obligations under this
Agreement. As promptly as practicable the parties shall cause this Agreement to
be amended to add Holdco and the Merger Subs as parties hereto, and each Merger
Sub shall become a constituent corporation in its respective Merger.
ANNEX I
I-2
<PAGE> 186
ARTICLE II
THE MERGERS; CLOSING; EFFECTIVE TIME
2.1 The Mergers. Upon the terms and subject to the conditions set forth in
this Agreement at the Effective Time (as hereinafter defined), the following
transactions shall be consummated:
(a) Parent Merger. In accordance with the Indiana Business Corporation
Law (the "IBCL") and this Agreement, at the Effective Time, PAC shall be
merged with and into Parent, and the separate corporate existence of PAC
shall thereupon cease (the "Parent Merger"). Parent shall be the surviving
corporation in the Parent Merger and shall continue its corporate existence
under the laws of the State of Indiana, and the separate corporate
existence of Parent with all its rights, privileges, immunities and
franchises shall continue unaffected by the Parent Merger. Pursuant to the
Parent Merger, the name of the surviving corporation in the Parent Merger
shall be amended as Parent shall reasonably decide. As a result of the
Parent Merger, Parent shall become a wholly owned subsidiary of Holdco. The
Parent Merger shall have the effects set forth in the IBCL. Pursuant to the
Parent Merger:
(i) The Articles of Incorporation of Parent, as in effect
immediately prior to the Effective Time, shall be the articles of
incorporation of the surviving corporation in the Parent Merger except
that such articles of incorporation shall be amended to change the name
of the surviving corporation as provided in Section 2.1(a) and to make
such other changes as Parent and the Company agree.
(ii) The By-Laws of PAC, as in effect immediately prior to the
Effective Time, shall be the by-laws of the surviving corporation in the
Parent Merger.
(iii) The directors of PAC immediately prior to the Effective Time,
shall, from and after the Effective Time, be the directors of the
surviving corporation in the Parent Merger until their successors are
duly appointed or elected in accordance with applicable law.
(iv) The officers of Parent immediately prior to the Effective
Time, shall, from and after the Effective Time, be the officers of the
surviving corporation in the Parent Merger until their successors are
duly appointed or elected in accordance with applicable law.
(v) The shares of PAC and Parent shall be converted as provided in
Article III.
(b) Company Merger. In accordance with the Delaware General
Corporation Law (the "DGCL") and this Agreement, at the Effective Time, CAC
shall be merged with and into the Company, and the separate corporate
existence of CAC shall thereupon cease (the "Company Merger" and, together
with the Parent Merger, the "Mergers"). The Company shall be the surviving
corporation in the Company Merger and shall continue its corporate
existence under the laws of the State of Delaware, and the separate
corporate existence of the Company with all its rights, privileges,
immunities and franchises shall continue unaffected by the Company Merger.
As a result of the Company Merger, the Company shall become a wholly
ANNEX I
I-3
<PAGE> 187
owned subsidiary of Holdco. The Company Merger shall have the effects set
forth in the DGCL. Pursuant to the Company Merger:
(i) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the surviving corporation in the Company Merger.
(ii) The By-Laws of CAC, as in effect immediately prior to the
Effective Time, shall be the by-laws of the surviving corporation in the
Company Merger.
(iii) The directors of CAC immediately prior to the Effective Time,
shall, from and after the Effective Time, be the directors of the
surviving corporation in the Company Merger.
(iv) The officers of the Company immediately prior to the Effective
Time, shall, from and after the Effective Time, be the officers of the
surviving corporation in the Company Merger.
(v) The shares of CAC and the Company shall be converted as
provided in Article III.
2.2 Closing. The closing of the Mergers (the "Closing") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
at 10:00 A.M. on the third Business Day after the last of the conditions set
forth in Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions) shall be satisfied or waived (by the party entitled to the benefit
of such condition) in accordance with this Agreement or (ii) at such other place
and time and/or on such other date as the Company and Parent may agree in
writing (the "Closing Date"). For purposes of this Agreement, the term "Business
Day" means a day on which banks are not required or authorized by law to close
in New York City.
2.3 Effective Time. On the Closing Date, or, if not reasonably practicable,
as soon as practicable following the Closing Date, the Company and Parent will
cause Articles of Merger relating to the Parent Merger to be executed,
acknowledged and filed with the Secretary of State of the State of Indiana and a
Certificate of Merger relating to the Company Merger to be executed,
acknowledged and filed with the Secretary of State of the State of Delaware. The
term "Effective Time" shall mean the time and date which is the later of (i) the
date and time of the filing of the Articles of Merger relating to the Parent
Merger with the Secretary of State of the State of Indiana and (ii) the date and
time of the filing of the Certificate of Merger relating to the Company Merger
with the Secretary of State of the State of Delaware.
2.4 Alternative Structure. In the event Parent fails to obtain the Parent
Requisite Vote (as defined in Section 5.2(d)) at the Parent Shareholders Meeting
(as defined in Section 6.3(b)), the Company, Parent and Holdco hereby agree that
the Company Merger will be consummated upon the following terms:
(a) the Parent Merger will not be consummated and Holdco will not
repurchase Holdco Shares and consequently Holdco shall remain a wholly
owned subsidiary of Parent;
ANNEX I
I-4
<PAGE> 188
(b) the term "Effective Time" as used throughout this Agreement shall
mean the date and time of the filing of the Certificate of Merger relating
to the Company Merger;
(c) Parent shall cause Holdco to, and Holdco shall, consummate the
Company Merger; and
(d) at the Effective Time, each Company Share issued and outstanding
immediately prior to the Effective Time, other than Excluded Shares (as
defined herein), shall, in lieu of being converted as provided in Section
3.4(a)(i) and (ii), be converted into the right to receive (x) $70 in cash,
without interest, and (y) $3.02 in face value of Parent SAILS security
units consisting of a zero coupon debt security and a forward equity
contract and having the terms set forth in Annex A hereof (the "Parent
Units") and (z) the Additional Amount, if any (the sum of (x), (y) and (z)
being referred to herein as the "Alternative Structure Merger
Consideration").
ARTICLE III
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF PARENT,
THE COMPANY AND THE MERGER SUBS; EXCHANGE OF CERTIFICATES
3.1 Merger Sub Shares.
(a) At the Effective Time, each PAC Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Parent Merger
and without further action by the holder thereof, be converted into and shall
become one common share, without par value, of Parent, as the surviving
corporation in the Parent Merger. Each certificate which immediately prior to
the Effective Time represented outstanding PAC Shares shall, on and after the
Effective Time, be deemed for all purposes to represent the number of shares of
the common stock of the surviving corporation into which the PAC Shares
represented by such certificate shall have been converted pursuant to the Parent
Merger.
(b) At the Effective Time, each CAC Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Company Merger
and without further action by the holder thereof, be converted into and shall
become one share of common stock, par value $.01 per share, of the Company, as
the surviving corporation in the Company Merger. Each certificate which
immediately prior to the Effective Time represented outstanding CAC Shares
shall, on and after the Effective Time, be deemed for all purposes to represent
the number of shares of the common stock of the surviving corporation into which
the CAC Shares represented by such certificate shall have been converted
pursuant to the Company Merger.
3.2 Holdco Shares. At the Effective Time, Holdco shall repurchase each
Holdco Share issued and outstanding immediately prior to the Effective Time for
an amount of cash representing the fair market value thereof, as agreed upon by
Parent and Holdco.
3.3 Conversion of Parent Shares.
(a) At the Effective Time, each common share, without par value, of Parent
(a "Parent Share"), issued and outstanding immediately prior to the Effective
Time (other than Parent Shares held in the treasury of Parent) shall be
converted into one Holdco Share. Upon such conversion, all such Parent Shares
shall be canceled and cease to exist,
ANNEX I
I-5
<PAGE> 189
and each certificate theretofore representing Parent Shares shall, without any
action on the part of the holder thereof, be deemed to represent an equivalent
number of Holdco Shares. The Holdco Shares into which Parent Shares are
converted pursuant to the Parent Merger shall be deemed to have been issued at
the Effective Time.
(b) At the Effective Time, each Parent Share which is then held in the
treasury of Parent shall, by virtue of the Parent Merger, cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor.
(c) At the Effective Time, each outstanding option or right to purchase
Parent Shares (a "Parent Option") shall be assumed by Holdco in such manner that
it is converted into an option to purchase Holdco Shares, with each such Parent
Option otherwise to be exercisable upon the same terms and conditions as then
are applicable to such Parent Option, including the number of shares and
exercise price provided thereby. At the Effective Time, Holdco shall assume all
rights and obligations of Parent under Parent's stock option plans as in effect
at the Effective Time and shall continue such plans in accordance with their
terms.
3.4 Conversion of Company Shares.
(a) At the Effective Time, each share of common stock, par value $.01 per
share, of the Company (a "Company Share") issued and outstanding immediately
prior to the Effective Time (other than (x) Company Shares the holders of which
shall have validly demanded appraisal of such shares pursuant to Section 262 of
the DGCL ("Section 262") and shall not have voted such shares in favor of the
Company Merger ("Dissenting Shares"), (y) Company Shares owned by Parent or any
Subsidiary of Parent and (z) Company Shares held in the treasury of the Company
or owned by any Subsidiary of the Company (collectively, "Excluded Shares"))
shall be converted into either of the following (the "Merger Consideration"):
(i) the right to receive (x) $70 in cash, without interest, and (y)
$2.60 in face value of Holdco SAILS security units consisting of a zero
coupon debt security and a forward equity contract and having the terms set
forth in Annex A hereto (the "Holdco Units")(the Holdco Units or the Parent
Units, as the case may be, being referred to herein as the "Units
Consideration"), and (z) the Additional Amount, if any (the sum of (x), (y)
and (z) being referred to herein as the "Cash and Units Consideration"), or
(ii) subject to Section 3.4(b), if the holder thereof shall have
validly made and not revoked a Stock Election (as defined in Section
3.5(c)) with respect to such Company Share, a number of fully paid and
non-assessable Holdco Shares determined by dividing $74 by the Average
Parent Share Price (the "Exchange Ratio"), plus the Additional Amount, if
any, provided that in no event shall the Exchange Ratio be more than 4.4848
(the "Stock Consideration").
The "Additional Amount" means an amount in cash equal to 7% interest on
$72.29 for the period beginning on the first anniversary date of this Agreement,
and ending on the day prior to the Closing Date (calculated on a per annum basis
of a 365-day year), less all cash dividends per Company Share, if any, paid on
the Company Shares with respect to a record date occurring after the first
anniversary date of this Agreement; provided, however, that the Additional
Amount shall not be a negative number.
ANNEX I
I-6
<PAGE> 190
"Average Parent Share Price" means the average (rounded to the nearest
1/10,000) of the closing trading prices of the Parent Shares on the New York
Stock Exchange Composite Tape on each of the thirty consecutive trading days
immediately preceding the second trading day prior to the Closing Date.
Upon such conversion, all Company Shares (other than Excluded Shares) shall
be canceled and cease to exist, and each holder of Company Shares shall
thereafter cease to have any rights with respect to such shares, except the
right to receive, without interest, the Merger Consideration or the Alternative
Structure Merger Consideration, as the case may be, and cash for fractional
Holdco Shares in accordance with Section 3.7(d) upon the surrender of a
certificate representing such Company Shares (a "Company Certificate").
(b) Notwithstanding the foregoing, (i) if the aggregate number of Company
Shares for which Stock Elections are validly made and not revoked exceeds 30% of
the Company Shares outstanding as of the Effective Time (the "Maximum Stock
Shares"), the number of Company Shares to be converted into the Stock
Consideration shall be prorated as described in Section 3.6, and all other
Company Shares (other than Excluded Shares) shall be converted into the Cash and
Units Consideration, and (ii) if the aggregate number of Company Shares for
which valid Stock Elections are made is less than 10% of the Company Shares
outstanding as of the Effective Time, all Company Shares shall be converted into
the Cash and Units Consideration and Section 2.4 (other than subparagraph (d)
thereof) shall apply and in lieu of the Holdco Units, Parent Units shall be
delivered as part of the Merger Consideration.
(c) At the Effective Time, each Company Share which is then held in the
treasury of the Company or owned by Parent, any Subsidiary of Parent or any
Subsidiary of Company shall, by virtue of the Company Merger, cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor.
(d) Notwithstanding anything in this Section 3.4 to the contrary,
Dissenting Shares shall not be converted into or be exchangeable for the right
to receive the Merger Consideration or the Alternative Structure Merger
Consideration, unless and until the holder of Dissenting Shares shall have
failed to perfect or shall have effectively withdrawn or lost such holder's
right to appraisal and payment, as the case may be. If such holder shall have so
failed to perfect or shall have effectively withdrawn or lost such right, such
holder's shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, at the Effective Time, the right to receive the
Cash and Units Consideration, without any interest thereon. The Company shall
give Parent prompt notice of any Dissenting Shares (and shall also give Parent
prompt notice of any withdrawals of such demands for appraisal rights), and
Parent shall have the right to direct all negotiations and proceedings with
respect to any such demands. Neither the Company nor the surviving corporation
of the Company Merger shall, except with the prior written consent of Parent,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal rights.
3.5 Stock Elections.
(a) Parent shall authorize one or more transfer agent(s) reasonably
acceptable to the Company to receive Stock Elections and to act as Exchange
Agent hereunder (the "Exchange Agent") with respect to the Company Merger.
ANNEX I
I-7
<PAGE> 191
(b) Each person who, at the Effective Time, is a record holder of Company
Shares (other than Excluded Shares) shall have the right to submit a Form of
Election (as defined in Section 3.5(c)) specifying the number of Company Shares
that such person desires to have converted into the Stock Consideration.
(c) Parent and the Company shall prepare a form (the "Form of Election")
pursuant to which any holder of Company Shares may elect to receive the Stock
Consideration for any or all of his Company Shares (a "Stock Election"). The
Form of Election shall be mailed to the holders of Company Shares as of a date
on which Parent and the Company mutually agree, which date is expected to be
approximately 45 days prior to the expected Closing Date. Parent and the Company
shall use reasonable efforts to make the Form of Election available to all
persons who become holders of record of Company Shares between the date on which
the Form of Election is mailed to holders of Company Shares and the Election
Deadline (as defined in Section 3.5(d)).
(d) A Stock Election shall have been validly made only if the Exchange
Agent shall have received, by 5:00 p.m. New York, New York time on the second
Business Day prior to the Effective Time (the "Election Deadline"), a Form of
Election properly completed and signed and accompanied by the Company
Certificate or Certificates representing the shares to which such Form of
Election relates (or by an appropriate guarantee of delivery of such Company
Certificates from a member of any registered national securities exchange or of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company in the United States as set forth in such Form of Election,
provided such Company Certificate or Certificates are in fact delivered by the
time set forth in such guarantee of delivery). Any holder of Company Shares who
has made a Stock Election by submitting a Form of Election to the Exchange Agent
may at any time prior to the Election Deadline change such holder's election by
submitting a revised Form of Election, properly completed and signed, that is
received by the Exchange Agent prior to the Election Deadline. Any holder of
Company Shares may at any time prior to the Election Deadline revoke such
holder's election and withdraw such holder's Company Certificates deposited with
the Exchange Agent by written notice to the Exchange Agent received by the
Election Deadline. As soon as practicable after the Election Deadline, the
Exchange Agent shall determine the aggregate amounts of Cash and Units
Consideration and Stock Consideration and shall notify Holdco of its
determination.
(e) Parent, with the Company's consent, shall have the right to make rules,
not inconsistent with the terms of this Agreement, governing the validity of the
Forms of Election, the manner and extent to which Stock Elections are to be
taken into account in making the determinations prescribed by Section 3.6, the
issuance and delivery of certificates representing Holdco Shares ("Holdco
Certificates") into which Company Shares are converted in the Company Merger,
and the payment of cash for Company Shares converted into the right to receive
the Cash and Units Consideration in the Company Merger.
3.6 Proration. If valid Stock Elections are made for more than the Maximum
Stock Shares, then the number of Company Shares covered by each Form of Election
to be converted into the Stock Consideration shall be determined by multiplying
(i) the number of Company Shares as to which such Form of Election relates by
(ii) a fraction, the numerator of which is the Maximum Stock Shares and the
denominator of which is the total number of Company Shares for which a valid
Stock Election has been validly made and not withdrawn as of the Effective Time,
rounded down to the nearest whole number,
ANNEX I
I-8
<PAGE> 192
and the balance of the Company Shares covered by such Form of Election shall be
converted into the Cash and Units Consideration.
3.7 Exchange of Company Certificates.
(a) At or prior to the Effective Time, (i) Parent or Holdco shall deposit
(or cause to be deposited) with the Exchange Agent, for the benefit of the
holders of Company Shares, for exchange in accordance with this Article III,
cash in the amount sufficient to pay the aggregate cash portion of the Merger
Consideration or the Alternative Structure Merger Consideration, as the case may
be, and (ii) Parent or Holdco shall deposit (or cause to be deposited) with the
Exchange Agent, for the benefit of the holders of Company Shares, Holdco
Certificates and certificates for Holdco Units or Parent Units, as the case may
be, for exchange in accordance with this Article III (the cash, shares and
Holdco Units or Parent Units deposited pursuant to clauses (i) and (ii) being
hereinafter referred to as the "Exchange Fund"). The Holdco Shares and Holdco
Units, or Parent Units, as the case may be, into which Company Shares are
converted pursuant to the Company Merger shall be deemed to have been issued at
the Effective Time. Any cash (including the cash portion of the Cash and Unit
Consideration) deposited with the Exchange Agent shall be invested by the
Exchange Agent as Parent reasonably directs, provided that such investments
shall be in obligations of or guaranteed by the United States of America and
backed by the full faith and credit of the United States of America or in
commercial paper obligations rated P-1 and A-1 or better by Moody's Investors
Service, Inc. and Standard & Poor's Corporation, respectively, and any net
profit resulting from, or interest or income produced by, such investments will
be payable to the Company or Parent, as Parent directs. Parent shall pay all
charges and expenses, including those of the Exchange Agent, in connection with
the exchange of Company Shares for the Merger Consideration or the Alternative
Structure Merger Consideration.
(b) As soon as reasonably practicable after the Effective Time and in any
case no later than 5 days thereafter, the Exchange Agent shall mail to each
holder of record of Company Shares immediately prior to the Effective Time
(other than Company Shares covered by valid Stock Elections and Excluded Shares)
(i) a letter of transmittal (the "Company Letter of Transmittal") (which shall
specify that delivery shall be effected, and risk of loss and title to the
Company Certificates shall pass, only upon delivery of such Company Certificates
to the Exchange Agent and shall be in such form and have such other provisions
as Parent and the Company shall agree prior to the Effective Time), and (ii)
instructions for use in effecting the surrender of the Company Certificates in
exchange for the Cash and Unit Consideration with respect to the Company Shares
formerly represented thereby. As of the Election Deadline all holders of Company
Shares immediately prior to the Effective Time that have not submitted to the
Exchange Agent, or have properly revoked an effective, properly completed Form
of Election, shall be deemed not to have made a valid Stock Election.
(c) Upon surrender of a Company Certificate for cancellation to the
Exchange Agent, together with the Company Letter of Transmittal, duly executed,
and such other documents as Parent or the Exchange Agent shall reasonably
request, the holder of such Company Certificate shall be entitled to receive in
exchange therefor (i) a certified or bank cashier's check in the amount equal to
the cash, if any, which such holder has the right to receive pursuant to the
provisions of this Article III (including any cash in lieu of fractional Holdco
Shares pursuant to Section 3.7(d)), (ii) a certificate representing that number
of Holdco Units or Parent Units, if any, and (iii) a Holdco Certificate
ANNEX I
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<PAGE> 193
representing that number of Holdco Shares, if any, which such holder has the
right to receive pursuant to this Article III (in each case less the amount of
any required withholding taxes), and the Company Certificate so surrendered
shall forthwith be canceled. Until surrendered as contemplated by this Section
3.7, each Company Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive the Merger Consideration or the
Alternative Structure Merger Consideration, as the case may be, with respect to
the Company Shares formerly represented thereby.
(d) No fractional Holdco Shares shall be issued pursuant to the Company
Merger. In lieu of the issuance of any fractional Holdco Shares, cash
adjustments will be paid to holders in respect of any fractional Holdco Share
that would otherwise be issuable, and the amount of such cash adjustment shall
be equal to the product of such fractional amount and the Average Parent Share
Price.
3.8 Dividends, Etc.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time shall be paid on Holdco
Shares issuable with respect to any Company Shares represented by a Company
Certificate, until such Company Certificate is surrendered in exchange for Stock
Consideration as provided herein. Subject to the effect of applicable laws,
following surrender of any such Company Certificate, there shall be paid to the
holder of the Holdco Certificates issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such whole Holdco Shares and not paid, less the amount of any
withholding taxes which may be required thereon, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Holdco Shares, less the amount of
any withholding taxes which may be required thereon.
(b) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Parent of the Parent Shares (in the event the Parent
Merger is consummated) or the Company of the Company Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing any such shares are presented to the surviving
corporations of the Parent Merger or the Company Merger, they shall be canceled
and exchanged for certificates for the consideration, if any, deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Article III. Company Certificates surrendered by any person
constituting an "affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until Parent has received a written agreement from such person as
provided in Section 6.16.
(c) Any portion of the Exchange Fund (including the proceeds of any
investments thereof, any Holdco Shares and any Holdco Units or Parent Units)
that remains unclaimed by the former stockholders of the Company six months
after the Effective Time shall be delivered to Holdco. Any former stockholder of
the Company who has not theretofore complied with this Article III shall
thereafter look only to the surviving corporation of the Company Merger for
payment of the Merger Consideration or the Alternative Structure Merger
Consideration, as the case may be, and any cash in lieu of fractional shares and
unpaid dividends and distributions on the Holdco Shares deliverable
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in respect of each Company Share such stockholder holds as determined pursuant
to this Agreement, in each case without any interest thereon.
(d) None of Parent, the Company, Holdco, the surviving corporations of the
Mergers, the Exchange Agent or any other person shall be liable to any former
holder of Parent Shares or Company Shares for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(e) In the event that any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed and, if
required by Holdco or Parent, as applicable, the posting by such person of a
bond in such reasonable amount as Holdco or Parent, as applicable, may direct as
indemnity against any claim that may be made against it with respect to such
Company Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Company Certificate the applicable Merger Consideration or
Alternative Structure Merger Consideration and any cash in lieu of fractional
shares, and unpaid dividends and distributions on Holdco Shares as provided in
Section 3.7, deliverable in respect thereof pursuant to this Agreement.
ARTICLE IV
ADJUSTMENT TO PREVENT DILUTION
4.1 Adjustments of the Exchange Ratio. If, after the date hereof and prior
to the Effective Time, the outstanding shares of Parent or the Company shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities is declared thereon with a record date
within such period, the Exchange Ratio shall be adjusted accordingly to provide
to the holders of Company Shares the same economic effect as contemplated by
this Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange or stock dividend or similar event.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Company. Except as set forth in
the disclosure letter delivered to Parent by the Company on or prior to entering
into this Agreement (the "Company Disclosure Letter") or the Company Reports (as
defined in Section 5.1(e), the Company hereby represents and warrants to Parent
that:
(a) Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority
to own and operate its material properties and assets and to carry on its
business as presently conducted in all material respects and is qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification, except where the failure to be
so qualified as a foreign corporation or be in good standing would not be
reasonably likely to have,
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either individually or in the aggregate, a Company Material Adverse Effect.
The Company has made available to Parent complete and correct copies of the
Company's and its Subsidiaries' certificate of incorporation and by-laws
(or comparable governing instruments), as amended to date. The Company's
and its Subsidiaries' certificate of incorporation and by-laws (or
comparable governing instruments) so delivered are in full force and
effect. Section 5.1(a) of the Company Disclosure Letter sets forth a list,
as of the date hereof, of all of the Subsidiaries of the Company, the
jurisdictions under which such Subsidiaries were incorporated, the percent
of the equity interest therein owned by the Company and each Subsidiary of
the Company, as applicable and specifies each Subsidiary that is (i) a
"public utility company", a "holding company", a "subsidiary company", an
"affiliate" of any public-utility company, an "exempt wholesale generator"
or a "foreign utility company" within the meaning of Section 2(a)(5),
2(a)(7), 2(a)(8), 2(a)(11), 32(a)(1) or 33(a)(3) of the Public Utility
Holding Company Act of 1935, as amended (the "1935 Act"), respectively,
(ii) a "public utility" within the meaning of Section 201(e) of the Federal
Power Act (the "Power Act") or (iii) a "qualifying facility" within the
meaning of the Public Utility Regulatory Policies Act of 1978, as amended
("PURPA"), or that owns such a qualifying facility.
As used in this Agreement, the term "Subsidiary" means, with respect
to the Company or Parent, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the
securities or ownership interests having by their terms ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions is directly or indirectly owned or controlled
by such party or by one or more of its respective Subsidiaries or by such
party and any one or more of its respective Subsidiaries but excludes any
such entities that are inactive.
As used in this Agreement, the term "Company Material Adverse Effect"
means a material adverse effect on the financial condition, business,
assets, liabilities or results of operations of the Company and its
Subsidiaries taken as a whole; provided, however, that any such effect
resulting from or arising out of (i) any change in U.S. generally accepted
accounting principles ("GAAP") or interpretations thereof, (ii) economic or
business conditions in the United States generally or (iii) conditions
generally affecting the electric or gas utility industries, shall not be
considered when determining if a Company Material Adverse Effect has
occurred. As used in this Agreement, the term "knowledge" or any similar
formulation of knowledge shall mean the actual knowledge of, with respect
to the Company, those persons set forth in Section 1.1 of the Company
Disclosure Letter and, with respect to Parent, those persons set forth in
Section 1.1 of the Parent Disclosure Letter (as defined in Section 5.2).
(b) Capital Structure. The authorized capital stock of the Company
consists of 200,000,000 Shares, of which 81,308,000 Shares were outstanding
as of the close of business on December 31, 1999 and 40,000,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Shares"), of the
Company, of which no shares were outstanding as of the date hereof. All of
the issued and outstanding Shares have been duly authorized and are validly
issued, fully paid and nonassessable. The Company has no Shares reserved
for issuance, except that, as of February 25, 2000 there were 10,085,000
Shares reserved in the aggregate for issuance pursuant to the Company's
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1985 Long Term Incentive Plan, 1996 Amended and Restated Long Term
Incentive Plan and the Columbia Savings Plan (collectively, the "Stock
Plans"). Section 5.1(b) of the Company Disclosure Letter sets forth, as of
February 25, 2000 the aggregate number of outstanding options to acquire
Shares granted by the Company. Each of the outstanding shares of capital
stock or other securities of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned by the
Company or a direct or indirect wholly owned Subsidiary of the Company,
free and clear of any lien, pledge, security interest, claim or other
encumbrance. Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or to sell any shares of capital stock
or other securities of the Company or any of its Subsidiaries or any
securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any
securities of the Company or any of its Subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or outstanding.
The Company does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible
into or exercisable for securities having the right to vote) with the
shareholders of the Company on any matter ("Voting Debt").
(c) Corporate Authority; Approval and Fairness.
(i) The Company has all requisite corporate power and authority and
has taken all corporate action necessary in order to execute, deliver
and perform its obligations under this Agreement and to consummate,
subject only to approval of this Agreement by the holders of a majority
of the outstanding Shares (the "Company Requisite Vote"), the Company
Merger. This Agreement has been duly executed and delivered by the
Company, and, assuming due authorization, execution and delivery of this
Agreement by Parent, is a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (the
"Bankruptcy and Equity Exception").
(ii) As of the date hereof the Board of Directors of the Company
(A) has approved and declared advisable this Agreement and adopted the
plan of merger relating to the Company set forth herein and has resolved
to recommend that the shareholders of the Company approve this Agreement
and (B) has received the opinion of its financial advisors, Morgan
Stanley Dean Witter & Co., Inc. ("Morgan Stanley") and Salomon Smith
Barney Inc., to the effect that the consideration to be received by the
holders of the Shares in the Company Merger pursuant to this Agreement
is fair from a financial point of view to such holders.
(d) Governmental Filings; No Violations.
(i) Other than any reports, filings, registrations, approvals
and/or notices (A) required to be made pursuant to Section 2.3, (B)
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934 (the
"Exchange Act"), (C) with, to or of the Federal
ANNEX I
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Energy Regulatory Commission (the "FERC"), (D) with, to or of the
Kentucky Public Service Commission, the Maryland Public Service
Commission, the Public Utilities Commission of Ohio, the Pennsylvania
Public Utility Commission, the Virginia State Corporation Commission and
the West Virginia Public Service Commission; (E) with, to or of the
Securities and Exchange Commission (the "SEC") under the 1935 Act; (F)
to comply with applicable Environmental Laws (as defined in Section
5.1(k)); (G) with, to or of The Bermuda Registrar of Companies; (H)
with, to or of the Vermont Commissioner of Banking, Insurance,
Securities and Health Care Administration; and (I) to comply with the
rules and regulations of the New York Stock Exchange, Inc. (the "NYSE"),
no notices, reports, registrations or other filings are required to be
made by the Company with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the
Company from, any governmental or regulatory authority, agency,
commission, body or other governmental entity (each a "Governmental
Entity"), in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the
Company Merger and the other transactions contemplated hereby, except
for those that the failure to make or obtain are not, individually or in
the aggregate, reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the ability of
the Company to consummate the transactions contemplated by this
Agreement.
(ii) The execution, delivery and performance of this Agreement by
the Company do not, and the consummation by the Company of the Company
Merger and the other transactions contemplated hereby will not,
constitute or result in (A) a breach or violation of, or a default
under, either the Restated Certificate of Incorporation of the Company
or by-laws of the Company or the comparable governing instruments of any
of its Subsidiaries, (B) a breach or violation of, or a default under,
or the acceleration of any obligations, the loss of any right or
benefit, or the creation of a lien, pledge, security interest or other
encumbrance on the assets of the Company or any of its Subsidiaries
(with or without notice, lapse of time or both) pursuant to, any
agreement, lease, contract, note, mortgage, indenture, arrangement or
other obligation not otherwise terminable by the other party thereto on
90 days' or less notice ("Contracts") binding upon the Company or any of
its Subsidiaries or any Law (as defined in Section 5.1(i)) or
governmental or non-governmental permit or license to which the Company
or any of its Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in the case
of clause (B) or (C) above, for any breach, violation, default,
acceleration, creation or change that would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the ability of
the Company to consummate the transactions contemplated by this
Agreement.
(e) Company Reports; Financial Statements. The Company has made
available to Parent each registration statement, report, proxy statement or
information statement filed by it with the SEC (collectively, including any
amendments of any such reports, the "Company Reports") pursuant to the
Securities Act or the Exchange Act since January 1, 1998 and prior to the
date hereof, including (i) the Company's Annual Report on Form 10-K for the
fiscal year ended December 31,
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1998 and (ii) the Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1999, June 30, 1999 and September 30,
1999, each in the form filed with the SEC (including exhibits, annexes and
any amendments thereto). None of the Company Reports (in the case of
Company Reports filed pursuant to the Securities Act), as of their
effective dates, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading and none of the Company Reports (in the case of
Company Reports filed pursuant to the Exchange Act) as of the respective
dates first mailed to shareholders contains any statement which, at the
time and in the light of the circumstances under which it was made, was
false or misleading with respect to any material fact, or omits to state
any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company and its Subsidiaries
included in such Company Reports comply as to form in all material respects
with the applicable rules and regulations of the SEC with respect thereto.
Each of the consolidated balance sheets included in or incorporated by
reference into the Company Reports (including the related notes and
schedules) presents fairly, in all material respects, the financial
position of the Company and its Subsidiaries as of its date and each of the
consolidated statements of income and consolidated statements of cash flow
included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents in all material
respects the results of operations, retained earnings and changes in
financial position, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited
statements, to the absence of notes and normal year-end audit adjustments),
in each case in accordance with GAAP consistently applied during the
periods involved, except as may be noted therein. Since December 31, 1999
(the "Audit Date") and through the date hereof, neither the Company nor any
of its Subsidiaries has incurred any liabilities or obligations (whether
absolute, accrued, fixed, contingent or otherwise and whether due or to
become due) of any nature, except liabilities or obligations which (i) were
reflected on the audited balance sheet of the Company and its Subsidiaries
as of December 31, 1999 (including the notes thereto), (ii) were incurred
in the ordinary course of business, consistent with past practices after
December 31, 1999, (iii) are disclosed in the Company Reports filed after
December 31, 1999, (iv) would not be reasonably likely to, either
individually or in the aggregate, have a Company Material Adverse Effect,
(v) were incurred in connection with the transactions contemplated by this
Agreement or (vi) have been satisfied prior to the date hereof.
(f) Absence of Certain Changes. Since the Audit Date, the Company and
its Subsidiaries taken as a whole have conducted their business only in the
ordinary and usual course of such business and there has not been (i) any
change in the financial condition, business, assets, liabilities, or
results of operations of the Company and its Subsidiaries that has had or
would be reasonably likely to have a Company Material Adverse Effect; (ii)
any material damage, destruction or other casualty loss with respect to any
material asset or material property owned, leased or otherwise used by the
Company or any of its Subsidiaries, not covered by insurance; (iii) any
declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of the Company or any repurchase,
redemption or other acquisition by the Company or any Subsidiary of any
securities of the Company other than
ANNEX I
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(A) regular quarterly dividends on Shares in the ordinary course (including
any periodic increase thereon consistent with past practice) not to exceed
$.225 per Share and (B) as expressly contemplated by this Agreement; or
(iv) any change by the Company in accounting principles, practices or
methods which is not required by a change in GAAP. Since the Audit Date and
through the date hereof, except as provided for herein or as disclosed in
the Company Reports, there has not been any material increase in the
compensation payable or that could become payable by the Company or any of
its Subsidiaries to officers or key employees or any material amendment of
any of the Compensation and Benefit Plans (as defined in Section 5.1(h)(i))
other than increases or amendments in the ordinary course of business
consistent with past practice.
(g) Litigation. There are no civil, criminal or administrative
actions, suits, claims, hearings, investigations, reviews or proceedings
pending or, to the knowledge of the Company, threatened against the Company
or any of its Subsidiaries, except for those that would not be reasonably
likely to have, either individually or in the aggregate, a Company Material
Adverse Effect or prevent or materially delay or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, change in control, retention, restricted
stock, stock option, employment, termination, severance, compensation,
medical, health or other plan, agreement, policy, practice or
arrangement that covers employees or former employees of the Company and
its Subsidiaries ("Employees"), or directors or former directors of the
Company (the "Compensation and Benefit Plans") and any trust agreement
or insurance contract forming a part of such Compensation and Benefit
Plans has been made available to Parent prior to the date hereof. All
material Compensation and Benefit Plans are listed in Section 5.1(h) of
the Company Disclosure Letter and any Compensation and Benefit Plans
containing "change of control" or similar provisions therein are
specifically identified in Section 5.1(h) of the Company Disclosure
Letter.
(ii) All Compensation and Benefit Plans, to the extent subject to
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), are in substantial compliance with the applicable provisions
of ERISA. Each Compensation and Benefit Plan that is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA (a
"Pension Plan") and that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service (the "IRS"). As of the date hereof, there
is no material pending or to the knowledge of the Company threatened
litigation relating to the Compensation and Benefit Plans. Neither the
Company nor any of its Subsidiaries has engaged in a transaction with
respect to any Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject the Company or
any of its Subsidiaries to a material tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA.
ANNEX I
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(iii) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer with
the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate"). The Company and its Subsidiaries have not incurred
and do not expect to incur any withdrawal liability with respect to a
multiemployer plan under Subtitle E of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No notice of a
"reportable event", within the meaning of Section 4043 of ERISA, for
which the 30-day reporting requirement has not been waived or extended,
other than pursuant to PBGC Reg. Section 4043.66, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely
made or have been reflected on the most recent consolidated balance
sheet filed or incorporated by reference in the Company Reports. Neither
any Pension Plan nor any single-employer plan of an ERISA Affiliate has
an "accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA
Affiliate has an outstanding funding waiver. Neither the Company nor any
of its Subsidiaries has provided, or is required to provide, security to
any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(v) Neither the Company nor its Subsidiaries have any obligations
for, or liabilities with respect to, retiree health and life benefits
under any Compensation and Benefit Plan, except for benefits required to
be provided under Section 4980(B) of the Code.
(i) Compliance with Laws. As of the date hereof, the business of the
Company and its Subsidiaries taken as a whole is not being conducted in
violation of any federal, state, local or foreign law, statute, ordinance,
rule, regulation, judgment, order, injunction, decree, arbitration award,
agency requirement, license or permit of any Governmental Entity
(collectively, "Laws"), except for violations that would not be reasonably
likely to have, either individually or in the aggregate, a Company Material
Adverse Effect or prevent or materially delay or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement. As of the date hereof, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries
is pending or, to the knowledge of the Company, threatened, nor has any
Governmental Entity indicated an intention to conduct the same, except for
those the outcome of which would not be reasonably likely to have, either
individually or in the aggregate, a Company Material Adverse Effect or
prevent or materially delay or materially impair the ability of the Company
to consummate the transactions contemplated by this Agreement. The Company
and its Subsidiaries each has all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals from Governmental Entities necessary to conduct its business as
presently conducted, except for those the absence
ANNEX I
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of which would not be reasonably likely to have, either individually or in
the aggregate, a Company Material Adverse Effect or prevent or materially
delay or materially impair the ability of the Company to consummate the
Merger and the other transactions contemplated by this Agreement.
(j) Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (each a
"Takeover Statute") or any anti-takeover provision in the Company's
Restated Certificate of Incorporation and by-laws is applicable to the
Company Merger or the other transactions contemplated by this Agreement.
(k) Environmental Matters. To the knowledge of the Company, except for
such matters that would not be reasonably likely to cause a Company
Material Adverse Effect: (i) the operations of the Company and its
Subsidiaries are in compliance with all applicable Environmental Laws; (ii)
the Company and its Subsidiaries possess all environmental permits,
licenses, authorizations and approvals required under applicable
Environmental Laws with respect to the business of the Company and its
Subsidiaries as presently conducted and no deficiencies have been asserted
by any Governmental Entities with respect to such authorizations; (iii) the
Company and its Subsidiaries have not received any written environmental
claim, notice or request for information during the past three years
concerning any violation or alleged violation of any applicable
Environmental Law; and (iv) there are no material writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits or
proceedings pending or threatened in writing relating to compliance by the
Company or any of its Subsidiaries with any environmental permit or
liability of the Company or any of its Subsidiaries under any applicable
Environmental Law.
The representations and warranties in this Section 5.1(k) constitute
the sole representations and warranties of the Company with respect to any
Environmental Law or Hazardous Substance.
As used herein, the term "Environmental Law" means any applicable law,
regulation, code, license, permit, order, judgment, decree or injunction
promulgated by any Governmental Entity (A) for the protection of the
environment (including air, water, soil and natural resources) or (B)
regulating the use, storage, handling, transportation, release or disposal
of Hazardous Substances.
As used herein, the term "Hazardous Substance" means any substance
listed, defined, regulated, designated or classified as hazardous, toxic or
radioactive pursuant to any applicable Environmental Law including
petroleum and any derivative or by-product thereof.
(l) Taxes. The Company and each of its Subsidiaries (i) have duly and
timely filed (taking into account any extension of time within which to
file) all Tax Returns (as defined below) required to be filed by any of
them as of the date hereof and all such filed Tax Returns are complete and
accurate in all material respects; (ii) (A) have timely paid all Taxes that
are shown as due on such filed Tax Returns, including amounts required to
be paid with respect to Taxes as a result of any Tax sharing agreement or
similar arrangements ("Tax Sharing Agreement Amounts") or that the Company
or any of its Subsidiaries are obligated to withhold from amounts owing to
any employee, creditor or third party, except with respect to matters
contested in good faith and (B) no penalties or charges are due with
respect to the
ANNEX I
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late filing of any Tax Return required to be filed by or with respect to
any of them on or before the Effective Time; and (iii) with respect to all
Tax Returns filed by or with respect to any of them have not waived any
statute of limitations with respect to Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency, except, in each case,
for those failures to file or pay or those waivers that would not have a
Company Material Adverse Effect. As of the date hereof, there are not
pending or proposed or threatened in writing, any deficiency, or any such
audits, examinations, investigations or other proceedings in respect of
Taxes or Tax matters. Neither the Company nor any of its Subsidiaries has
been or is a party to any Tax sharing agreement or similar arrangement.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes", and "Taxable") includes all
federal, state, local and foreign income, profits, franchise, gross
receipts, environmental, customs duty, capital stock, severances, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions, and (ii) the term "Tax
Return" includes all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
(m) Labor Matters. As of the date hereof, neither the Company nor any
of its Subsidiaries is the subject of any material proceeding asserting
that the Company or any of its Subsidiaries has committed an unfair labor
practice nor is there pending or threatened, nor since January 1, 1998 has
there been any labor strike, dispute, walk-out, work stoppage, slow-down or
lockout involving the Company or any of its Subsidiaries, except for those
that, either individually or in the aggregate, are not reasonably likely to
have a Company Material Adverse Effect or prevent or materially delay or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement.
(n) Intellectual Property.
(i) The Company or its Subsidiaries own (free and clear of any and
all liens, pledges, security interests, claims or other encumbrances),
or are licensed or otherwise possess sufficient legally enforceable
rights to use, all patents, trademarks, trade names, service marks,
copyrights, technology, know-how, computer software programs or
applications, databases and tangible or intangible proprietary
information or materials that are currently used in its and its
Subsidiaries' businesses (collectively, "Intellectual Property Rights"),
except for any such failures to own, be licensed or possess that,
individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect.
(ii) Except as disclosed in the Company Reports filed prior to the
date hereof, and except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse
Effect, (i) to the knowledge of the Company, the use of the Intellectual
Property Rights by the Company or its Subsidiaries does not conflict
with, infringe upon, violate or interfere with or constitute an
appropriation of any right, title, interest or goodwill, including,
without limitation, any intellectual property right, patent,
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trademark, trade name, service mark, copyright of any other Person and
(ii) there have been no claims made and neither the Company nor any of
its Subsidiaries has received written notice of any claim or otherwise
knows that any Intellectual Property Right is invalid, or conflicts with
the asserted right of any other Person.
(o) Brokers and Finders. Except for Morgan Stanley and Salomon Smith
Barney Inc., neither the Company nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
Company Merger or the other transactions contemplated by this Agreement.
(p) Regulation as a Utility. Neither the Company nor any subsidiary
company or affiliate of the Company is subject to regulation as a public
utility or public service company (or similar designation) by any state in
the United States, by the United States or any agency or instrumentality of
the United States or by any foreign country. As used in this Section
5.1(p), the terms "subsidiary company" and "affiliate" shall have the
respective meanings ascribed to them in the 1935 Act.
(q) Trading Position Risk Management. The Company has established a
risk management committee which, from time to time, establishes risk
parameters to restrict the level of risk that the Company and its
Subsidiaries are authorized to take with respect to the net position
resulting from physical commodity transactions, exchange traded futures and
options and over-the-counter derivative instruments.
(r) Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in (i) the registration statement
on Form S-4 to be filed with the SEC by Holdco in connection with the
issuance of shares of Holdco Common Stock and Holdco Units (or by Parent in
connection with the issuance of Parent Units) in the Mergers (the
"Registration Statement") will, at the time the Registration Statement
becomes effective under the Securities Act, and as the same may be amended,
at the effective time of such amendment, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
(ii) the joint proxy in definitive form, relating to the meetings of the
stockholders of the Company and Parent to be held in connection with the
Mergers and the prospectus relating to the Holdco Shares and Holdco Units
or the Parent Units, as the case may be, to be issued in the Mergers (the
"Joint Proxy Statement/Prospectus") will at the date such Joint Proxy
Statement/Prospectus is mailed to such stockholders and, as the same may be
amended or supplemented, at the times of such meetings, contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(s) Tax Matters. As of the date hereof, neither the Company nor any of
its Affiliates has taken or agreed to take any action that would prevent
the Company Merger contemplated by this Agreement from qualifying as an
exchange under the provisions of Section 351 of the Code.
(t) Employment Agreements. Other than those persons listed on Section
5.1(t) of the Company Disclosure Letter, no officer, director or employee
of the Company or
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any of its Subsidiaries is a party to, or a beneficiary of, an employment
agreement of the type set forth in Section 5.1(t) of the Company Disclosure
Letter.
(u) No Other Representations or Warranties. Except for the
representations and warranties contained in this Section 5.1, neither the
Company nor any other Person makes any other express or implied
representation or warranty on behalf of the Company or any of its
Affiliates.
5.2 Representations and Warranties of Parent. Except as set forth in the
disclosure letter delivered to the Company by Parent on or prior to entering
into this Agreement (the "Parent Disclosure Letter") or the Parent Reports (as
defined in Section 5.2(f)), Parent represents and warrants to the Company that:
(a) Capitalization of Holdco, Merger Subs and Finance Co. The
authorized capital stock of Holdco consists of 100 shares of common stock,
par value $.01 per share, all of which are issued and outstanding and owned
by Parent. The authorized capital stock of PAC consists of 100 shares of
common stock, without par value, all of which are issued and outstanding
and owned by Holdco. The authorized capital stock of CAC consists of 100
shares of common stock, $0.01 par value, all of which are issued and
outstanding and owned by Holdco. All of such issued and outstanding shares
are duly authorized, validly issued, fully paid and nonassessable. The
authorized capital stock of Finance Co. (as defined in Section 6.19) at the
Effective Time will consist only of shares of common stock, without par
value, all of which shall be validly issued, fully paid and outstanding.
There are (i) no other shares of capital stock or voting securities of
Holdco, either Merger Sub or Finance Co. (ii) no securities of Holdco,
either Merger Sub or Finance Co. convertible into or exchangeable for
shares of capital stock or voting securities of Holdco, either Merger Sub
or Finance Co., respectively, and (iii) no options or other rights to
acquire from Holdco, either Merger Sub or Finance Co., and no obligations
of Holdco, either Merger Sub or Finance Co. to issue, any capital stock,
voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Holdco, either Merger Sub or Finance
Co., respectively. Until the certificate of incorporation of Holdco is
amended pursuant to Section 1.1 of the Agreement, the authorized capital
stock of Holdco will consist of 100 shares of common stock, par value $.01
per share. As of the effective date of the amendment of the certificate of
incorporation of Holdco pursuant to Section 1.1 of the Agreement, the
authorized capital stock of Holdco will be as set forth in such amended
certificate of incorporation. Prior to the Effective Time, all of the
issued and outstanding capital stock of Holdco shall be owned directly by
Parent. At the Effective Time, all of the issued and outstanding capital
stock of Finance Co. will be owned indirectly by Parent. Prior to the
Effective Time, Holdco, each Merger Sub and Finance Co. will not have
conducted any business and will have no assets, liabilities or obligations
of any nature other than those incident to its formation and pursuant to
this Agreement, the Mergers and the other transactions contemplated by this
Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and
its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of organization
and has all requisite corporate or similar power and authority to own and
operate its material properties and assets and to carry on its business as
presently conducted in all material respects and is qualified to do
business and is in good standing as a foreign corporation in each
ANNEX I
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jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification, except where the failure to be
qualified as a foreign corporation or be in good standing would not be
reasonably likely to have, either individually or in the aggregate, a
Parent Material Adverse Effect. Parent has made available to the Company a
complete and correct copy of Parent's and its Subsidiaries' certificates of
incorporation and by-laws (or comparable governing instruments), as amended
to date. Parent's and its Subsidiaries' certificates of incorporation and
by-laws (or comparable governing instruments) so delivered are in full
force and effect.
As used in this Agreement, the term "Parent Material Adverse Effect"
means a material adverse effect on the financial condition, business,
assets, liabilities or results of operations of Parent and its Subsidiaries
taken as a whole; provided, however, that any such effect resulting from or
arising out of (i) any change in GAAP or interpretations thereof, (ii)
economic or business conditions in the United States generally or (iii)
conditions generally affecting the electric or gas utility industries,
shall not be considered when determining if a Parent Material Adverse
Effect has occurred.
(c) Capital Structure. The authorized capital stock of Parent consists
of 400,000,000 Parent Shares, of which 124,098,357 shares were issued and
outstanding on January 31, 2000 and 20,000,000 preferred shares, without
par value, of which no shares were outstanding as of the date hereof and
4,000,000 shares designated as Series A Junior Participating Preferred
Shares and reserved for issuance pursuant to Parent's Share Purchase Rights
Plan. All of the issued and outstanding shares of Parent Shares have been
duly authorized and are validly issued, fully paid and nonassessable.
Parent has no Parent Shares reserved for or subject to issuance, except
that, as of December 31, 1999, there were 5,874,956 shares of Parent Shares
reserved in the aggregate for issuance pursuant to Parent's 1988 Amended
and Restated Long-Term Incentive Plan, 1994 Amended and Restated Long-Term
Incentive Plan and Nonemployee Director Stock Incentive Plan (the "Parent
Stock Plans"). Each of the outstanding shares of capital stock or other
securities of each of Parent's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and owned by Parent or a direct or
indirect wholly owned Subsidiary of Parent, free and clear of any lien,
pledge, security interest, claim or other encumbrance. Except as set forth
above, there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments to issue or to
sell any shares of capital stock or other securities of Parent or any of
its Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to
subscribe for or acquire, any securities of Parent or any of its
Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Parent does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the shareholders of Parent on any matter ("Parent
Voting Debt").
(d) Corporate Authority and Approval.
(i) Parent has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and
perform its obligations
ANNEX I
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under this Agreement, and, subject only to approval of this Agreement by
the holders of a majority of the outstanding Parent Shares (the "Parent
Requisite Vote"), to consummate the Mergers and the transactions
contemplated hereby. If the Parent Requisite Vote is not obtained, this
Agreement as modified by Section 2.4 hereof will remain effective and no
vote of holders of capital stock of Parent will be necessary to approve
this Agreement and the transactions contemplated by Section 2.4 hereof
or for Parent, Holdco or CAC to perform their respective obligations
hereunder. This Agreement has been duly executed and delivered by Parent
and, assuming due authorization, execution and delivery of this
Agreement by the Company, is a valid and legally binding agreement of
Parent, enforceable against Parent in accordance with its terms, subject
to the Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, Parent will have taken all
necessary action to permit Holdco to issue the number of Holdco Shares
and Holdco Units or to permit Parent to issue the number of Parent
Units, as the case may be, required to be issued pursuant to Articles II
and III. The Holdco Shares and Holdco Units or the Parent Units, as the
case may be, when issued, will be validly issued, fully paid and
nonassessable, and no shareholder of Parent will have any preemptive
right of subscription or purchase in respect thereof. The Holdco Shares
and Holdco Units or the Parent Units, as the case may be, when issued,
will be registered under the Securities Act and Exchange Act and
registered or exempt from registration under any applicable state
securities or "blue sky" laws.
(iii) As of the date hereof the Board of Directors of Parent (A)
has approved and declared advisable this Agreement and adopted the plan
of merger relating to Parent set forth herein and has resolved to
recommend that the shareholders of Parent approve this Agreement and (B)
has received the opinion of its financial advisor Credit Suisse First
Boston to the effect that the Merger Consideration or the Alternate
Structure Merger Consideration, as the case may be, is fair to Parent
from a financial point of view.
(e) Governmental Filings; No Violations.
(i) Other than any reports, filings, registrations, approvals
and/or notices (A) required to be made pursuant to Section 2.3, (B)
required to be made under the HSR Act, the Securities Act and the
Exchange Act, (C) with, to or of the SEC under the 1935 Act, (D) with,
to or of the FERC, (E) required to be made with the NYSE and (F) with,
to or of the Kentucky Public Service Commission, the Maryland Public
Service Commission, the Public Utilities Commission of Ohio, the
Pennsylvania Public Utility Commission, the Virginia State Corporation
Commission, the West Virginia Public Service Commission and the Maine
Public Utilities Commission, no notices, reports, registrations or other
filings are required to be made by Parent with, nor are any consents,
registrations, approvals, permits or authorizations required to be
obtained by Parent from, any Governmental Entity, in connection with the
execution and delivery of this Agreement by Parent and the consummation
by Parent of the Mergers and the other transactions contemplated hereby,
except for those that the failure to make or obtain would not be
reasonably likely to have, either individually or in the aggregate, a
Parent Material Adverse Effect or prevent,
ANNEX I
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materially delay or materially impair the ability of Parent to
consummate the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by
Parent do not, and the consummation by Parent of the Merger and the
other transactions contemplated hereby will not, constitute or result in
(A) a breach or violation of, or a default under, either the certificate
of incorporation or by-laws of Parent or the comparable governing
instruments of any of Parent's Subsidiaries, (B) a breach or violation
of, or a default under, or the acceleration of any obligations, the loss
of any right or benefit or the creation of a lien, pledge, security
interest or other encumbrance on the assets of Parent or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant to
any Contracts binding upon Parent or any of its Subsidiaries or any Law
or governmental or non-governmental permit or license to which Parent or
any of its Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in the case
of clause (B) or (C) above, for any breach, violation, default,
acceleration, creation or change that would not be reasonably likely to
have, either individually or in the aggregate, a Parent Material Adverse
Effect or prevent, materially delay or materially impair the ability of
Parent to consummate the transactions contemplated by this Agreement.
(f) Parent Reports; Financial Statements. Parent has made available to
the Company each registration statement, report, proxy statement or
information statement filed by it with the SEC (collectively, including any
amendments of any such reports, the "Parent Reports") pursuant to the
Securities Act or the Exchange Act since January 1, 1998 and prior to the
date hereof, including (i) Parent's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and (ii) Parent's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1999, June 30, 1999 and
September 30, 1999, each in the form filed with the SEC (including
exhibits, annexes and any amendments thereto). None of the Parent Reports
(in the case of Parent Reports filed pursuant to the Securities Act), as of
their effective dates, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under
which they were made, not misleading and none of the Parent Reports (in the
case of Parent Reports filed pursuant to the Exchange Act) as of the
respective dates first mailed to shareholders contains any statement which,
at the time and in the light of the circumstances under which it was made,
was false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The consolidated financial statements of Parent and its Subsidiaries
included in such Parent Reports comply as to form in all material respects
with the applicable rules and regulations of the SEC with respect thereto.
Each of the consolidated balance sheets included in or incorporated by
reference into the Parent Reports (including the related notes and
schedules) fairly presents, in all material respects, the financial
position of Parent and its Subsidiaries as of its date and each of the
consolidated statements of income and consolidated statements of cash flow
included in or incorporated by reference into the Parent Reports (including
any related notes and schedules) fairly presents, in all material respects,
the results of operations, retained earnings and changes in financial
ANNEX I
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position, as the case may be, of Parent and its Subsidiaries for the
periods set forth therein, in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein. Since September 30, 1999 (the "Parent Audit Date") and through the
date hereof, neither Parent nor any of its Subsidiaries has incurred any
liabilities or obligations (whether absolute, accrued, fixed, contingent or
otherwise and whether due or to become due) of any nature, except
liabilities or obligations which (i) were reflected on the audited balance
sheet of Parent and its Subsidiaries as of September 30, 1999 (including
the notes thereto), (ii) were incurred in the ordinary course of business,
consistent with past practices after September 30, 1999, (iii) are
disclosed in the Parent Reports filed after September 30, 1999, (iv) would
not be reasonably likely to, either individually or in the aggregate, have
a Parent Material Adverse Effect, (v) were incurred in connection with the
transactions contemplated by this Agreement or (vi) have been satisfied
prior to the date hereof.
(g) Absence of Certain Changes. Since the Parent Audit Date, Parent
and its Subsidiaries taken as a whole have conducted their business only in
the ordinary and usual course of such business and there has not been (i)
any change in the financial condition, business, assets, liabilities or
results of operations of Parent and its Subsidiaries that has had or would
be reasonably likely to have a Parent Material Adverse Effect; (ii) any
material damage, destruction or other casualty loss with respect to any
material asset or material property owned, leased or otherwise used by
Parent or any of its Subsidiaries, not covered by insurance; (iii) any
declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of Parent or any repurchase, redemption or
other acquisition by Parent or any Subsidiary of any securities of Parent
other than (A) quarterly dividends in the ordinary course not to exceed
$.30 per share of Parent Shares and (B) as expressly contemplated by this
Agreement; or (iv) any change by Parent in accounting principles, practices
or methods which is not required or permitted by GAAP. Since the Parent
Audit Date and through the date hereof, except as provided for herein or as
disclosed in the Parent Reports, there has not been any material increase
in the compensation payable or that could become payable by Parent or any
of its Subsidiaries to officers or key employees or any material amendment
of any of the Parent Compensation and Benefit Plans (as defined in Section
5.2(i)) other than increases or amendments in the ordinary course of
business consistent with past practice.
(h) Litigation. There are no civil, criminal or administrative
actions, suits, claims, hearings, investigations, reviews or proceedings
pending or threatened against Parent or any of its Subsidiaries, except for
those that would not be reasonably likely to have, either individually or
in the aggregate, a Parent Material Adverse Effect or prevent or materially
delay or materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement.
(i) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, change in control, retention, restricted
stock, stock option, employment, termination, severance, compensation,
medical, health or other plan, agreement, policy, practice or
arrangement that covers employees or former employees of the
ANNEX I
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Parent and its Subsidiaries ("Parent Employees"), or directors or former
directors of the Parent (the "Parent Compensation and Benefit Plans")
and any trust agreement or insurance contract forming a part of such
Parent Compensation and Benefit Plans has been made available to the
Company prior to the date hereof. All material Parent Compensation and
Benefit Plans are listed in Section 5.2(i) of the Parent Disclosure
Letter and any Parent Compensation and Benefit Plans containing "change
of control" or similar provisions therein are specifically identified in
Section 5.2(i) of the Parent Disclosure Letter.
(ii) All Parent Compensation and Benefit Plans, to the extent
subject to ERISA are in substantial compliance with the applicable
provisions of ERISA. Each Parent Compensation and Benefit Plan that is a
Pension Plan and that is intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the IRS.
As of the date hereof, there is no material pending or, to the knowledge
of Parent or Merger Sub, threatened litigation relating to the Parent
Compensation and Benefit Plans. Neither Parent nor any of its
Subsidiaries has engaged in a transaction with respect to any Parent
Employee Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject Parent or any of its
Subsidiaries to a material tax or penalty imposed by either Section 4975
of the Code or Section 502(i) of ERISA.
(iii) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by Parent or any of its Subsidiaries
with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any of them, or the single-employer plan of any
entity which is considered an ERISA Affiliate. Parent and its
Subsidiaries have not incurred and do not expect to incur any withdrawal
liability with respect to a multiemployer plan under Subtitle E of Title
IV of ERISA (regardless of whether based on contributions of an ERISA
Affiliate). No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived or extended, other than pursuant to PBGC Reg. Section
4043.66, has been required to be filed for any Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(iv) All contributions required to be made under the terms of any
Parent Compensation and Benefit Plan as of the date hereof have been
timely made or have been reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the Parent Reports.
Neither any Pension Plan nor any single-employer plan of an ERISA
Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither
Parent nor any of its Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Neither Parent nor any of its Subsidiaries have any obligations
for, or liabilities with respect to, retiree health and life benefits
under any Parent Compensation and Benefit Plan, except for benefits
required to be provided under Section 4980(B) of the Code.
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(j) Compliance with Laws. As of the date hereof, the business of
Parent and its Subsidiaries taken as a whole is not being conducted in
violation of any Laws, except for violations that would not be reasonably
likely to have, either individually or in the aggregate, a Parent Material
Adverse Effect or prevent or materially delay or materially impair the
ability of Parent to consummate the transactions contemplated by this
Agreement. As of the date hereof, no investigation or review by any
Governmental Entity with respect to Parent or any of its Subsidiaries is
pending or to the knowledge of Parent threatened, nor has any Governmental
Entity indicated an intention to conduct the same, except for those the
outcome of which would not be reasonably likely to have, either
individually or in the aggregate, a Parent Material Adverse Effect or
prevent or materially delay or materially impair the ability of Parent or
Merger Sub to consummate the transactions contemplated by this Agreement.
Parent and its Subsidiaries each has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations,
consents and approvals from Governmental Entities necessary to conduct its
business as presently conducted, except for those the absence of which
would not be reasonably likely to have, either individually or in the
aggregate, a Parent Material Adverse Effect or prevent or materially delay
or materially impair the ability of Parent to consummate the Merger and the
other transactions contemplated by this Agreement.
(k) Takeover Statutes. As of the date hereof, no Takeover Statute or
any applicable anti-takeover provision in the certificate of incorporation
of Parent or by-laws of Parent is applicable to the Mergers or any of the
other transactions contemplated by this Agreement.
(l) Environmental Matters. To the knowledge of Parent, except for such
matters that would not be reasonably likely to cause a Parent Material
Adverse Effect: (i) operations of Parent and its Subsidiaries are in
compliance with all applicable Environmental Laws; (ii) Parent and its
Subsidiaries possess all environmental permits, licenses, authorizations
and approvals required under applicable Environmental Laws with respect to
the business of Parent and its Subsidiaries as presently conducted and no
deficiencies have been asserted by any Governmental Entities with respect
to such authorizations; (iii) Parent and its Subsidiaries have not received
any written environmental claim, notice or request for information during
the past three years concerning any violation or alleged violation of any
applicable Environmental Law; and (iv) there are no material writs,
injunctions, decrees, orders or judgments outstanding, or any actions,
suits or proceedings pending or threatened in writing relating to
compliance by Parent or any of its Subsidiaries with any environmental
permit or liability of Parent or any of its Subsidiaries under any
applicable Environmental Law.
The representations and warranties in this Section 5.2(l) constitute
the sole representations and warranties of Parent with respect to any
Environmental Law or Hazardous Substance.
(m) Tax Matters. As of the date hereof, neither Parent nor any of its
Affiliates has taken or agreed to take any action that would prevent the
Parent Merger from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Code.
(n) Taxes. Parent and each of its Subsidiaries (i) have duly and
timely filed (taking into account any extension of time within which to
file) all Tax Returns
ANNEX I
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required to be filed by any of them as of the date hereof and all such
filed Tax Returns are complete and accurate in all material respects; (ii)
(A) have timely paid all Taxes that are shown as due on such filed Tax
Returns, including all Tax Sharing Agreement Amounts, and all amounts that
Parent or any of its Subsidiaries are obligated to withhold from amounts
owing to any employee, creditor or third party, except with respect to
matters contested in good faith and (B) no penalties or charges are due
with respect to the late filing of any Tax Return required to be filed by
or with respect to any of them on or before the Effective Time; and (iii)
with respect to all Tax Returns filed by or with respect to any of them
have not waived any statute of limitations with respect to Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency,
except, in each case, for those failures to file or pay or those waivers
that would not have a Parent Material Adverse Effect. As of the date
hereof, there are not pending or proposed or threatened in writing, any
deficiency, or any such audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters. Neither Parent nor any of
its Subsidiaries has been or is a party to any Tax sharing agreement or
similar arrangement.
(o) Labor Matters. As of the date hereof, neither Parent nor any of
its Subsidiaries is the subject of any material proceeding asserting that
Parent or any of its Subsidiaries has committed an unfair labor practice
nor is there pending or threatened, nor since January 1, 1998 has there
been any labor strike, dispute, walk-out, work stoppage, slow-down or
lockout involving Parent or any of its Subsidiaries, except for those that,
either individually or in the aggregate, are not likely to have a Parent
Material Adverse Effect or prevent or materially delay or materially impair
the ability of Parent to consummate the transactions contemplated by this
Agreement.
(p) Intellectual Property.
(i) Parent or its Subsidiaries own (free and clear of any and all
liens, pledges, security interests, claims or other encumbrances), or
are licensed or otherwise possess sufficient legally enforceable rights
to use, all patents, trademarks, trade names, service marks, copyrights,
technology, know-how, computer software programs or applications,
databases and tangible or intangible proprietary information or
materials that are currently used in its and its Subsidiaries'
businesses (collectively, "Parent Intellectual Property Rights"), except
for any such failures to own, be licensed or possess that, individually
or in the aggregate, are not reasonably likely to have a Parent Material
Adverse Effect.
(ii) Except as disclosed in the Parent Reports filed prior to the
date hereof, and except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse
Effect, (i) to the knowledge of Parent, the use of the Parent
Intellectual Property Rights by Parent or its Subsidiaries does not
conflict with, infringe upon, violate or interfere with or constitute an
appropriation of any right, title, interest or goodwill, including,
without limitation, any intellectual property right, patent, trademark,
trade name, service mark of any other Person and (ii) there have been no
claims made and neither Parent nor any of its Subsidiaries has received
written notice of any claim or otherwise knows that any Parent
Intellectual Property Right is invalid, or conflicts with the asserted
right of any other Person.
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(q) Brokers and Finders. Except for Credit Suisse First Boston and
Wasserstein Perella & Co., Inc., neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in
connection with the Mergers or the other transactions contemplated by this
Agreement.
(r) Available Funds. Parent has received a commitment letter from
Credit Suisse First Boston and Barclays Bank PLC representing committed
funds sufficient to pay the cash portion of the Cash and Unit Consideration
and to satisfy all of its obligations hereunder and in connection with the
Company Merger and the other transactions contemplated by this Agreement (a
copy of which has been provided to the Company) and on the Closing Date
will have available all funds necessary to pay the cash portion of the Cash
and Unit Consideration and to satisfy all of obligations hereunder and in
connection with the Company Merger and the other transactions contemplated
by this Agreement. The obligations of Parent hereunder are not subject to
any conditions regarding the ability of Parent to obtain financing for the
consummation of the transactions contemplated herein.
(s) Regulation as a Utility. Neither Parent nor any subsidiary company
or affiliate of Parent is subject to regulation as a public utility or
public service company (or similar designation) by any state in the United
States, by the United States or any agency or instrumentality of the United
States or by any foreign country. As used in this Section 5.2(s), the terms
"subsidiary company" and "affiliate" shall have the respective meanings
ascribed to them in the 1935 Act.
(t) Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Holdco, PAC, CAC,
or Parent for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement becomes
effective under the Securities Act, and as the same may be amended, at the
effective time of such amendment, contain any untrue statement or a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii)
the Joint Proxy Statement/Prospectus will, at the date such Joint Proxy
Statement/ Prospectus is mailed to the stockholders of the Company and
Parent and, as the same may be amended or supplemented, at the times of the
meetings of such stockholders to be held in connection with the Mergers,
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
Registration Statement and the Joint Proxy Statement/Prospectus will comply
as to form in all material respects with the provisions of the Securities
Act and the Exchange Act and the rules and regulations thereunder.
(u) No Other Representations or Warranties. Except for the
representations and warranties contained in this Section 5.2, neither
Parent nor any other Person makes any other express or implied
representation or warranty on behalf of Parent or any of its Affiliates.
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ARTICLE VI
COVENANTS
6.1 Interim Operations of the Company. Except as otherwise set forth in
Section 6.1 of the Company Disclosure Letter, including but not limited to the
list of capital expenditures of the Company for the years 2000 and 2001 set
forth therein, the Company covenants and agrees as to itself and its
Subsidiaries that, from the date hereof and prior to the Effective Time (unless
Parent shall otherwise approve in writing, which approval shall not be
unreasonably withheld or delayed, and except as otherwise expressly contemplated
by this Agreement or required by Law):
(i) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent
consistent therewith, it and its Subsidiaries shall use their respective
reasonable best efforts to (a) subject to prudent management of workforce
needs and ongoing programs currently in force, preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and
business associates, (b) maintain and keep material properties and assets
in good repair and condition, subject to ordinary wear and tear and (c)
maintain in effect all existing governmental permits pursuant to which the
Company or any of its Subsidiaries operates;
(ii) the Company shall not (w) amend its certificate of incorporation
or by-laws or the comparable governing instruments of any of its
Subsidiaries except, in the case of its Subsidiaries, for such amendments
that would not prevent or materially delay the consummation of the
transactions contemplated by this Agreement; (x) split, combine or
reclassify its outstanding shares of capital stock; (y) declare, set aside
or pay any dividend payable in cash, stock or property in respect of any
capital stock (other than (A) dividends from its direct or indirect wholly
owned Subsidiaries to it or a wholly owned Subsidiary and (B) regular
quarterly dividends on Shares with usual record and payment dates not to
exceed $.225 per Share); or (z) repurchase, redeem or otherwise acquire any
shares of its capital stock or any securities convertible into or
exchangeable or exercisable for any shares of its capital stock or permit
any of its Subsidiaries to purchase or otherwise acquire, any shares of its
capital stock or any securities convertible into or exchangeable or
exercisable for any shares of its capital stock (other than for the purpose
of funding or providing benefits under the existing terms of the
Compensation and Benefit Plans and any other existing terms of the employee
benefit plans, stock option and other incentive compensation plans,
directors plans and stock purchase and dividend reinvestment plans);
(iii) neither the Company nor any of its Subsidiaries shall issue,
sell, pledge, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its
capital stock of any class or any Voting Debt or any other property or
assets (other than (A) Shares issuable pursuant to options (whether or not
vested) outstanding on the date hereof under the Stock Plans and (B)
issuances of additional options or rights to acquire not more than
1,000,000 Company Shares in any calendar year (it being understood that
approximately 845,000 options have already been issued by the Company in
the year 2000 and that those persons identified on Section 6.1(iii) of the
Company Disclosure Letter have already been
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issued approximately 115,000 options in 2000) nor more than 2,000,000
Company Shares in the aggregate granted pursuant to the terms of the Stock
Plans as in effect on the date hereof in the ordinary and usual course of
the operation of such Stock Plans consistent with past practice and
performance guidelines; provided that option issuances for each of the
calendar years 2001 and 2002 for the persons identified on Section 6.1(iii)
of the Company Disclosure Letter shall not exceed the option issuances to
such persons in the year 2000 and shall not be included for purposes of the
1,000,000 and 2,000,000 option grant limitations set forth above, and
issuances of Shares pursuant to options granted after the date hereof
pursuant to such Stock Plans;
(iv) neither the Company nor any of its Subsidiaries shall, other than
in the ordinary and usual course of business, and other than transactions
not in excess of $125,000,000 in the aggregate in any calendar year,
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or
encumber any property or assets (including capital stock of any of its
Subsidiaries) or incur or modify any indebtedness for borrowed money or
guarantee any such indebtedness;
(v) neither the Company nor any of its Subsidiaries shall, by any
means, make any acquisition of, or investment in, assets or stock (whether
by way of merger, consolidation, tender offer, share exchange or other
activity) in any transaction or any series of transactions (whether or not
related), except for acquisitions not involving a merger, consolidation,
tender offer or share exchange for an aggregate purchase price or prices,
including the assumption of any debt, not in excess of $125,000,000 in any
calendar year;
(vi) neither the Company nor any of its Subsidiaries shall, other than
in the ordinary and usual course of business, (i) modify, amend, or
terminate any material contract, (ii) waive, release, relinquish or assign
any material contract (or any of the material rights of the Company or any
of its Subsidiaries thereunder), right or claim, or (iii) cancel or forgive
any material indebtedness owed to the Company or any of its Subsidiaries;
(vii) neither the Company nor any of its Subsidiaries will (i) adopt a
plan of complete or partial liquidation, dissolution, merger,
consolidation, recapitalization or other similar reorganization of the
Company or any Subsidiary of the Company, (ii) accelerate or delay
collection of notes or accounts receivable in advance of or beyond their
regular due dates, other than in the usual and ordinary course of business,
or (iii) change any accounting principle, practice or method in a manner
that is inconsistent with past practice, except to the extent required by
U.S. GAAP as advised by the Company's regular independent accountants;
(viii) neither the Company nor any of its Subsidiaries shall
terminate, establish, adopt, enter into, make any new grants or awards
under, amend or otherwise modify, any Compensation and Benefit Plans (other
than issuances of additional Shares or options or rights to acquire Shares
granted pursuant to the terms of the Stock Plans as in effect on the date
hereof in the ordinary and usual course of the operation of such Stock
Plans, subject to the limitations set forth in clause (iii) of this Section
6.1) or enter into any material consulting agreements or arrangements, or
increase the salary, wage, bonus or other compensation of any employees
except for (A) grants or awards or increases to employees who are not
persons set forth in Section 6.1(iii) of the Company Disclosure Letter
under existing Compensation and
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Benefit Plans as in effect as of the date hereof occurring in the ordinary
and usual course of business consistent with past practice (which shall
include normal periodic performance reviews and related compensation and
benefit increases), (B) annual reestablishment of Compensation and Benefit
Plans and the provision of individual compensation or benefit plans and
agreements for newly hired or appointed officers and employees of the
Company and its Subsidiaries who are not executive officers or (C) actions
necessary to satisfy existing contractual obligations under Compensation
and Benefit Plans or agreements existing as of the date hereof;
(ix) other than in the ordinary and usual course of business, neither
the Company nor any of its Subsidiaries shall settle or compromise any
material claims or litigation or regulatory proceeding;
(x) neither the Company nor any of its Subsidiaries shall make any
material Tax election or, except as required by applicable Law, permit any
insurance policy naming it as a beneficiary or loss-payable payee to be
canceled or terminated except in the ordinary and usual course of business
or as may be required by applicable Law;
(xi) except for (x) capital expenditures set forth in Section 6.1(xi)
of the Company Disclosure Letter and (y) acquisitions permitted under
clause (v) above, neither the Company nor any of its Subsidiaries shall
make, or (to the extent the Company has not previously committed to making
such expenditures) commit to make, any capital expenditures; and
(xii) neither the Company nor any of its Subsidiaries will authorize
or enter into an agreement to do anything prohibited by the foregoing.
6.2 Acquisition Proposals. The Company agrees that neither it nor any of
its Subsidiaries nor any of its or its Subsidiaries' officers and directors
shall, and that it shall direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and other representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate any inquiries or the making of any proposal or offer with
respect to (i) a merger, recapitalization, reorganization, share exchange,
consolidation or similar transaction involving it or its Subsidiaries, (ii) any
sale, lease, exchange, mortgage, pledge or transfer of 25% or more of the equity
securities of the Company or a business that constitutes 25% or more of the net
revenues, net income or the assets of the Company and its Subsidiaries, taken as
a whole, in a single transaction or series of related transactions or (iii) any
tender offer or exchange offer for 15% or more of the outstanding Shares (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"). The Company further agrees that neither it nor any of its
Subsidiaries nor any of its or its Subsidiaries' officers and directors shall,
and that it shall direct and use its reasonable best efforts to cause its and
its Subsidiaries' employees, agents and representatives not to, directly or
indirectly, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that prior to the adoption
of this Agreement by the Company's Shareholders, nothing contained in this
Agreement shall prevent either the Company or any of its representatives or the
Board of Directors of the Company from (A) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal or otherwise
complying with the Exchange Act; provided that the Company or its Board of
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Directors shall not be permitted to recommend any such Acquisition Proposal
unless it would be permitted to do so in accordance with clause (D) below; (B)
providing information in response to a request therefor by a Person who has made
a bona fide unsolicited written Acquisition Proposal; (C) engaging in any
negotiations or discussions with any Person who has made a bona fide unsolicited
written Acquisition Proposal; or (D) recommending such an Acquisition Proposal
to the shareholders of the Company or adopting an agreement relating to an
Acquisition Proposal, if, and only to the extent that (x) in each such case
referred to in clause (B), (C) or (D) above, the Board of Directors of the
Company determines in good faith, after consultation with and based upon the
advice of outside legal counsel that failure to take such action would result in
a breach of the directors' fiduciary duties under applicable law and after
consultation with its independent financial advisors of national reputation,
that such Acquisition Proposal is reasonably likely to lead to a transaction on
terms more favorable from a financial point of view to the Company's
shareholders than the transactions contemplated by this Agreement (any such more
favorable Acquisition Proposal being referred to as a "Superior Proposal") and
(y) in the case of clause (D) above the Board of Directors of the Company
determines in good faith that such Acquisition Proposal is reasonably capable of
being consummated, taking into account legal, financial, regulatory and other
aspects of the proposal and the Person making the proposal, and prior to taking
any such action set forth in clauses (B), (C) or (D) above (other than with
respect to actions related to entering into a confidentiality agreement), the
Company provides reasonable notice to Parent to the effect that it is taking
such action and receives from the Person making the Acquisition Proposal an
executed confidentiality agreement in reasonably customary form and, in any
event, containing terms no more onerous to the Company than those contained in
the Confidentiality Agreement (as defined in Section 9.7). Promptly after
receiving any Acquisition Proposal or any written inquiry that would be
reasonably likely to lead to an Acquisition Proposal and prior to providing any
information to or entering into any discussions or negotiations with any Person
in connection with an Acquisition Proposal by such Person, the Company shall
notify Parent of such Acquisition Proposal (including, without limitation, the
material terms and conditions thereof and the identity of the person making it),
and shall provide Parent with a copy of any written Acquisition Proposal or
amendment or supplements thereto and shall thereafter inform Parent on a prompt
basis of any material changes to the terms and conditions of such Acquisition
Proposal. The Company agrees that it will immediately cease and cause to be
terminated any existing discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal; it being understood that
any Acquisition Proposal made prior to the date hereof may, if made at any time
after the date hereof, be deemed a Superior Proposal, if it would otherwise
fulfill the requirements for being deemed a Superior Proposal hereunder. The
Company agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 6.2.
6.3 Shareholders Meetings.
(a) Company Shareholders Meeting. Subject to fiduciary obligations under
applicable law, the Company will take, in accordance with applicable law and its
Restated Certificate of Incorporation and by-laws, all action necessary to call,
give notice of, convene and hold a meeting of holders of Shares, including any
adjournment thereof (the "Company Shareholders Meeting") as promptly as
practicable after the execution of this Agreement by Parent to consider and vote
upon the approval of this Agreement and such other
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matters as may be appropriate. The Board of Directors of the Company shall
recommend such approval and shall take all lawful action reasonably necessary to
solicit such approval; provided, however, that the recommendation of the Board
of Directors of the Company may be withdrawn or adversely modified if required
under applicable law relating to fiduciary duties.
Without limiting the generality of the foregoing but subject to the
Company's rights pursuant to Sections 6.2 and 8.3, the Company agrees that its
obligations pursuant to the first sentence of this Section 6.3(a) shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any Acquisition Proposal.
(b) Parent Shareholders Meeting. Subject to fiduciary obligations under
applicable law, Parent will take, in accordance with applicable law and its
Restated Articles of Incorporation and by-laws, all action necessary to call,
give notice of, convene and hold a meeting of its holders of Parent Shares,
including any adjournment thereof (the "Parent Shareholders Meeting") as
promptly as practicable after the execution of this Agreement to consider and
vote upon the approval of this Agreement and such other matters as may be
appropriate. The Board of Directors of Parent shall recommend such approval and
shall take all lawful action reasonably necessary to solicit such approval,
provided, however, that the recommendation of the Board of Directors of the
Company may be withdrawn or adversely modified if required under applicable law
relating to fiduciary duties.
(c) Meeting Date. The Parent Shareholders Meeting shall be held on the day
prior to the Company Shareholders Meeting unless otherwise agreed by the Company
and Parent.
6.3A Joint Proxy Statement and Registration Statement.
(a) Preparation and Filing. As promptly as reasonably practicable after the
date hereof, Parent, Holdco and the Company, shall prepare and file with the SEC
the Registration Statement and the Joint Proxy Statement/ Prospectus (together
the "Joint Proxy/Registration Statement"). Holdco or Parent, as the case may be,
shall take such actions as may be reasonably required to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after such filing. Each of the parties shall furnish all information
concerning itself that is required or customary for inclusion in the Joint
Proxy/Registration Statement. No representation, covenant or agreement contained
in this Agreement is made by any party hereto with respect to information
supplied by any other party hereto for inclusion in the Joint Proxy/
Registration Statement. The parties shall take such actions as may be reasonably
required to cause the Joint Proxy/Registration Statement to comply as to form in
all material respects with the Securities Act, the Exchange Act and the 1935 Act
and the rules and regulations thereunder. Holdco or Parent, as the case may be,
shall take such action as may be reasonably required to cause the Holdco Shares
and Holdco Units, or Parent Units, as the case may be, to be issued in the
Mergers to be approved for listing on the NYSE and any other stock exchanges
agreed to by the parties, each upon official notice of issuance.
(b) Letter of the Company's Accountants. The Company shall use its
reasonable best efforts to cause to be delivered to the Company, Parent and
Holdco letters of Arthur Andersen LLP, one dated a date within two (2) business
days before the effective date of the Joint Proxy/Registration Statement and one
dated the Closing Date, and addressed to the Company and Parent, in form and
substance reasonably satisfactory to the Company and Parent and customary in
scope and substance for "cold comfort" letters delivered by
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independent public accountants in connection with registration statements and
proxy statements similar to the Joint Proxy/Registration Statement.
(c) Letter of Parent's Accountants. Parent shall use its reasonable best
efforts to cause to be delivered to Parent, Holdco and the Company letters of
Arthur Andersen LLP, one dated a date within two (2) business days before the
effective date of the Joint Proxy/ Registration Statement and one dated the
Closing Date, and addressed to Parent and the Company, in form and substance
satisfactory to Parent and the Company and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Joint Proxy/
Registration Statement.
6.4 Filings; Other Actions; Notification.
(a) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
best efforts to take or cause to be taken all actions, and do or cause to be
done all things, necessary, proper or advisable on its part under this Agreement
and applicable Laws to consummate and make effective the Mergers and the other
transactions contemplated by this Agreement as soon as practicable, including
preparing and filing as soon as practicable all documentation to effect all
necessary notices, reports and other filings and to obtain as soon as
practicable all consents (including, but not limited to, the parties cooperating
and using their reasonable best efforts to obtain the consents listed in Section
5.1(d) of the Company Disclosure Letter), registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Mergers or any of the other
transactions contemplated by this Agreement. Subject to applicable Laws relating
to the exchange of information and the preservation of any applicable
attorney-client privilege, work-product doctrine, self-audit privilege or other
similar privilege, Parent and the Company shall have the right to review and
comment on in advance, and to the extent practicable each will consult the other
on, all the information relating to Parent or the Company, as the case may be,
and any of their respective Subsidiaries, that appear in any filing made with,
or written materials submitted to, any third party and/or any Governmental
Entity in connection with the Mergers and the other transactions contemplated by
this Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
(b) Subject to applicable Laws and the preservation of any applicable
attorney-client privilege, the Company and Parent each shall, upon request by
the other, furnish the other with all information concerning itself, its
Subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with any statement, filing,
notice or application made by or on behalf of Parent, the Company or any of
their respective Subsidiaries to any third party and/or any Governmental Entity
in connection with the Mergers and the transactions contemplated by this
Agreement.
(c) Subject to any confidentiality obligations and the preservation of any
attorney-client privilege, the Company and Parent each shall keep the other
apprised of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing the other with copies of
notices or other communications received by Parent or the Company, as the case
may be, or any of its Subsidiaries, from any third party and/or any Governmental
Entity with respect to the Mergers and the other transactions contemplated by
this Agreement.
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(d) Without limiting the generality of the undertakings pursuant to this
Section 6.4, each of the Company and Parent agrees to take or cause to be taken
the following actions: (i) provide promptly to any and all federal, state, local
or foreign courts or Governmental Entity with jurisdiction over enforcement of
any applicable antitrust laws ("Government Antitrust Entity") information and
documents requested by any Government Antitrust Entity or necessary, proper or
advisable to permit consummation of the Company Merger and the transactions
contemplated by this Agreement and (ii) contest and resist any action seeking to
have imposed any order, decree, judgment, injunction, ruling or other order
(whether temporary, preliminary or permanent) (an "Order") that would materially
delay, restrain, enjoin or otherwise prohibit consummation of the Company Merger
and, in the event that any such temporary or preliminary Order is entered in any
proceeding that would make consummation of the Company Merger in accordance with
the terms of this Agreement unlawful or that would prevent or materially delay
consummation of the Company Merger or the other transactions contemplated by
this Agreement, Parent agrees to use its best efforts to take promptly any and
all steps (including the appeal thereof, the posting of a bond or the taking of
the steps contemplated by clause (e) of this paragraph) necessary to vacate,
modify or suspend such Order so as to permit such consummation.
(e) Without limiting the generality of the covenants contained in this
Section 6.4, Parent agrees to, if necessary to prevent any Governmental
Authority from issuing any order, injunction, decree, judgment or ruling or the
taking of any other action restraining, enjoining or otherwise prohibiting the
Company Merger, offer to accept an order to divest (or enter into a consent
decree or other agreement giving effect thereto) such of Parent's or the
Company's assets as are required to forestall such order, injunction, decree,
judgment, ruling or action and to hold separate such assets pending such
divestiture.
6.5 Access. Upon reasonable notice, and except as may otherwise be required
by applicable Law, the Company shall (and shall cause its Subsidiaries to)
afford Parent's officers, employees, counsel, accountants and other authorized
representatives ("Representatives") reasonable access, during normal business
hours throughout the period prior to the Effective Time, to its executive
officers, to its properties, books, contracts and records and, during such
period, the Company shall (and shall cause its Subsidiaries to) furnish promptly
to Parent all information concerning its business, properties and personnel as
may reasonably be requested; provided that no investigation pursuant to this
Section shall affect or be deemed to modify any representation or warranty made
by the Company, and; provided, further, that the foregoing shall not require the
Company to permit any inspection, or to disclose any information, that in the
reasonable judgment of the Company, would result in the disclosure of any trade
secrets of third parties, the loss of any applicable attorney-client privilege
or violate any of its obligations with respect to confidentiality if the Company
shall have used reasonable efforts to obtain the consent of such third party to
such inspection or disclosure. All requests for information made pursuant to
this Section shall be directed to an executive officer of the Company or such
Person as may be designated by such executive officer. All such information
shall be governed by the terms of the Confidentiality Agreement. From the date
hereof until the Effective Time, Parent shall (i) comply with the reasonable
requests of the Company to make its officers and employees available to respond
to the reasonable inquiries of the Company in connection with the operations of
Parent and its Subsidiaries and (ii) furnish to the Company such information
concerning its financial condition as may be reasonably requested.
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6.6 Stock Exchange De-listing. Holdco or Parent, as the case may be, shall
use its best efforts to cause the Company Shares to be removed from quotation on
the NYSE and de-registered under the Exchange Act as soon as practicable
following the Effective Time.
6.7 Publicity. The initial press release shall be a joint press release and
thereafter the Company and Parent each shall consult with the other prior to
issuing any press releases or otherwise making public announcements with respect
to the Mergers and the other transactions contemplated by this Agreement and
prior to making any filings with any third party and/or any Governmental Entity
with respect thereto, except as may be required by Law or by obligations
pursuant to any listing agreement with or rules of any national securities
exchange or national market system.
6.8 Benefits.
(a) Stock Options. At the Effective Time, each stock option outstanding
under the Stock Plans (each, a "Company Option"), whether or not then
exercisable, shall be cancelled and only entitle the holder thereof to receive
with respect to such Company Option an amount in cash equal to (i) for each
share with respect to such Company Option, the excess, if any, of (A) the value
of the Merger Consideration or the Alternative Structure Merger Consideration,
as the case may be, over (B) the per Share exercise price under such Company
Option and (ii) the balance in such holder's Dividend Credit Account pursuant to
the stock option agreement with respect to such Company Option. For purposes of
this Section 6.8(a), the value of the Merger Consideration or the Alternative
Structure Merger Consideration, as the case may be, shall be $72.29 plus an
amount in cash equal to 7% interest on $72.29 for the period beginning on the
first anniversary date of this Agreement and ending on the day prior to the
Closing Date (calculated on a per annum basis of a 365-day year). Parent, Holdco
or Merger Sub, as applicable, shall be entitled to deduct or withhold from
amounts otherwise payable to a holder of a Company Option any amounts required
to be withheld under applicable tax laws. The Company shall use its reasonable
efforts to obtain, but only if and to the extent required, the consent of each
holder of outstanding Company Options to the foregoing treatment of such Company
Options and to take any other action reasonably necessary to effectuate the
foregoing provisions.
(b) Employee Benefits. Parent and Holdco agree that, during the period
commencing at the Effective Time and ending on the third anniversary thereof,
the employees of the Company and its Subsidiaries will continue to be provided
with benefits under employee benefit plans that are no less favorable than the
greater of (i) those currently provided by the Company and its Subsidiaries to
such employees and (ii) those provided by Parent and Holdco, as the case may be,
and their Subsidiaries from time to time during such three-year period.
Following the Effective Time, Parent or Holdco, as the case may be, shall cause
service by employees of the Company and its Subsidiaries (and any predecessor
entities) to be taken into account for all purposes (including, without
limitation, eligibility to participate, eligibility to commence benefits,
vesting, benefit accrual and severance) under the Compensation and Benefit Plans
or any other benefit plans of Parent or Holdco, as the case may be, or its
Subsidiaries in which such employees participate; provided, however, that with
respect to any defined benefit pension plan, such crediting of service shall not
result in the duplication of benefits in respect of any period.
From and after the Effective Time, Parent or Holdco, as the case may be,
shall (i) cause to be waived any pre-existing condition limitations under
benefit plans, policies
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or practices of Parent or Holdco, as the case may be, or its Subsidiaries in
which employees of the Company or its Subsidiaries participate (other than those
pre-existing condition limitations in effect at the Effective Time under any
plans, policies or practices of the Company or its Subsidiaries) and (ii) cause
to be credited any deductibles and out-of-pocket expenses incurred by such
employees and their beneficiaries and dependents during the portion of the
calendar year prior to participation in the benefit plans provided by Parent or
Holdco, as the case may be, and its Subsidiaries.
Parent and Holdco shall, and Parent and Holdco shall cause the Company to,
honor all employee benefit obligations to current and former employees under the
Compensation and Benefit Plans.
Parent and Holdco each agree that the transactions contemplated by this
Agreement meet the definition of, and shall constitute, a "change in control"
under each Compensation and Benefit Plan listed on Schedule 6.8(b) of the
Company Disclosure Letter.
(c) Employees. Any workforce reductions carried out following the Effective
Time by Parent, Holdco or the Company and their respective Subsidiaries shall be
done in accordance with all applicable collective bargaining agreements, and all
Laws and regulations governing the employment relationship and termination
thereof including, without limitation, the Worker Adjustment and Retraining
Notification Act and regulations promulgated thereunder, and any comparable
state or local law.
(d) Community Involvement. Parent and Holdco, as applicable, acknowledge
that after the Effective Time, it intends to provide charitable contributions
and community support within the service areas of the Company and its
Subsidiaries at levels consistent with past practice.
(e) Integration Committee. Parent recognizes that the Company has a
talented group of officers and employees that will be important to the future
growth of Holdco or Parent, as the case may be, after the Effective Time. In
recognition of the foregoing, within seven business days of the date hereof,
Parent and the Company will establish an Integration Committee composed in its
entirety of two senior executive officers of the Company and two senior
executive officers of Parent, as selected by the Company and Parent,
respectively (the "Integration Committee"). The Integration Committee shall meet
not less than once per month and shall have direct access to the Chief Executive
Officer of each of Parent and the Company and will be responsible for proposing
alternatives and recommendations regarding the matters and issues arising in
connection with the integration of the Company and Parent and their respective
businesses, assets and organizations (including without limitation, issues
arising in connection with matters contemplated by this Article VI).
(f) Phantom Shares. At the Effective Time, each Phantom Share under the
Company's Phantom Stock Plan for Outside Directors shall be canceled and only
entitle the holder thereof to receive with respect to such Phantom Share an
amount in cash equal to the value of the Merger Consideration or the Alternative
Structure Merger Consideration, as the case may be. For purposes of this Section
6.8(f), the value of the Merger Consideration or the Alternative Structure
Merger Consideration, as the case may be, shall be $72.29 plus an amount in cash
equal to 7% interest on $72.29 for the period beginning on the first anniversary
date of this Agreement and ending on the date prior to the Closing Date
(calculated on a per annum basis of a 365-day year). Parent, or Holdco,
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as applicable, shall be entitled to deduct or withhold from amounts otherwise
payable to a holder of a Phantom Share any amounts required to be withheld under
applicable tax laws. The Company shall use its reasonable efforts to obtain, but
only if and to the extent required, the consent of each holder of a Phantom
Share to the foregoing treatment of such Phantom Shares and to take any other
action reasonably necessary to effectuate the foregoing provisions.
6.9 Expenses. Parent or Holdco, as the case may be, shall pay all charges
and expenses, including those of the Exchange Agent, in connection with the
transactions contemplated in Article II. Except as otherwise provided in this
Section 6.9 and Section 8.5(b), whether or not the Mergers are consummated, all
costs and expenses incurred in connection with this Agreement and the Mergers
and the other transactions contemplated by this Agreement shall be paid by the
party incurring such expense, except that each of the Company and Parent shall
bear and pay one-half of the costs and expenses incurred in connection with the
preparation, printing and mailing of the Joint Proxy/Registration Statement.
6.10 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, Holdco and Parent shall indemnify
and hold harmless, to the fullest extent permitted under applicable law (and
Parent and Holdco shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the Person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such Person is not entitled to indemnification), each present
and former director and officer of the Company and its Subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees and expenses), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, including the
transactions contemplated by this Agreement; provided, however, that Parent and
Holdco shall not be required to indemnify any Indemnified Party pursuant hereto
if it shall be determined that the Indemnified Party acted in bad faith and not
in a manner such Party believed to be in or not opposed to the best interests of
the Company. In addition, Holdco and Parent shall indemnify each present and
former director, officer and employee of the Company and its Subsidiaries for
any Costs arising out of or pertaining to matters existing or occurring at or
prior to the Effective Time to the extent that the Company would have been
obligated to indemnify such persons pursuant to its Restated Certificate of
Incorporation as in effect as of the date hereof. In the event any claim or
claims are asserted or made within six years after the Effective Time, all
rights to indemnification in respect of any such claim or claims shall continue
until final disposition of any and all such claims.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.10, upon receiving written notification of any such claim,
action, suit, proceeding or investigation, shall promptly notify Parent or
Holdco, as applicable, thereof, but the failure to so notify shall not relieve
Parent or Holdco, as applicable, of any liability it may have to such
Indemnified Party if such failure does not materially and irreversibly prejudice
Parent or Holdco, as applicable. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) subject to receipt of the undertaking to repay advances referred to
in paragraph (a) of
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this Section 6.10, Parent or Holdco, as applicable, shall pay the reasonable
fees and expenses of counsel selected by the Indemnified Party, which counsel
shall be reasonably satisfactory to Parent or Holdco, as applicable, promptly
after statements therefor are received, and otherwise advance to such
Indemnified Party upon request reimbursement of documented expenses reasonably
incurred, (ii) Parent or Holdco, as applicable, will cooperate in the defense of
any such matter, and (iii) any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards set forth
under applicable Law shall be made by independent counsel mutually acceptable to
Parent or Holdco, as applicable, and the Indemnified Party; provided, however,
that (A) Parent or Holdco, as applicable, shall be obligated pursuant to this
paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction, except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of such Indemnified
Party and any other Indemnified Party or Indemnified Parties, in which case each
Indemnified Party with a conflicting position on a significant issue shall be
entitled to retain separate counsel mutually satisfactory to Parent and such
Indemnified Party, (B) the Indemnified Parties shall cooperate in the defense of
any such matter and (C) Parent or Holdco, as applicable, shall not be liable for
any settlement effected without its prior written consent (which consent may not
be unreasonably withheld or delayed).
(c) Parent or Holdco shall cause the Company to maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") for a
period of six years after the Effective Time so long as the annual premium
therefor is not in excess of 200% of the last annual premium paid prior to the
date hereof (the "Current Premium"); provided, however, (i) that policies with
at least the same coverage, containing terms and conditions which are at least
as protective of the insureds thereunder, may be substituted therefor; (ii) if
the existing D&O Insurance is terminated or cancelled during such six-year
period, the Surviving Corporation shall use its best efforts to obtain as much
D&O Insurance as can be obtained for the remainder of such period for a premium
not in excess (on an annualized basis) of 200% of the Current Premium and, to
the extent permitted by law, shall agree to indemnify the directors and officers
for any Costs not covered by such D&O Insurance; and (iii) if the annual
premiums for the existing D&O Insurance exceed 200% of the Current Premium, the
Surviving Corporation shall obtain as much D&O Insurance as can be obtained for
the remainder of such period for a premium not in excess (on an annualized
basis) of 200% of the Current Premium.
(d) If Parent, Holdco or the Company or any of its successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then, and
in each such case, proper provisions shall be made so that the successors and
assigns of Parent, Holdco or the Company shall assume all of the obligations set
forth in this Section 6.10.
(e) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs and
their representatives.
6.11 Takeover Statute. If any Takeover Statute is or may become applicable
to the Mergers or the other transactions contemplated by this Agreement, each of
Parent, Holdco, the Company, each Merger Sub and Finance Co. and their
respective Boards of Directors shall grant such approvals and take such actions
as are necessary so that such
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transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement or by the Mergers and otherwise act to eliminate
or minimize the effects of such statute or regulation on such transactions.
6.12 Parent Vote. Parent shall vote (or consent with respect to) or cause
to be voted (or a consent to be given with respect to) any Shares and any shares
of common stock of a Merger Sub beneficially owned by it or any of its
Affiliates or with respect to which it or any of its Affiliates has the power
(by agreement, proxy or otherwise) to cause to be voted (or to provide a
consent), in favor of the approval of this Agreement at the Company Shareholders
Meeting or any other meeting of shareholders of the Company or either Merger
Sub, respectively, at which this Agreement shall be submitted for approval and
at all adjournments or postponements thereof (or, if applicable, by any action
of shareholders of either the Company or either Merger Sub by consent in lieu of
a meeting).
6.13 1935 Act. None of the parties hereto shall, nor shall any such party
permit any of its Subsidiaries to, except as required or contemplated by this
Agreement, engage in any activities that would cause a change in its status, or
that of its Subsidiaries, under the 1935 Act if such change would prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
6.14 Necessary Action. Neither the Company nor Parent, nor any of their
respective Subsidiaries, shall take or fail to take any action that is
reasonably likely to result in any failure of the conditions to the Mergers set
forth in Article VII, or is reasonably likely to make any representation or
warranty of the Company or Parent contained herein inaccurate in any material
respect at, or as of any time prior to, the Effective Time, or that is
reasonably likely to, individually or in the aggregate, have a Company Material
Adverse Effect or a Parent Material Adverse Effect, as the case may be.
6.15 Certain Mergers. Each of the Company and Parent agrees that it shall
not, and shall not permit any of its Subsidiaries to (i) acquire or agree to
acquire any assets or (ii) acquire or agree to acquire, whether by merger,
consolidation, by purchasing a substantial portion of the assets of or equity
in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, if the entering
into of a definitive agreement relating thereto or the consummation of such
acquisition, merger or consolidation could reasonably be expected to (A) impose
any material delay in the expiration of any applicable waiting period or impose
any material delay in the obtaining of, or significantly increase the risk of
not obtaining, any authorizations, consents, orders, declarations or approvals
of any Governmental Entity necessary to consummate the Merger, (B) significantly
increase the risk of any Governmental Entity entering an Order (as defined in
Section 7.1(e)) prohibiting the consummation of the Merger, (C) significantly
increase the risk of not being able to remove any such Order on appeal or
otherwise or (D) materially delay or materially impede the consummation of the
Merger.
6.16 Rule 145 Affiliates. Prior to the Closing Date, the Company shall
identify in a letter to Parent all persons who are, at the Closing Date,
"affiliates" of the Company, as such term is used in Rule 145 under the
Securities Act. The Company shall use its reasonable best efforts to cause its
affiliates to deliver to Parent on or prior to the Closing Date written
agreements substantially in the form attached as Annex B.
6.17 Executive Consent Rights. In the event an officer covered by an
employment agreement set forth in Section 5.1(t) of the Company Disclosure
Letter terminates his
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employment with the Company prior to the Effective Time, the person replacing
such officer shall not be hired by the Company without the prior written consent
of Parent (which consent shall not be unreasonably withheld or delayed).
6.18 Listing of Units. Parent agrees to file, within 60 days after the date
hereof, a listing application with NYSE covering the listing of the Units and to
use its best efforts to pursue the listing of such Units so that the listing is
effective prior to the Effective Time. In the event such Units are not accepted
for listing despite such best efforts, Parent shall use its best efforts to list
such Units on another national securities exchange or the Nasdaq Stock Market so
that such listings are effective prior to the Effective Time.
6.19 Organization of Finance Co. In connection with Parent's obligation to
pay the aggregate cash portion of the Merger Consideration or the Alternative
Structure Merger Consideration, as the case may be, prior to the Effective Time,
Parent shall cause Holdco to organize NiSource Finance Corp., under the laws of
the State of Indiana ("Finance Co."). Parent and Holdco shall each take all
necessary action so that the organization of Finance Co. and the consummation of
Finance Co.'s obligations do not (A) impose any material delay in the expiration
or termination of any applicable waiting period or impose any material delay in
the obtaining of, or significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any Governmental
Entity necessary to consummate the Merger, (B) significantly increase the risk
of any Governmental Entity entering an Order prohibiting the consummation of the
Merger, (C) significantly increase the risk of not being able to remove any such
Order on appeal or otherwise or (D) materially delay or materially impede the
consummation of the Merger. The Articles of Incorporation and By-Laws of Finance
Co. shall be in such forms and shall initially consist of 100 shares of common
stock, without par value, all of which shall be issued to Holdco at a price of
$1.00 per share. As soon as practicable after the date of Finance Co.'s due
organization, Parent and Holdco shall each cause Finance Co. to approve,
authorize, execute and deliver this Agreement and assume its obligations as a
party hereunder.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Mergers. The
respective obligation of each party to effect the Mergers is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been duly approved
by holders of Company Shares constituting the Company Requisite Vote in
accordance with applicable Law and the Restated Certificate of
Incorporation and by-laws of the Company.
(b) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(c) Listing of Shares. In the event that the Parent Requisite Vote is
obtained, the Holdco Shares issuable in the Mergers pursuant to Article II
shall have been approved for listing on the NYSE, subject to official
notice of issuance.
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(d) HSR. The waiting period applicable to the consummation of the
Mergers under the HSR Act shall have expired or been earlier terminated.
(e) Other Regulatory Consents. Other than the filing provided for in
Section 1.3, the parties shall have made or filed those notices, reports or
other filings required to be made or filed with, and obtained those
registrations, approvals, permits or authorizations required to be obtained
from or filed with any Governmental Entity prior to the consummation of the
Mergers and in each case set forth in Sections 5.1(d) and 5.2(e)
("Governmental Consents") and such Governmental Consents shall have become
Final Orders, except for those that the failure to make or to obtain,
either individually or in the aggregate are not reasonably likely to have a
material adverse effect on the combined entity resulting from the
transactions contemplated hereby.
The Final Orders shall not impose terms or conditions that (a) have or
would reasonably be expected to have a material adverse effect on the
combined entity resulting from the transactions contemplated hereby, or (b)
materially impair the ability of the parties to complete the Mergers or the
transactions contemplated hereby. A "Final Order" means action by the
relevant regulatory authority that has not been reversed, stayed, enjoined,
set aside, annulled or suspended, with respect to which any waiting period
prescribed by law before the transactions contemplated hereby may be
consummated has expired, and as to which all conditions to the consummation
of such transactions prescribed by law, regulation or order have been
satisfied.
(f) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, law, ordinance, rule, regulation, judgment, decree, injunction
or other order that is in effect and permanently enjoins or otherwise
prohibits consummation of the Mergers (collectively, an "Order"), nor shall
any proceeding brought by a Governmental Entity seeking an Order be
pending, provided, however, that the provisions of this Section 7.1(f)
shall not be available to any party whose failure to fulfill its
obligations hereunder shall have been the cause of, or shall have resulted
in, such Order.
7.2 Conditions to Obligations of Parent, Holdco, Merger Subs and Finance
Co. The obligations of Parent, Holdco, each Merger Sub and Finance Co. to effect
the Mergers are also subject to the satisfaction or waiver by Parent at or prior
to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement which are not modified by the
words "Material Adverse Effect" shall be true and correct in all material
respects as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representation or warranty expressly
speaks as of an earlier date, which representations and warranties shall be
true and correct in all material respects as of such date in the same
manner as specified above), and the representations and warranties of the
Company set forth in this Agreement which are modified by the words
"Material Adverse Effect" shall be true and correct as of the Closing Date
as though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date, which
representations and warranties shall be true and correct as of such date in
the same manner as specified above), and Parent
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shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all material obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Parent shall have received a certificate signed on behalf of the Company by
an executive officer of the Company to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required under any material Contract to which the Company or any of its
Subsidiaries is a party except for such consents or approvals the failure
of which to obtain would not be reasonably likely to result in a material
adverse effect on Parent and the Company (together with all Subsidiaries of
Parent and the Company) taken as a whole.
(d) Material Adverse Effect. There shall not have occurred any Company
Material Adverse Effect or change or condition which would reasonably be
expected to have a Company Material Adverse Effect.
7.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Mergers is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent set forth in this Agreement which are not modified by the words
"Material Adverse Effect" shall be true and correct in all material
respects as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representation or warranty expressly
speaks as of an earlier date, which representations and warranties shall be
true and correct in all material respects as of such date in the same
manner as specified above) and the representations and warranties of Parent
set forth in this Agreement which are modified by the words "Material
Adverse Effect" shall be true and correct as of the Closing Date as though
made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date, which
representations and warranties shall be true and correct as of such date in
the same manner as specified above), and the Company shall have received a
certificate signed on behalf of Parent by executive officers of Parent to
such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
and caused Holdco, CAC and PAC to have performed, in all material respects
all material obligations required to be performed by each such entity under
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Parent by an executive officer
of Parent to such effect.
(c) Tax Opinion. In the event of the Company Merger, the Company shall
have received the opinion of Sullivan & Cromwell, counsel to the Company,
dated the Closing Date, to the effect that, based on the facts and
assumptions stated therein, the Company Merger will qualify as an exchange
pursuant to Section 351 of the Code.
In rendering its opinion, Sullivan & Cromwell may rely on the
representations made in certificates addressed to such counsel by both
Parent and the Company.
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ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by shareholders of the Company referred to in Section
7.1(a), by mutual written consent of the Company and Parent by action of their
respective Boards of Directors.
8.2 Termination by Either Parent or the Company. This Agreement may be
terminated and the Mergers may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if (a)
the Mergers shall not have been consummated by June 30, 2001, whether such date
is before or after the date of receipt of the Company Requisite Vote (the
"Termination Date"), provided that the Termination Date shall be automatically
extended to March 31, 2002 if, on June 30, 2001: (x) any of the Governmental
Consents described in Section 7.1(e) have not been obtained or waived, (y) each
of the other conditions to the consummation of the Mergers set forth in Article
VII has been satisfied or waived or remains capable of satisfaction, and (z) any
Governmental Consent that has not yet been obtained is being pursued diligently
and in good faith, (b) the approval of the Company's shareholders required by
Section 7.1(a) shall not have been obtained at a meeting duly convened therefor
or at any adjournment or postponement thereof or (c) any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Mergers
shall become final and non-appealable after the parties have used their
respective best efforts to have such Order removed, repealed or overturned
(whether before or after the approval by the shareholders of the Company)
pursuant to Section 6.4, provided that the right to terminate this Agreement
pursuant to clause (a) above shall not be available to any party whose failure
to fulfill any obligation under this Agreement or under any existing law, order,
rule or regulation has caused or resulted in the failure of the Mergers to be
consummated.
8.3 Termination by the Company. This Agreement may be terminated and the
Mergers may be abandoned by action of the Board of Directors of the Company
after three days' prior written notice to Parent at any time prior to (a) the
approval of this Agreement by shareholders of the Company referred to in Section
7.1(a), if the Board of Directors of the Company shall approve a Superior
Proposal; provided, however, that (i) the Company is not then in breach of
Section 6.2, (ii) the Board of Directors of the Company shall have concluded in
good faith, after giving effect to any concessions which are offered by Parent
during such three-day period, on the basis of the advice of its independent
financial advisor of national reputation, that such proposal is a Superior
Proposal and (iii) the termination pursuant to this Section 8.3(a) shall not be
effective unless the Company shall at or prior to the time of such termination
make the payment required by Section 8.5; or (b) the Effective Time, whether
before or after the approval by shareholders of the Company referred to in
Section 7.1(a) if (x) there has been a breach by Parent of any representation or
warranty modified by the words "Material Adverse Effect" or a breach of any
other representation or warranty that, individually or in the aggregate, has had
a Parent Material Adverse Effect, or there has been a material breach by Parent
of any material covenant or agreement contained in this Agreement that is not
curable or, if curable, is not cured within 20 days after written notice of such
breach is given by the Company to the party committing such breach or (y) if all
Governmental
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Consents have not been obtained and become Final Orders meeting the requirements
of Section 7.1(e) by March 31, 2002.
8.4 Termination by Parent. This Agreement may be terminated and the Mergers
may be abandoned at any time prior to the Effective Time by action of the Board
of Directors of Parent if (a) the Board of Directors of the Company withdraws or
adversely modifies its adoption of this Agreement or its recommendation that the
shareholders of the Company approve this Agreement, (b) the Board of Directors
of the Company shall approve or recommend a Superior Proposal, (c) the Board of
Directors of the Company shall resolve or publicly propose to take any of the
actions specified in clauses (a) or (b) above, or (d) there has been a breach by
the Company of any representation or warranty modified by the words "Material
Adverse Effect" or a breach of any other representation or warranty that,
individually or in the aggregate, has had a Company Material Adverse Effect, or
there has been a material breach by the Company of any material covenant or
agreement contained in this Agreement that is not curable or, if curable, is not
cured within 20 days after written notice of such breach is given by Parent to
the party committing such breach.
8.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article VIII, this Agreement (other than as set
forth in Section 9.1) shall become void and of no effect with no liability on
the part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); provided,
however, that no such termination shall relieve any party hereto of any
liability or damages resulting from any breach of this Agreement prior to
termination.
(b) In the event that this Agreement is terminated by the Company pursuant
to Section 8.3(a) or by Parent pursuant to Section 8.4(a), (b) or (c), then the
Company shall promptly, but in no event later than two days after the date of
such termination (except in the case of a termination pursuant to Section
8.3(a), in which case the payment referred to below shall be made at or prior to
the time of such termination), pay Parent a termination fee (as liquidated
damages) of $200,000,000 (the "Termination Fee") by wire transfer of same day
funds to an account previously designated in writing by Parent to the Company.
In the event that (i) an Acquisition Proposal shall have been made to the
Company after the date hereof or any Person (other than Parent or any of its
Affiliates) shall have publicly announced after the date hereof an intention
(whether or not conditional) to make an Acquisition Proposal with respect to the
Company and thereafter this Agreement is terminated by either Parent or the
Company pursuant to Section 8.2(b) and (ii) (x) the Person making the
Acquisition Proposal which was outstanding at the time of the Shareholders
Meeting (the "Acquiring Party") acquires, by purchase, merger, consolidation,
sale, assignment, lease, transfer or otherwise, in one transaction or any
related series of transactions within twelve months after a termination of this
Agreement, a majority of the voting power of the outstanding securities of the
Company or all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole or (y) there is consummated a merger,
consolidation or similar business combination between the Company or one of its
Subsidiaries and the Acquiring Party or one of its Subsidiaries within twelve
months after the relevant termination of this Agreement, or (z) within twelve
months after termination of this Agreement, the Company or one of its
Subsidiaries enters into a binding agreement with the Acquiring Party for such
an acquisition, merger,
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consolidation or similar business combination then the Company shall promptly,
but in no event later than two days after the earlier of consummation of the
transaction or transactions with the Acquiring Party or one of its Subsidiaries
or the execution of a binding agreement between the Company and the Acquiring
Party, pay Parent the Termination Fee in same day funds to an account previously
designated by Parent to the Company in writing.
In the event that this Agreement is terminated by the Company pursuant to
Section 8.3(b)(y) or by Parent or the Company pursuant to 8.2(a) as a result of
the failure to meet the condition set forth in Section 7.1(e) or 8.2(c) hereof,
then Parent shall, or shall cause Holdco to, promptly, but in no event later
than two days after the date of such termination, pay to the Company a
termination fee (as liquidated damages) of $50,000,000 (the "Regulatory
Termination Fee").
The Company and Parent acknowledge that the agreements contained in this
Section 8.5(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements neither Parent nor the Company
would have entered into this Agreement; accordingly, if the Company or Parent
fails to promptly pay any amounts due pursuant to this Section 8.5(b), and in
order to obtain such payment Parent or the Company as the case may be commences
a suit which results in a judgment against the Company for payment of all or a
portion of the Termination Fee, or against Parent for payment of all or a
portion of the Regulatory Termination Fee, the Company shall pay to Parent or
Parent shall pay the Company, as the case may be, its costs and expenses
(including its reasonable attorneys' fees) incurred in connection with such
suit, together with interest from the date of termination of this Agreement on
the amounts owed at the prime rate of The Chase Manhattan Bank in effect from
time to time during such period. The Company's payment of the Termination Fee
shall be the sole and exclusive remedy of Parent against the Company and any of
its Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives in the event this Agreement is terminated and
the Termination Fee is payable whether or not there has been a breach of this
Agreement.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1 Survival. This Article IX and the agreements of the Company, Parent and
Holdco, as the case may be, contained in Article III, Sections 6.6 (Stock
Exchange De-listing), 6.8 (Benefits), 6.9 (Expenses), 6.10 (Indemnification;
Directors' and Officers' Insurance) and 6.18 (Listing of Units) shall survive
the consummation of the Merger. This Article IX, the agreements of the Company,
Parent and Holdco, as the case may be, contained in Section 6.9 (Expenses),
Section 8.5 (Effect of Termination and Abandonment) and the Confidentiality
Agreement shall survive the termination of this Agreement. All other
representations, warranties, covenants and agreements in this Agreement shall
not survive the consummation of the Mergers or the termination of this
Agreement.
9.2 Modification or Amendment. Subject to the provisions of applicable Law,
at any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties.
ANNEX I
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<PAGE> 231
9.3 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Mergers are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE
DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS TO BE WHOLLY PERFORMED IN SUCH STATE. The parties hereby
irrevocably submit to the jurisdiction of the courts of the State of New York
and the Federal courts of the United States of America located in the State of
New York in each case in the borough of Manhattan solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a State of New York or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 9.6 or in such other manner as may
be permitted by law shall be valid and sufficient service thereof. Each party
hereto hereby acknowledges and agrees to waive any right it may have to a trial
by jury in respect of any action, suit or proceeding arising out of or relating
to this Agreement.
9.6 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent, Holdco, Merger Subs or Finance Co.
NiSource Inc.
801 East 86th Avenue,
Merrillville, Indiana 46410.
Attention: Stephen P. Adik
fax: (219) 647-6060
(with a copy to
Peter V. Fazio, Jr.,
Schiff Hardin & Waite,
6600 Sears Tower
233 South Wacker Drive
Chicago, IL 60606-6473
fax: (312) 258-5600).
ANNEX I
I-48
<PAGE> 232
if to the Company
Columbia Energy Group,
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
Attention: Michael W. O'Donnell
fax: (703) 561-7326
(with a copy to
Neil T. Anderson
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
fax: (212) 558-3588).
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7 Entire Agreement; NO OTHER REPRESENTATIONS. This Agreement (including
any exhibits hereto), the Company Disclosure Letter, the Parent Disclosure
Letter and the Confidentiality Agreement, dated November 18, 1999 between Parent
and the Company (the "Confidentiality Agreement") constitute the entire
agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER PARENT
NOR THE COMPANY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY
DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE
TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER
INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.8 No Third Party Beneficiaries. Other than with respect to the matters
set forth in Section 6.10 (Indemnification; Directors' and Officers' Insurance),
this Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
9.9 Obligations of Parent and of the Company. Whenever this Agreement
requires Holdco or a Subsidiary of Parent to take any action, such requirement
shall be deemed to include an undertaking on the part of Parent to cause Holdco
or such Subsidiary, as the case may be, to take such action. Whenever this
Agreement requires Parent to take any action, such requirement shall be deemed
to include an undertaking to cause Holdco to take such action. Whenever this
Agreement requires a Subsidiary of the Company to take any action, such
requirement shall be deemed to include an undertaking on the part of the Company
to cause such Subsidiary to take such action and, after the Effective Time, on
the part of the Company to cause such Subsidiary to take such action.
ANNEX I
I-49
<PAGE> 233
9.10 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.11 Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.12 Assignment. This Agreement shall not be assignable by operation of law
or otherwise; provided, however, that Parent may designate, by written notice to
the Company, another wholly owned direct or indirect subsidiary to be a
constituent corporation in lieu of either Merger Sub, so long as such
designation would not reasonably be expected to (i) impose any material delay in
the obtaining of, or significantly increase the risk of not obtaining any
authorizations, consents, orders, declarations or approvals of any Governmental
Entity necessary to consummate the Mergers or the expiration or termination of
any applicable waiting period, (ii) significantly increase the risk of any
Governmental Entity entering an order prohibiting the consummation of the
Mergers, (iii) significantly increase the risk of not being able to remove any
such order on appeal or otherwise or (iv) materially delay the consummation of
the Mergers. If the requirements of the previous sentence are met and Parent
wishes to designate another wholly owned direct or indirect subsidiary to be a
constituent corporation in lieu of either Merger Sub, then, all references
herein to that Merger Sub shall be deemed references to such other subsidiary,
except that all representations and warranties made herein with respect to that
Merger Sub as of the date of this Agreement shall be deemed representations and
warranties made with respect to such other subsidiary as of the date of such
designation.
ANNEX I
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<PAGE> 234
IN WITNESS WHEREOF, this Agreement has been duly executed, acknowledged and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
COLUMBIA ENERGY GROUP
By: /s/ OLIVER G. RICHARD III
--------------------------------
Name: Oliver G. Richard III
Title: Chairman, President
and Chief Executive
Officer
NISOURCE INC.
By: /s/ GARY L. NEALE
--------------------------------
Name: Gary L. Neale
Title: Chairman, President
and Chief Executive
Officer
NEW NISOURCE INC.
By: /s/ GARY L. NEALE
--------------------------------
Name: Gary L. Neale
Title: President
PARENT ACQUISITION CORP.
By: /s/ GARY L. NEALE
--------------------------------
Name: Gary L. Neale
Title: President
COMPANY ACQUISITION CORP.
By: /s/ GARY L. NEALE
--------------------------------
Name: Gary L. Neale
Title: President
Accepted and agreed as of: March 31,
2000
NISOURCE FINANCE CORP.
By: /s/ GARY L. NEALE
--------------------------------
Name: Gary L. Neale
Title: President
ANNEX I
I-51
<PAGE> 235
ANNEX II
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or
ANNEX II
II-1
<PAGE> 236
consolidation pursuant to sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation. (c) Any
corporation may provide in its certificate of incorporation that appraisal
rights under this section shall be available for the shares of any class or
series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
ANNEX II
II-2
<PAGE> 237
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such
ANNEX II
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<PAGE> 238
stockholder's written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced
ANNEX II
II-4
<PAGE> 239
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
ANNEX II
II-5
<PAGE> 240
ANNEX III
[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
February 27, 2000
Board of Directors
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
Members of the Board:
You have asked us to advise you with respect to the fairness to NiSource Inc.
("Parent"), from a financial point of view, of the Merger Consideration (as
defined below) set forth in the Agreement and Plan of Merger, dated as of
February 27, 2000 (the "Merger Agreement"), between Parent and Columbia Energy
Group (the "Company"). The Merger Agreement provides, among other things, that
either (i) a newly formed holding company, Parent Holdco, Inc. ("Holdco"), will
acquire all of the outstanding common stock, no par value, of Parent (the
"Parent Shares") and all of the outstanding common stock, par value $0.1 per
share, of the Company (the "Company Shares") through the merger of Parent
Acquisition Corp., a wholly owned subsidiary of Holdco, with and into Parent
(the "Parent Merger") and the merger of Company Acquisition Corp., a wholly
owned subsidiary of Holdco, with and into the Company (the "Company Merger" and,
together with the Parent Merger, the "Mergers") or (ii) in the event that
holders of a majority of the outstanding Parent Shares do not approve the
Mergers at a meeting called for such purpose, a newly formed wholly owned
indirect subsidiary of Parent will merge with and into the Company (the
"Alternative Merger" and, together with the Mergers, the "Transaction").
In the Mergers, (i) each outstanding Parent Share will be converted into the
right to receive one share of the common stock, no par value, of Holdco (the
"Holdco Shares") and (ii) subject to certain proration procedures and
adjustments set forth in the Merger Agreement, as to which we express no
opinion, each outstanding Company Share will be converted into the right to
receive, at the option of the holder thereof, either (A) the sum of $70.00 in
cash, without interest thereon, and $2.60 in face value of Holdco SAILS security
units (the "Holdco SAILS") consisting of a zero coupon debt security and a
forward equity contract (collectively, the "Cash Consideration") or (B) that
number of Holdco Shares (the "Stock Consideration" and, together with the Cash
Consideration, the "Primary Merger Consideration") determined by dividing $74.00
by the average of the closing trading prices of the Parent Shares on the New
York Stock Exchange Composite Tape on each of the thirty consecutive trading
days immediately preceding the second trading day prior to the Closing Date of
the Mergers (the "Exchange Ratio"), provided that in no event will the Exchange
Ratio be more than 4.4848. The Merger Agreement further provides that the
aggregate number of Company Shares for which elections to receive the Stock
Consideration are validly made and not revoked cannot exceed 30% of the Company
Shares outstanding as of the Effective Time.
ANNEX III
III-1
<PAGE> 241
Board of Directors
NiSource Inc.
February 27, 2000
Page 2
In the Alternative Merger, each outstanding Company Share will be converted into
the right to receive the sum of $70.00 in cash, without interest thereon, and
$3.02 in face value of Parent SAILS security units (the "Parent SAILS" and,
together with the Holdco SAILS, the "SAILS") consisting of a zero coupon debt
security and a forward equity contract (the "Alternative Merger Consideration"
and, together with the Primary Merger Consideration, the "Merger
Consideration"), subject to adjustments set forth in the Merger Agreement, as to
which we express no opinion.
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to Parent and the
Company. We have also reviewed certain other information relating to Parent and
the Company, including financial forecasts, provided to or discussed with us by
Parent and the Company, and have met with the managements of Parent and the
Company to discuss the business and prospects of Parent and the Company. We have
also considered certain financial and stock market data of Parent and the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to those of Parent and the Company, and we
have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts, you have informed us, and we have assumed,
that such forecasts have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Parent and the
Company as to the future financial performance of Parent and the Company and the
strategic benefits and potential synergies (including the amount, timing,
achievability and retainability thereof) anticipated to result from the
Transaction. We have further assumed, with your knowledge, that in the course of
obtaining the necessary regulatory and third party consents for the proposed
Mergers and the transactions contemplated thereby, no delay or restriction will
be imposed that will have a material adverse effect on the contemplated benefits
of the proposed Mergers or the transactions contemplated thereby. In addition,
we have not been requested to make, and have not made, an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of Parent or
the Company, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon information available to us, and
financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing any opinion as to the
actual value of the Holdco Shares or the SAILS when issued pursuant to the
Transaction or the price at which the Holdco Shares or the SAILS will trade or
be transferable subsequent to the Transaction.
ANNEX III
III-2
<PAGE> 242
Board of Directors
NiSource Inc.
February 27, 2000
Page 3
We have acted as financial advisor to Parent in connection with the Transaction
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Transaction. Credit Suisse First Boston
and its affiliates have in the past and currently are providing financial
services to Parent unrelated to the Transaction, are participating in the
financing of the Mergers, and may in the future provide services to Parent, for
which services we have received and will receive compensation. In the ordinary
course of business, Credit Suisse First Boston and its affiliates may actively
trade the securities of both Parent and the Company for their own accounts and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Parent in connection with its evaluation of the Transaction, does
not constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to the Mergers, and is not to be quoted or referred to,
in whole or in part, in any registration statement, prospectus or proxy
statement, or in any other document used in connection with the offering or sale
of securities, nor shall this letter be used for any other purposes, without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Merger Consideration is fair, from a financial point of view, to
Parent.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
ANNEX III
III-3
<PAGE> 243
ANNEX IV
[MORGAN STANLEY DEAN WITTER LETTERHEAD]
February 27, 2000
Board of Directors
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA 20171-4600
Members of the Board:
We understand that Columbia Energy Group (the "Company") and NiSource Inc.
("Parent") propose to enter into an Agreement and Plan of Merger dated February
27, 2000 (the "Merger Agreement"). As more specifically set forth in the Merger
Agreement, and subject to the terms and conditions thereof, as promptly as
practicable following the execution of the Merger Agreement, Parent will cause
to be organized Parent Holdco ("Holdco"), which will be 100% owned by Parent,
and Holdco will cause to be organized Parent Acquisition Corp. ("PAC") and
Company Acquisition Corp. ("CAC"), each of which will be 100% owned by Holdco.
At the effective time, (A) PAC will merge with and into Parent (the "Parent
Merger") and each issued and outstanding common share, without par value, of
Parent (the "Parent Common Stock") (other than shares held in the treasury of
Parent or owned by any Subsidiary (as defined in the Merger Agreement) of
Parent, which shall be canceled) shall be converted into one share of Holdco
common stock, without par value (the "Holdco Common Stock") and (B) CAC will
merge with and into the Company (the "Company Merger" and, together with the
Parent Merger, the "Merger") and each issued and outstanding share of Company
Common Stock (other than Dissenting Shares (as defined in the Merger Agreement),
shares owned by Parent or any Subsidiary of Parent, which shall be canceled, and
shares held in the treasury of the Company or owned by any Subsidiary of the
Company, which shall be canceled (collectively, "Excluded Shares")) shall be
converted into the right to receive, at the election of the holders of such
shares, either (1) the sum of (x) $70 in cash, without interest, plus (y) $2.60
in face value of Holdco SAILS security units having the terms set forth in Annex
A to the Merger Agreement, plus (z) the Additional Amount (as defined below), if
any (the "Cash and Units Consideration") or (2) a number, in no event to be
greater than 4.4848, of shares of Holdco Common Stock determined by dividing $74
by the Average Parent Share Price (as defined in the Merger Agreement), plus the
Additional Amount, if any (the "Stock Consideration"). The "Additional Amount"
means an amount in cash equal to 7% interest on $72.29 for the period beginning
on the first anniversary of the Merger Agreement, and ending on the day prior to
the closing of the Merger (calculated on a per annum basis of a 365-day year)
less all cash dividends declared or paid on the Company Common Stock after the
first anniversary of the Merger Agreement; provided, however, that the
Additional Amount shall not be a negative number. The Merger Agreement
ANNEX IV
IV-1
<PAGE> 244
[MORGAN STANLEY DEAN WITTER]
provides that, notwithstanding the elections of holders of shares of Company
Common Stock, (i) no greater than 30% of the outstanding shares of Company
Common Stock will be converted into the right to receive the Stock Consideration
and (ii) if less than 10% of the outstanding shares of Company Common Stock
elect the Stock Consideration, all shares of Company Common Stock will be
converted into the Cash and Units Consideration, provided that Parent SAILS
security units will be delivered in lieu of Holdco SAILS security units.
Dissenting Shares shall not be converted into the right to receive the Cash and
Units Consideration, the Stock Consideration or the Alternative Structure Merger
Consideration, as the case may be, unless and until the holder of such shares
shall have failed to perfect or shall have withdrawn or lost his right to
appraisal and payment, as the case may be, at which time such shares shall be
deemed to have been converted into the right to receive the Cash and Units
Consideration, without any interest thereon.
Notwithstanding the foregoing, if Parent fails to obtain the necessary
shareholder approval to consummate the Parent Merger, (i) the Parent Merger will
not be consummated and (ii) at the effective time of the Company Merger, each
issued and outstanding share of Company Common Stock (other than Excluded
Shares) shall, in lieu of being converted as provided in the preceding
paragraph, be converted into the right to receive the sum of (x) $70 in cash,
without interest, plus (y) $3.02 in face value of Parent SAILS security units
having the terms set forth in Annex A to the Merger Agreement, plus (z) the
Additional Amount, if any (the "Alternative Structure Merger Consideration" and,
together with the Cash and Units Consideration and the Stock Consideration, the
"Consideration").
You have asked for our opinion as to whether the Consideration to be
received by the holders of Company Common Stock pursuant to the Merger Agreement
is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and Parent;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and Parent prepared by the
management of the Company and Parent, respectively;
(iii) reviewed and analyzed certain financial projections prepared by the
management of the Company and Parent;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company and Parent, including the strategic
rationale for the Merger and the information relating to certain
strategic, financial and operational benefits anticipated from the
Merger with senior executives of the Company and Parent,
respectively;
(v) reviewed the pro forma impact of the Merger on Parent's earnings per
share and considered the impact of the Merger on Parent's consolidated
capitalization and financial ratios;
ANNEX IV
IV-2
<PAGE> 245
[MORGAN STANLEY DEAN WITTER]
(vi) reviewed the reported prices and trading activity for the Company
Common Stock and the Parent Common Stock;
(vii) compared the financial performance of the Company and Parent and the
prices and trading activity of the Company Common Stock and the
Parent Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) participated in discussions and negotiations among representatives of
the Company and Parent and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related documents; and
(xi) performed such other analyses and considered such factors as we have
deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, and information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Parent. In addition, we have
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We note that we are not legal or regulatory experts and have relied upon,
without independent verification, the assessment of the Company's legal and
regulatory advisors with respect to the legal and regulatory matters related to
the Merger.
In arriving at our opinion, we were authorized to solicit, and did solicit,
interest from numerous parties with respect to an acquisition, business
combination or other extraordinary transaction involving the Company.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan, Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Parent and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing made by the Company in respect of the transaction with
the Securities and Exchange Commission. In addition, this opinion does not in
any manner address the prices at which the Holdco Common Stock or the SAILS
security units of Holdco or Parent, as the case may be, will trade following
consummation of the Merger and Morgan Stanley expresses no opinion or
ANNEX IV
IV-3
<PAGE> 246
[MORGAN STANLEY DEAN WITTER]
recommendation as to how the shareholders of the Company should vote at the
shareholders meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of Company Common
Shares pursuant to the Merger Agreement is fair from a financial point of view
to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: [DANIEL B. MORE SIGNATURE]
Managing Director
ANNEX IV
IV-4
<PAGE> 247
ANNEX V
[SALOMON SMITH BARNEY LETTERHEAD]
February 27, 2000
Board of Directors
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA 20171-4600
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of shares of the common stock, par value $0.01 per share
("Company Common Stock"), of Columbia Energy Group (the "Company") of the
consideration to be received by such holders in connection with the proposed
merger contemplated by the Agreement and Plan of Merger (the "Agreement"), dated
as of February 27, 2000, between the Company and Nisource Inc. ("Parent").
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, (i) as promptly as practicable following the execution
of the Agreement, Parent will cause to be organized Parent Holdco ("Holdco"),
which will be 100% owned by Parent, and Holdco will cause to be organized Parent
Acquisition Corp. ("PAC") and Company Acquisition Corp. ("CAC"), each of which
will be 100% owned by Holdco.
At the effective time, (A) PAC will merge with and into Parent (the "Parent
Merger") and each issued and outstanding common share, without par value, of
Parent (the "Parent Common Stock") (other than shares held in the treasury of
Parent or owned by any Subsidiary (as defined in the Agreement) of Parent, which
shall be canceled) shall be converted into one share of Holdco common stock,
without par value (the "Holdco Common Stock") and (B) CAC will merge with and
into the Company (the "Company Merger" and, together with the Parent Merger, the
"Merger") and each issued and outstanding share of Company Common Stock (other
than Dissenting Shares (as defined in the Agreement), shares owned by Parent or
any Subsidiary of Parent, which shall be canceled, and shares held in the
treasury of the Company or owned by any Subsidiary of the Company, which shall
be canceled (collectively, "Excluded Shares")) shall be converted into the right
to receive, at the election of the holders of such shares, either (1) the sum of
(x) $70 in cash, without interest, plus (y) $2.60 in face value of Holdco SAILS
security units having the terms set forth in Annex A to the Agreement, plus (z)
the Additional Amount (as defined below), if any (the "Cash and Units
Consideration") or (2) a number, in no event to be greater than 4.4848, of
shares of Holdco Common Stock determined by dividing $74 by the Average Parent
Share Price (as defined in the Agreement), plus the Additional Amount, if any
(the "Stock Consideration"). The "Additional Amount" means an amount in cash
equal to 7% interest on $72.29 for the period beginning on the first anniversary
of the Agreement, and ending on the day prior to the closing of the Merger
(calculated on a per annum basis of a 365-day year) less all cash dividends paid
on the Company Common Stock with respect to a record date
SALOMON SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013
ANNEX V
V-1
<PAGE> 248
occurring after the first anniversary of the Agreement; provided, however, that
the Additional Amount shall not be a negative number. The Agreement provides
that, notwithstanding the elections of holders of shares of Company Common
Stock, (i) no greater than 30% of the outstanding shares of Company Common Stock
will be converted into the right to receive the Stock Consideration and (ii) if
less than 10% of the outstanding shares of Company Common Stock elect the Stock
Consideration, all shares of Company Common Stock will be converted into the
Cash and Units Consideration, provided that Parent SAILS security units will be
delivered in lieu of Holdco SAILS security units. Dissenting Shares shall not be
converted into the right to receive the Cash and Units Consideration, the Stock
Consideration or the Alternative Structure Merger Consideration, as the case may
be, unless and until the holder of such shares shall have failed to perfect or
shall have withdrawn or lost his right to appraisal and payment, as the case may
be, at which time such shares shall be deemed to have been converted into the
right to receive the Cash and Units Consideration, without any interest thereon.
Notwithstanding the foregoing, if Parent fails to obtain the necessary
shareholder approvals to consummate the Parent Merger, (i) the Parent Merger
will not be consummated and (ii) at the effective time of the Company Merger,
each issued and outstanding share of Company Common Stock (other than Excluded
Shares) shall, in lieu of being converted as provided in the preceding
paragraph, be converted into the right to receive the sum of (x) $70 in cash,
without interest, plus (y) $3.02 in face value of Parent SAILS security units
having the terms set forth in Annex A to the Merger Agreement, plus (z) the
Additional Amount, if any (the "Alternative Structure Merger Consideration" and,
together with the Cash and Units Consideration and the Stock Consideration, the
"Merger Consideration").
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following; (i) certain publicly available information
concerning the Company; (ii) certain internal information, primarily financial
in nature, including projections, concerning the business and operations of the
Company, furnished to us by the Company for purposes of our analysis; (iii)
certain publicly available information concerning the trading of, and the
trading market for, Company Common Stock; (iv) certain publicly available
information concerning Parent; (v) certain internal information, primarily
financial in nature, including projections, concerning the business and
operations of the Parent, furnished to us by the Parent for purposes of our
analysis; (vi) certain publicly available information concerning the trading of,
and the trading market for, Parent Common Stock; (vii) certain publicly
available information with respect to certain other companies that we believe to
be comparable to the Company or Parent and the trading markets for certain of
such other companies' securities; and (viii) certain publicly available
information concerning the nature and terms of certain other transactions that
we consider relevant to our inquiry. We further have considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant. We also have met with certain
officers and employees of the Company to discuss the foregoing as well as other
matters that we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of such
information and have further relied upon the
ANNEX V
V-2
<PAGE> 249
assurances of management of the Company that they are not aware of any facts
that would make any of such information inaccurate or misleading. We have not
conducted a physical inspection of any of the properties or facilities of the
Company or Parent, nor have we made or obtained or assumed any responsibility
for making or obtaining any independent evaluations or appraisals of any of such
properties or facilities, nor have we been furnished with any such valuations or
appraisals. With respect to financial projections, we have been advised by the
managements of the Company and Parent and have assumed that they were reasonably
prepared and reflect the best currently available estimates and judgment of the
managements of the Company and Parent as to the future financial performance of
the Company and Parent, respectively, and we express no view with respect to
such projections or the assumptions on which they were based.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and Parent; (ii) the business prospects of the Company and Parent; (iii)
the historical and current market for Company Common Stock, Parent Common Stock
and for the equity securities of certain other companies that we believe to be
comparable to the Company or Parent; and (iv) the nature and terms of certain
other merger transactions that we believe to be relevant. We have also taken
into account our assessment of general economic, market and financial conditions
as well as our experience in connection with similar transactions and securities
valuation generally. This opinion does not in any manner address the price at
which the Holdco Common Stock or the SAILS security units of Holdco or Parent,
as the case may be, will trade following the Merger. Our opinion necessarily is
based upon conditions as they exist and can be evaluated on the date hereof, and
we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion is, in any
event, limited to the fairness, from a financial point of view, of the Merger
Consideration to the holders of the Company Common Stock and does not constitute
a recommendation as to how holders of Company Common Stock should vote with
respect to the Merger or the transactions contemplated thereby.
We have acted as financial advisors to the Company in connection with the
Merger and will receive a fee for such services, a substantial portion of which
is contingent upon consummation of the Merger. In addition, in the ordinary
course business, we and our affiliates may actively trade the securities of the
Company and Parent for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We and our affiliates (including Citigroup Inc.) may have other business
relationships with the Company or Parent.
This opinion is intended solely for the benefit and use of the Company in
considering the transaction to which it relates and may not be used for any
other purpose or reproduced, disseminated, quoted or referred to (other than in
the Agreement) at any time, in any manner or for any purpose, without the prior
written consent of Salomon Smith Barney, except that this opinion may be
reproduced in full in, and references to this opinion and to Salomon Smith
Barney and its relationship with the Company (in each case in such form as
Salomon Smith Barney shall approve) may be included in, the proxy statement the
Company distributes to its shareholders in connection with the Merger.
ANNEX V
V-3
<PAGE> 250
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to the holders of the Company Common Stock.
Very truly yours,
By: [/s/ SALOMON SMITH BARNEY]
SALOMON SMITH BARNEY
ANNEX V
V-4
<PAGE> 251
ANNEX VI
NISOURCE INC.
1994 LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)
WHEREAS, NiSource Inc. (formerly NIPSCO Industries, Inc.) (the "Company")
adopted the NIPSCO Industries, Inc. 1994 Long-Term Incentive Plan effective
April 13, 1994, as last amended and restated effective April 14, 1999, and now
known as the NiSource Inc. 1994 Long-Term Incentive Plan ("Plan"); and
WHEREAS, pursuant to Section 20 of the Plan, the Company wishes to further
amend the Plan in certain respects and restate it in a single document;
NOW THEREFORE, the Plan is hereby amended and restated, effective January
1, 2000, as follows:
1. PURPOSE. The purpose of the NiSource Inc. 1994 Long-Term Incentive Plan
(the "Plan") is to further the earnings of NiSource Inc. (the "Company") and its
subsidiaries. The Plan provides long-term incentives to those officers and key
executives who make substantial contributions by their ability, loyalty,
industry and invention. The Company intends that the Plan will thereby
facilitate securing, retaining, and motivating management employees of high
caliber and potential.
2. ADMINISTRATION. The Plan shall be administered by the Nominating and
Compensation Committee ("Committee") of the Board of Directors of the Company
("Board"). The Committee shall be composed of not fewer than two members of the
Board who are "nonemployee directors" of the Company within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"), and
"outside directors" of the Company within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended, ("Code"), and the regulations
thereunder. Subject to the express provisions of the Plan, the Committee may
interpret the Plan, prescribe, amend and rescind rules and regulations relating
to it, determine the terms and provisions of awards to officers and other key
executive employees under the Plan (which need not be identical), and make such
other determinations as it deems necessary or advisable for the administration
of the Plan. The decisions of the Committee under the Plan shall be conclusive
and binding. No member of the Board or of the Committee shall be liable for any
action taken, or determination made, hereunder in good faith. Service on the
Committee shall constitute service as a director of the Company so that members
of the Committee shall be entitled to indemnification and reimbursement as
directors of the Company, pursuant to its by-laws.
3. COMMON SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of
subsection 3(b), the shares that may be issued, or may be the measure of stock
appreciation rights granted, under the Plan shall not exceed in the aggregate
11,000,000 of the common shares without par value of the Company (the "Common
Shares"). Such shares may be authorized and unissued shares or treasury shares.
Except as otherwise provided herein, any shares subject to an option or right
which for any reason expires or is terminated, unexercised as to such shares,
shall again be available under the Plan.
ANNEX VI
VI-1
<PAGE> 252
(b) (i) Appropriate adjustments in the aggregate number of Common Shares
issuable pursuant to the Plan, the number of Common Shares subject to each
outstanding award granted under the Plan, the option price with respect to
options and connected stock appreciation rights, the specified price of stock
appreciation rights not connected to options, and the value for Units, shall be
made to give effect to any increase or decrease in the number of issued Common
Shares resulting from a subdivision or consolidation of shares, whether through
recapitalization, stock split, reverse stock split, spin-off, spin-out or other
distribution of assets to stockholders, stock distributions or combinations of
shares, payment of stock dividends, other increase or decrease in the number of
such Common Shares outstanding effected without receipt of consideration by the
Company, or any other occurrence for which the Committee determines an
adjustment is appropriate.
(ii) In the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, or an acquisition by the
Company of the stock or assets of any other corporation or corporations, there
shall be substituted on an equitable basis, as determined by the Committee in
its sole discretion, for each Common Share then subject to the Plan, and for
each Common Share then subject to an award granted under the Plan, the number
and kind of shares of stock, other securities, cash or other property to which
the holders of Common Shares of the Company are entitled pursuant to such
transaction.
(iii) Without limiting the generality of the foregoing provisions of this
paragraph, any such adjustment shall be deemed to have prevented any dilution or
enlargement of a participant's rights, if such participant receives in any such
adjustment, rights that are substantially similar (after taking into account the
fact that the participant has not paid the applicable option price) to the
rights the participant would have received had he exercised his outstanding
award and become a shareholder of the Company immediately prior to the event
giving rise to such adjustment. Adjustments under this paragraph shall be made
by the Committee, whose decision as to the amount and timing of any such
adjustment shall be conclusive and binding on all persons.
4. PARTICIPANTS. Persons eligible to participate shall be limited to those
officers and other key executive employees of the Company and its subsidiaries
who are in positions in which their decisions, actions and counsel significantly
impact upon profitability. Directors who are not otherwise officers or employees
shall not be eligible to participate in the Plan.
5. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of stock
options (both options designed to satisfy statutory requirements necessary to
receive favorable tax treatment pursuant to any present or future legislation
and options not designed to so qualify), incentive stock options, stock
appreciation rights, performance units, restricted shares, contingent stock
awards, or such combinations of the above as the Committee may in its discretion
deem appropriate. Except in accordance with equitable adjustments as provided in
subsection 3(b), no stock option granted under the Plan shall at any time be
repriced or subject to cancellation and replacement.
6. SECTION 162(M) LIMITATIONS. Subject to subsection 3(b) of the Plan, the
maximum number of stock options and stock appreciation rights granted to any
person who qualifies as an executive officer named from time to time in the
summary compensation table in the Company's annual meeting proxy statement and
who is employed by the Company on the last day of the taxable year (the "SCT
Executives") shall be 300,000 options and stock appreciation rights with respect
to Common Shares per
ANNEX VI
VI-2
<PAGE> 253
year and 1,500,000 options and stock appreciation rights with respect to Common
Shares during the term of the Plan. The maximum number of performance units
granted to any SCT Executive shall be 200,000 units per year, provided that no
more than 400,000 units may be awarded in any three year period and that the
maximum number of units granted to any SCT Executive during the term of the Plan
shall be 750,000. The maximum number of restricted stock awards granted to any
SCT Executive shall be 200,000 Common Shares per year, provided that no more
than 400,000 Shares of restricted stock may be awarded in any three-year period
and that the maximum number of Shares of restricted stock granted to any SCT
Executive during the term of the Plan shall be 750,000. The maximum number of
contingent stock awards granted to any SCT Executive shall be 200,000 Common
Shares per year provided that no more than 400,000 Common Shares may be subject
to contingent stock awards granted in any three year period and the maximum
number of Common Shares subject to contingent stock awards to any SCT Executive
during the term of the Plan shall be 750,000.
7. NONQUALIFIED STOCK OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with the Plan as the Committee
shall approve from time to time, which agreements shall contain in substance the
following terms and conditions:
(A) OPTION PRICE. The purchase price per Common Share deliverable upon
the exercise of an option shall not be less than 100% of the fair market
value of a Common Share on the day the option is granted, as determined by
the Committee. Fair market value of Common Shares for purposes of the Plan
shall be the average of the high and low prices on the New York Stock
Exchange Composite Transactions on the date of the grant, or on any other
applicable date.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option
exercise period shall not commence earlier than six months after the date
of the grant of the option nor end later than ten years after the date of
the grant of the option. The Committee shall have the power to permit in
its discretion an acceleration of the previously determined exercise terms,
within the terms of the Plan, under such circumstances and upon such terms
and conditions as it deems appropriate.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any stock option agreement, the optionee shall pay the purchase price of
the Common Shares upon the exercise of any option (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such payment procedures comply with
Regulation T issued by the Federal Reserve Board), (iii) by delivering
Common Shares having an aggregate fair market value on the date of exercise
equal to the option exercise price, (iv) by directing the Company to
withhold such number of Common Shares otherwise issuable upon exercise of
such option having an aggregate fair market value on the date of exercise
equal to the option exercise price, (v) by such other medium of payment as
the Committee, in its discretion, shall authorize at the time of grant, or
(vi) by any combination of (i), (ii), (iii), (iv) and (v). In the case of
an election pursuant to (i) or (ii) above, cash shall
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mean cash or check issued by a federally insured bank or savings and loan
association, and made payable to NiSource Inc. In the case of payment
pursuant to (ii), (iii) or (iv) above, the optionee's election must be made
on or prior to the date of exercise and shall be irrevocable. In lieu of a
separate election governing each exercise of an option, an optionee may
file a blanket election with the Committee which shall govern all future
exercises of options until revoked by the optionee. The Company shall
issue, in the name of the optionee, stock certificates representing the
total number of Common Shares issuable pursuant to the exercise of any
option as soon as reasonably practicable after such exercise, provided that
any Common Shares purchased by an optionee through a broker-dealer pursuant
to clause (ii) above, shall be delivered to such broker-dealer in
accordance with 12 C.F.R. sec. 220.3(e)(4), or other applicable provision
of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that
the option subject thereto is not transferable by the optionee otherwise
than by will or the laws of descent or distribution. Notwithstanding the
preceding sentence, an optionee, at any time prior to his death, may assign
all or any portion of the option to (i) his spouse or lineal descendant,
(ii) the trustee of a trust for the primary benefit of his spouse or lineal
descendant, or (iii) a tax-exempt organization as described in Section
501(c)(3) of the Code. In such event the spouse, lineal descendant, trustee
or tax-exempt organization will be entitled to all of the rights of the
optionee with respect to the assigned portion of such option, and such
portion of the option will continue to be subject to all of the terms,
conditions and restrictions applicable to the option as set forth herein,
and in the related stock option agreement, immediately prior to the
effective date of the assignment. Any such assignment will be permitted
only if (i) the optionee does not receive any consideration therefor, and
(ii) the assignment is expressly approved by the Committee or its delegate.
Any such assignment shall be evidenced by an appropriate written document
executed by the optionee, and a copy thereof shall be delivered to the
Committee or its delegate on or prior to the effective date of the
assignment. This paragraph shall apply to all nonqualified stock options
granted under the Plan at any time.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an
optionee ceases to be an employee for any reason other than death,
disability or retirement, the optionee shall have the right to exercise the
option during its term within a period of thirty days after such
termination to the extent that the option was exercisable at the date of
such termination of employment, or during such other period and subject to
such terms as may be determined by the Committee. In the event that an
optionee dies, retires, or becomes disabled prior to termination of his
option without having fully exercised his option, the optionee or his
successor shall have the right to exercise the option during its term
within a period of three years after the date of such termination due to
death, disability or retirement, to the extent that the option was
exercisable at the date of termination due to death, disability or
retirement, or during such other period and subject to such terms as may be
determined by the Committee. For purposes of the Plan, the term
"disability" shall mean disability as defined in the Company's Long-Term
Disability Plan. The Committee, in its sole discretion, shall determine the
date of any disability. For purposes of the Plan, the term "retirement"
shall mean retirement as defined in the Company's pension plan.
ANNEX VI
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8. INCENTIVE STOCK OPTIONS. Incentive stock options shall be evidenced by
stock option agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) OPTION PRICE. Except as otherwise provided in subsection 8(b), the
purchase price per share of stock deliverable upon the exercise of an
incentive stock option shall not be less than 100% of the fair market value
of the Common Shares on the day the option is granted, as determined by the
Committee.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option period
shall not commence earlier than six months after the date of the grant of
the option nor end later than ten years after the date of the grant of the
option. The aggregate fair market value (determined with respect to each
incentive stock option at the time of grant) of the Common Shares with
respect to which incentive stock options are exercisable for the first time
by an individual during any calendar year (under all incentive stock option
plans of the Company and its parent and subsidiary corporations) shall not
exceed $100,000. If the aggregate fair market value (determined at the time
of grant) of the Common Shares subject to an option, which first becomes
exercisable in any calendar year exceeds the limitation of this Section
8(b), so much of the option that does not exceed the applicable dollar
limit shall be an incentive stock option and the remainder shall be a
nonqualified stock option; but in all other respects, the original option
agreement shall remain in full force and effect. As used in this Section 8,
the words "parent" and "subsidiary" shall have the meanings given to them
in Section 424(e) and 424(f) of the Code. Notwithstanding anything herein
to the contrary, if an incentive stock option is granted to an individual
who owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of its parent or
subsidiary corporations, within the meaning of Section 422(b)(6) of the
Code, (i) the purchase price of each Common Share subject to the incentive
stock option shall be not less than one hundred ten percent (110%) of the
fair market value of the Common Shares on the date the incentive stock
option is granted, and (ii) the incentive stock option shall expire, and
all rights to purchase Common Shares thereunder shall cease, no later than
the fifth anniversary of the date the incentive stock option was granted.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any stock option agreement, the optionee shall pay the purchase price of
the Common Shares upon the exercise of any option, (i) in cash, (ii) in
cash received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such payment procedures comply with
Regulation T issued by the Federal Reserve Board), (iii) by delivering
Common Shares having an aggregate fair market value on the date of exercise
equal to the option exercise price, (iv) by directing the Company to
withhold such number of Common Shares otherwise issuable upon exercise of
such option having an aggregate fair market value on the date of exercise
equal to the option exercise price, (v) by such other medium of payment as
the Committee, in its
ANNEX VI
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discretion, shall authorize at the time of grant, or (vi) by any
combination of (i), (ii), (iii), (iv) and (v). In the case of an election
pursuant to (i) or (ii), cash shall mean cash or check issued by a
federally insured bank or savings and loan association, and made payable to
NiSource Inc. In the case of payment pursuant to (ii), (iii) or (iv) above,
the optionee's election must be made on or prior to the date of exercise
and shall be irrevocable. In lieu of a separate election governing each
exercise of an option, an optionee may file a blanket election with the
Committee which shall govern all future exercises of options until revoked
by the optionee. The Company shall issue, in the name of the optionee,
stock certificates representing the total number of Common Shares issuable
pursuant to the exercise of any option as soon as reasonably practicable
after such exercise, provided that any Common Shares purchased by an
optionee through a broker-dealer pursuant to clause (ii) above, shall be
delivered to such broker-dealer in accordance with 12 C.F.R. sec.
220.3(e)(4), or other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that it
is not transferable by the optionee otherwise by will or the laws of
descent or distribution.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an
optionee ceases to be an employee for any reason other than death,
disability or retirement, the optionee shall have the right to exercise the
option during its term within a period of thirty days after such
termination to the extent that the option was exercisable at the date of
such termination of employment, or during such other period and subject to
such terms as may be determined by the Committee. In the event that an
optionee dies, retires, or becomes disabled prior to termination of his
option without having fully exercised his option, the optionee or his
successor shall have the right to exercise the option during its term
within a period of three years after the date of such termination due to
death, disability or retirement, to the extent that the option was
exercisable at the date of termination due to death, disability or
retirement, or during such other period and subject to such terms as may be
determined by the Committee. Notwithstanding the foregoing, in accordance
with Section 422 of the Code, if an incentive stock option is exercised
more than ninety days after termination of employment, that portion of the
option exercised after such date shall automatically be a nonqualified
stock option, but in all other respects, the original option agreement
shall remain in full force and effect.
The provisions of this Section 8 shall be construed and applied, and
(subject to the limitations of Section 23) shall be amended from time to
time so as to comply with Section 422 or its successors of the Code and
regulations issued thereunder.
9. STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be evidenced
by stock appreciation right agreements in such form and not inconsistent with
the Plan as the Committee shall approve from time to time, which agreements
shall contain in substance the following terms and conditions:
(A) AWARDS. A stock appreciation right shall entitle the grantee to
receive upon exercise the excess of (i) the fair market value of a
specified number of shares of the Company Common Shares at the time of
exercise over (ii) a specified price which shall not be less than 100% of
the fair market value of the Common Shares at the time the stock
appreciation right was granted, or, if connected with a previously issued
stock option, not less than 100% of the fair market value of Common Shares
at the
ANNEX VI
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time such option was granted. A stock appreciation right may be granted in
connection with all of any portion of a previously or contemporaneously
granted stock option or not in connection with a stock option.
(B) TERM. Stock appreciation rights shall be granted for a period of
not less than one year nor more than ten years, and shall be exercisable in
whole or in part, at such time or times and subject to such other terms and
conditions, as shall be prescribed by the Committee at the time of grant,
subject to the following:
(i) No stock appreciation right shall be exercisable in whole or in
part, during the six-month period starting with the date of grant; and
(ii) Stock appreciation rights will be exercisable only during a
grantee's employment, except that in the discretion of the Committee a
stock appreciation right may be made exercisable for up to thirty days
after the grantee's employment is terminated for any reason other than
death, disability or retirement. In the event that a grantee dies,
retires, or becomes disabled without having fully exercised his stock
appreciation rights, the grantee or his successor shall have the right
to exercise the stock appreciation rights during their term within a
period of three years after the date of such termination due to death,
disability or retirement to the extent that the right was exercisable at
the date of such termination or during such other period and subject to
such terms as may be determined by the Committee.
The Committee shall have the power to permit in its discretion an
acceleration of previously determined exercise terms, within the terms
of the Plan, under such circumstances and upon such terms and conditions
as it deems appropriate.
(C) PAYMENT. Upon exercise of a stock appreciation right, payment
shall be made in cash, in the form of Common Shares at fair market value,
or in a combination thereof, as the Committee may determine.
10. PERFORMANCE UNITS. Performance Units ("Units") shall be evidenced by
performance unit agreements in such form and not inconsistent with the Plan as
the Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) PERFORMANCE PERIOD. At the time of award, the Committee shall
establish with respect to each Unit award a performance period of not less
than two, nor more than five, years.
(B) VALUATION OF UNITS. At the time of award, the Committee shall
establish with respect to each such award a value for each Unit which shall
not thereafter change, or which may vary thereafter determinable from
criteria specified by the Committee at the time of award.
(C) PERFORMANCE TARGETS. At the time of award, the Committee shall
establish maximum and minimum performance targets to be achieved with
respect to each award during the performance period. The participant shall
be entitled to payment with respect to all Units awarded if the maximum
target is achieved during the performance period, but shall be entitled to
payment with respect to a portion of the Units awarded according to the
level of achievement of performance targets, as
ANNEX VI
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specified by the Committee, for performance during the performance period
which meets or exceeds the minimum target but fails to meet the maximum
target.
The performance targets established by the Committee shall relate to
corporate, division, or unit performance and may be established in terms of
growth in gross revenue, earnings per share, ratio of earnings to
shareholders' equity or to total assets, dividend payments and total
shareholders' return. Multiple targets may be used and may have the same or
different weighting, and they may relate to absolute performance or
relative performance as measured against other institutions or divisions or
units thereof.
(D) ADJUSTMENTS. At any time prior to payment of the Units, the
Committee may adjust previously established performance targets and other
terms and conditions, including the corporation's, or division's or unit's
financial performance for Plan purposes, to reflect major unforeseen events
such as changes in laws, regulations or accounting practices, mergers,
acquisitions or divestitures or extraordinary, unusual or non-recurring
items or events.
(E) PAYMENTS OF UNITS. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance
targets have been attained for such period as well as the other terms and
conditions established by the Committee. The Committee shall determine
what, if any, payment is due on the Units. Payment shall be made in cash,
in the form of Common Shares at fair market value, or in a combination
thereof, as the Committee may determine.
(F) TERMINATION OF EMPLOYMENT. In the event that a participant holding
a Unit award ceases to be an employee prior to the end of the applicable
performance period by reason of death, disability or retirement, his Units,
to the extent earned under the applicable performance targets, shall be
payable at the end of the performance period in proportion to the active
service of the participant during the performance period, as determined by
the Committee. Upon any other termination of employment, participation
shall terminate forthwith and all outstanding Units held by the participant
shall be canceled.
(G) OTHER TERMS. The Unit agreements shall contain such other terms
and provisions and conditions not inconsistent with the Plan as shall be
determined by the Committee.
11. RESTRICTED STOCK AWARDS. Restricted Stock Awards under the Plan shall
be in the form of Common Shares of the Company, restricted as to transfer and
subject to forfeiture, and shall be evidenced by restricted stock agreements in
such form and not inconsistent with the Plan as the Committee shall approve from
time to time, which agreements shall contain in substance the following terms
and conditions:
(A) RESTRICTION PERIOD. Restricted Common Shares awarded pursuant to
the Plan shall be subject to such terms, conditions, and restrictions,
including without limitation: prohibitions against transfer, substantial
risks of forfeiture, attainment of performance objectives and repurchase by
the Company or right of first refusal, and for such period or periods as
shall be determined by the Committee at the time of grant. The Committee
shall have the power to permit in its discretion, an acceleration of the
expiration of the applicable restriction period with respect to any part or
all of the Common Shares awarded to a participant.
ANNEX VI
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The performance objectives established by the Committee shall relate to
corporate, division or unit performance, and may be established in terms of
growth in gross revenue, earnings per share, ratio of earnings to
shareholder's equity or to total assets, dividend payments and total
shareholders' return. Multiple objectives may be used and may have the same
or different weighting, and they may relate to absolute performance or
relative performance as measured against other institutions or divisions or
units thereof.
(B) RESTRICTIONS UPON TRANSFER. Common Shares awarded, and the right
to vote such Shares and to receive dividends thereon, may not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise
encumbered, except as herein provided, during the restriction period
applicable to such Shares. Subject to the foregoing, and except as
otherwise provided in the Plan, the participant shall have all the other
rights of a shareholder including, but not limited to, the right to receive
dividends and the right to vote such Shares.
(C) CERTIFICATES. Each certificate issued in respect of Common Shares
awarded to a participant shall be deposited with the Company, or its
designee, and shall bear the following legend:
"This certificate and the shares represented hereby are subject to
the terms and conditions (including forfeiture and restrictions against
transfer) contained in the NiSource Inc. 1994 Long-Term incentive Plan
and an Agreement entered into by the registered owner. Release from such
terms and conditions shall obtain only in accordance with the provisions
of the Plan and Agreement, a copy of each of which is on file in the
office of the Secretary of said Company."
(D) LAPSE OF RESTRICTIONS. A restricted stock agreement shall specify
the terms and conditions upon which any restrictions upon Common Shares
awarded under the Plan shall lapse, as determined by the Committee. Upon
the lapse of such restrictions, Common Shares, free of the foregoing
restrictive legend, shall be issued to the participant or his legal
representative.
(E) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event of a
participant's termination of employment, other than due to death,
disability or retirement, prior to the lapse of restrictions applicable to
any Common Shares awarded to such participant, all Shares as to which there
still remains unlapsed restrictions shall be forfeited by such participant
without payment of any consideration to the participant, and neither the
participant nor any successors, heirs, assigns, or personal representatives
of such participant shall thereafter have any further rights or interest in
such Shares or certificates.
12. CONTINGENT STOCK AWARDS. Contingent stock awards under the Plan shall
be in the form of the issuance of Common Shares of the Company following the
lapse of restrictions applicable to such awards. Such awards shall be restricted
as to transfer and subject to forfeiture, and shall be evidenced by contingent
stock award agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) RESTRICTION PERIOD. Contingent stock awards shall be subject to
such terms, conditions and restrictions, including without limitations,
prohibitions against transfer, substantial risk of forfeiture and
attainment of performance objectives, and for such
ANNEX VI
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period or periods, as shall be determined by the Committee at the time of
grant. The Committee shall have the power to permit in its discretion an
acceleration of the expiration of the applicable restriction period with
respect to any part or all of a contingent stock award.
The performance objectives established by the Committee shall relate to
corporate, division or unit performance, and may be established in terms of
growth in gross revenue, earnings per share, ratios of earnings to
shareholders' equity or to total assets, dividend payments and total
shareholders' return. Multiple objectives may be used and may have the same
or different weighting, and they may relate to absolute performance or
relative performance as measured against other institutions or divisions or
units thereof.
(B) LAPSE OF RESTRICTIONS. A contingent stock award agreement shall
specify the terms and conditions upon which any restrictions applicable to
such award shall lapse as determined by the Committee. Upon lapse of such
restriction, Common Shares subject to such contingent stock award shall be
issued to the participant or his legal representative. Such Common Shares,
when issued to the participant or his legal representative, shall either be
free of any restrictions, or shall be subject to such further restrictions,
as the Committee shall determine. In the event that Common Shares issued
pursuant to a contingent stock award are subject to further restrictions,
the certificates issued in respect of the Common Shares awarded pursuant to
the contingent stock award shall be deposited with the Company, or its
designee, and shall bear the legend set forth in subsection 11(c) above.
Upon the lapse of such restrictions, Common Shares free of such restrictive
legend shall be issued to the participant or his legal representative.
(C) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event of a
participant's termination of employment, other than due to death,
disability or retirement, prior to the lapse of restrictions applicable to
any contingent stock award granted to such participant, such award and all
Common Shares subject thereto as to which there still remain unlapsed
restrictions, shall be forfeited by such participant without payment of any
consideration to the participant and neither the participant nor any
successors, heirs, assigns or personal representatives of such participant
shall have any further rights or interests in such contingent stock awards
or such Common Shares subject to thereto.
13. SUPPLEMENTAL CASH PAYMENTS. Subject to the Company's discretion, stock
options, incentive stock options, stock appreciation rights, performance units,
restricted stock agreements or contingent stock award agreements may provide for
the payment of a supplemental cash payment to a participant promptly after the
exercise of an option or stock appreciation right, or, at the time of payment of
a performance unit, or at the end of a restriction period of a restricted stock
or contingent stock award. Supplemental cash payments shall be subject to such
terms and conditions as shall be provided by the Committee at the time of grant,
provided that in no event shall the amount of each payment exceed:
(a) In the case of an option, the excess of the fair market value of a
Common Share on the date of exercise over the option price multiplied by
the number of Common Shares for which such option is exercised, or
ANNEX VI
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(b) In the case of a stock appreciation right, performance unit,
restricted stock award or contingent stock award, the value of the Common
Shares and other consideration issued in payment of such award.
14. DIVIDEND EQUIVALENTS. Each holder of an incentive stock option, a stock
appreciation right not granted in connection with a stock option, a performance
unit award, or a contingent stock award, shall receive a distribution of an
amount equivalent to the dividends payable in cash or property (other than stock
of the Company) that would have been payable to the holder with respect to the
number of Common Shares subject to such award, had the holder been the legal
owner of such Common Shares on the date on which such dividend is declared by
the Company on Common Shares. Such dividend payable in cash or property (other
than stock of the Company) shall be payable directly to the holder of the
applicable award at such time, in such form, and upon such terms and conditions,
as are applicable to the actual cash or property dividend actually declared with
respect to Common Shares. Any participant entitled to receive a cash dividend
pursuant to this section may, by written election filed with the Company, at
least ten days prior to the date for payment of such dividend, elect to have
such dividend credited to an account maintained for his benefit under a dividend
reinvestment plan maintained by the Company. Appropriate adjustments with
respect to awards shall be made to give effect to the payment of stock dividends
as set forth in subsection 3(b) above.
15. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Common Shares subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an agreement
by the recipient of an award with respect to the disposition of Common Shares,
is necessary or desirable as a condition of, or in connection with, the granting
of such award or the issue or purchase of Common Shares thereunder, such award
may not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained, free of any conditions not acceptable to the Committee.
16. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for Common Shares are issued
to the recipient.
17. EMPLOYMENT RIGHTS. Nothing in the Plan or in any agreement entered into
pursuant to the Plan shall confer upon any participant the right to continue in
employment or affect any right which his employer may have to terminate the
employment of such participant.
18. TAX -- WITHHOLDING. Whenever the Company proposes or is required to
issue or transfer Common Shares to a participant under the Plan, the Company
shall have the right to require the participant to remit to the Company an
amount sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
Common Shares. If such certificates have been delivered prior to the time a
withholding obligation arises, the Company shall have the right to require the
participant to remit to the Company an amount sufficient to satisfy all federal,
state or local withholding tax requirements at the time such obligation arises
and to withhold from other amounts payable to the participant, as compensation
or otherwise, as necessary. Whenever payments under the Plan are to be made to a
participant in cash, such payment
ANNEX VI
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shall be net of any amount sufficient to satisfy all federal, state and local
withholding tax requirements. In lieu of requiring a participant to make a
payment to the Company in an amount related to the withholding tax requirement,
the Committee may, in its discretion, provide that, at the participant's
election, the tax withholding obligation shall be satisfied by the Company's
withholding a portion of the Common Shares otherwise distributable to the
participant, such Common Shares being valued at their fair market value at the
date of exercise, or by the participant's delivering to the Company a portion of
the Common Shares previously delivered by the Company, such Common Shares being
valued at their fair market value as of the date of delivery of such Common
Shares by the participant to the Company. For this purpose, the amount of
required withholding shall be a specified rate not less than the statutory
minimum federal, state and local (if any) withholding rate, and not greater than
the maximum federal, state and local (if any) marginal tax rate applicable to
the participant and to the particular transaction. Notwithstanding any provision
of the Plan to the contrary, a participant's election pursuant to the preceding
sentences (a) must be made on or prior to the date as of which income is
realized by the recipient in connection with the particular transaction, and (b)
must be irrevocable. In lieu of a separate election on each effective date of
each transaction, a participant may file a blanket election with the Committee
which shall govern all future transactions until revoked by the participant.
19. CHANGE IN CONTROL. (a) Effect of Change in Control. Notwithstanding any
of the provisions of the Plan or any agreement evidencing awards granted
hereunder, upon a Change in Control of the Company (as defined in subsection
19(b)) all outstanding awards shall become fully exercisable and all
restrictions thereon shall terminate in order that participants may fully
realize the benefits thereunder. Further, the Committee, as constituted before
such Change in Control, is authorized, and has sole discretion, as to any award,
either at the time such award is granted hereunder or any time thereafter, to
take any one or more of the following actions: (i) provide for the exercise of
any such award for an amount of cash equal to the difference between the
exercise price and the then fair market value of the Common Shares covered
thereby had such award been currently exercisable; (ii) provide for the vesting
or termination of the restrictions on any such award; (iii) make such adjustment
to any such award then outstanding as the Committee deems appropriate to reflect
such Change in Control; and (iv) cause any such award then outstanding to be
assumed, by the acquiring or surviving corporation, after such Change in
Control.
(b) Definition of Change in Control. A "Change in Control" of the Company
shall be deemed to have occurred if any one of the occurrences of a "Change in
Control" set forth in the Change in Control and Termination Agreements between
the Company and certain executive officers thereof shall have been satisfied.
20. AMENDMENT OR TERMINATION. The Board or the Committee may at any time
terminate, suspend or amend the Plan without the authorization of shareholders
to the extent allowed by law, including without limitation any rules issued by
the Securities and Exchange Commission under Section 16 of the 1934 Act, insofar
as shareholder approval thereof is required in order for the Plan to continue to
satisfy the requirements of Rule 16b-3 under the 1934 Act, or the rules of any
applicable stock exchange. No termination, suspension or amendment of the Plan
shall adversely affect any right acquired by any participant under an award
granted before the date of such termination, suspension or amendment, unless
such participant shall consent; but it shall be conclusively presumed
ANNEX VI
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that any adjustment for changes in capitalization as provided for herein does
not adversely affect any such right. Subject to the preceding sentence, the Plan
as amended and restated effective January 1, 2000 shall apply to all awards at
any time granted hereunder.
21. EFFECT ON OTHER PLANS. Unless otherwise specifically provided,
participation in the Plan shall not preclude an employee's eligibility to
participate in any other benefit or incentive plan and any awards made pursuant
to the Plan shall not be considered as compensation in determining the benefits
provided under any other plan.
22. ASSUMPTION OF OPTIONS. Pursuant to the terms of Section 5.22 of the
Amended and Restated Agreement and Plan of Merger by and among the Company,
Acquisition Gas Company, Inc., a wholly owned subsidiary of the Company, and Bay
State Gas Company ("Bay State"), dated as of December 18, 1997 and amended and
restated as of March 4, 1998 and further amended as of November 16, 1998 (as may
be further amended, restated or supplemented, the "Agreement"), and at the
Effective Time defined in the Agreement, each outstanding stock option issued
under the Bay State Gas Company 1989 Key Employee Stock Option Plan ("Bay State
Stock Option Plan"), shall be assumed by the Company. Each such stock option
("Assumed Option") shall be deemed to constitute an option to acquire Common
Shares in an amount and at a purchase price determined pursuant to Section 5.22
of the Agreement. Each Assumed Option shall be subject to all of the terms and
conditions applicable to options granted under the Plan. Notwithstanding the
preceding sentence:
(1) if the employment of the holder of an Assumed Option with the
Company and its subsidiaries terminates for any reason other than death,
disability, retirement or Cause, he, or his legal representatives or
beneficiary, may exercise the Assumed Option at any time within three
months immediately following such termination of employment, but not later
than the expiration of the term of such Assumed Option;
(2) if the holder of an Assumed Option that is a non-qualified stock
option terminates employment with the Company and its subsidiaries because
of death, disability or retirement, he, or his legal representatives or
beneficiary, may exercise the Assumed Option at any time during the term of
such Assumed Option to the extent he was entitled to exercise it at the
date of death, disability or retirement;
(3) if the holder of an Assumed Option that is an incentive stock
option terminates employment with the Company and its subsidiaries because
of death, his legal representatives or beneficiary may exercise the Assumed
Option at any time during the term of such Assumed Option to the extent he
was entitled to exercise it at the date of death;
(4) if the holder of an Assumed Option that is an incentive stock
option terminates employment with the Company and its subsidiaries because
of disability or retirement, he, or his legal representatives or
beneficiary, may exercise the Assumed Option at any time within three
months immediately following such termination of employment, but not later
than the expiration of the term of such Assumed Option;
(5) if the employment of the holder of an Assumed Option with the
Company and its subsidiaries terminates for Cause, the Assumed Option shall
expire as of the date of such termination of employment.
For purposes of this Section, "Cause" shall have the same meaning as
defined in the holder's severance agreement with the Company or any of its
subsidiaries in effect on the date of termination of employment. If the holder
has not entered into a severance
ANNEX VI
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agreement with the Company or any subsidiary that is in effect on the date of
termination of employment, or if the term "Cause" is not defined therein, Cause
shall mean the holder's conviction for the commission of a felony, or the
holder's fraud or dishonesty which has resulted in or is likely to result in
material economic damage to the Company or any subsidiary. Each Assumed Option
shall be evidenced by an amended and restated stock option agreement entered
into as of the Effective Time by and among the Company, Bay State and the
applicable optionee.
23. DURATION OF THE PLAN. The Plan shall remain in effect until all awards
under the Plan have been satisfied by the issuance of Common Shares or the
payment of cash, but no award shall be granted more than six years after the
date the Plan, as amended and restated effective January 1, 2000, is approved by
the shareholders, which shall be its effective date of adoption.
ANNEX VI
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